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Edited Transcript of FTAI earnings conference call or presentation 1-Nov-19 12:00pm GMT

Q3 2019 Fortress Transportation and Infrastructure Investors LLC Earnings Call

New York Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Fortress Transportation and Infrastructure Investors LLC earnings conference call or presentation Friday, November 1, 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

* Brandon Robert Oglenski

Barclays Bank PLC, Research Division - VP & Senior Equity Analyst

* 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

* 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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Ladies and gentlemen, thank you for standing by, and welcome to the Fortress Transportation and Infrastructure third quarter earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the call over to your conference speaker today, Alan Andreini. Please go ahead, sir.

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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 all of you to the Fortress Transportation and Infrastructure Third 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 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 reconciliations 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 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 18th dividend as a public company and our 33rd consecutive dividend since inception. The dividend of $0.33 per share will be paid on November 26, based on a shareholder record date of November 15.

The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q3 2019 was $114.1 million compared to Q2 of 2019 of $94.1 million and Q3 of 2018 of $58.8 million. FAD was $120.7 million in Q3 versus $86.9 million in Q2 of 2019 and $44.7 million in Q3 of 2018.

During the third quarter, the $120.7 million FAD number was comprised of $185.7 million from our aviation leasing portfolio, minus $32.1 million from infrastructure, which includes a onetime revolver pay down of $23 million which happened in this quarter and negative $32.9 million from corporate and other.

Now let's turn to aviation. In Q3, aviation hit on all cylinders. Strong asset utilization drove record EBITDA, excluding gains of $89.7 million or $358.8 million annualized, up from $324 million in Q2. Second, the sale of 21 engines and 5 aircraft with a book value of $57.7 million produced gains of $37 million. And thirdly, our attractive new investment pipeline will allow us to generate continued growth in Q4 this year and in 2020 ahead.

Run rate EBITDA increased nearly 11% over Q2 2019 due to new investments that were made in Q2, new leases in Q3 that came on and generally high utilization of engines. Importantly, the assets that we sold this quarter were mostly either off-lease or scheduled for overhaul. So the EBITDA contribution of those assets sold was less than $400,000 per quarter. In Q3, we closed $76 million of investments and expect over $200 million investments in Q4, bringing total new investments for all of 2019 to over $500 million gross and $400 million net of disposals.

Profitability metrics exceeded our targets with EBITDA to invested capital of 28.7% and an ROE of 15.4%. Next year, 2020 promises to be a very exciting year for aviation, with the expected commercial launch of the first products from our advanced engine repair joint venture. We have begun active discussions with many of the largest airlines in the world and believe our timing with the introduction of these proprietary cost saving engine repair products is perfect.

Now let's turn to offshore. The offshore marine industry, while still oversupplied, generally continues to show signs of recovery. Offshore spending is expected to grow modestly over 2019 and 2020 and is anticipated to be an outsized contributor to upstream spending over the next several years. As we have previously stated, The Pride is being converted from an inspection maintenance repair-only vessel into a vessel that can perform well intervention and well enhancement services. And the well intervention market is experiencing very high utilization, and as such, charter rates in 2020 are going up, which is good news for us. Finally, our vessel fleet now has reduced to 2 from 3 as the third vessel experienced a total loss casualty event, which was fully covered by insurance. We received $10 million in cash and booked a $1 million gain.

The highlights of Jefferson's third quarter include: One, a 40% growth in third-party crude volume compared to second quarter 2019, including barrels committed by a large Canadian producer. Those barrels will supply refineries in the U.S. Gulf Coast regional markets and also be loaded on to ships for export. This first export shipment expands Jefferson's crude reach globally and will open the door for additional opportunities and customers.

Secondly, material progress was made on our 3 pipeline connection projects, all of which will be operating in the second half of 2020. And they are, firstly, the inbound crude pipeline connection to the pay line which gives Jefferson access to barrels from Cushing and the Permian for refineries supply and blending with Canadian and Uinta Basin barrels brought in by rail. Second, our outbound crude pipeline to Port Arthur and direct connection to Motiva, who is our largest customer and the largest refinery in North America owned by Saudi Aramco. And thirdly, multiple pipelines under the Neches River, connecting us with Exxon's Beaumont refinery, which is undergoing expansion to become the largest refinery in North America in 2021.

Refined products to Mexico at Jefferson was essentially flat versus Q2 due to delays in obtaining permits for new receiving tanks in Mexico. These issues have largely been resolved, and we expect volumes to begin increasing shortly. Somewhat offsetting these gains, our Canadian crude marketing program did not contribute positively due to the WCS WTI spread remaining at low levels due to continuing Alberta crude production limits. Going forward, we expect to only participate in these moves on a purely opportunistic basis, but given the growth in our third-party committed volumes, that is just fine. With the increased velocity of products through the terminal, enabled by the coming pipeline connectivity, the rapid ramp in EBITDA at Jefferson is about to start.

Turning now to the Central Maine & Québec railroad. The railroad had EBITDA of $1.9 million as compared to $1.0 million in Q2 of 2019 and $700,000 in Q3 of 2018. The car cleaning operation is ramping up, and we are seeing multiple repeat customers.

Turning now to Repauno. We continue to make good progress with the rail-to-ship natural gas liquids export project, what we call Phase 1. Construction of the project has begun, and we expect to be operational at the end of Q2 2020.

We are in active negotiations with multiple counterparties for 3-year take-or-pay contracts, and we expect to sign those agreements shortly. Additionally, the butane cavern operations are going well, and we anticipate generating a margin of between $2.5 million to $3 million annually, with

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realized in Q4 of this year.

Turning to Long Ridge. After a slow Q2, due in large part to flooding on the Ohio River, frac sand operations are back on

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between $5 million to $6 million in EBITDA this year. In fact, we just signed a new contract with one of the largest sand companies, which requires them to use Long Ridge exclusively with an agreed-upon radius.

The power plant construction is well underway. We're completing the underground piping and have begun pouring concrete foundations. The project remains on schedule and on budget with completion set for no later than November 2021. And the low gas price environment is presenting us with opportunities to obtain even lower cost gas to the power plant relative to our original plan which projected annual EBITDA of $120 million. The bottom line is Long Ridge is ahead of plan.

To conclude, today, we have approximately $1.4 billion invested in equipment, which is primarily commercial jet engines, and approximately $800 million invested in infrastructure equity. Engine leasing and management is a terrific business with high sustainable returns and lots of investment opportunities.

On infrastructure, private market values today are meaningfully higher than public market values. So we are monetizing these investments to return capital and generate gains to reinvest in the high return jet engine business. We have 2 asset sales well underway, the CMQ railroad and a 50% interest in the Long Ridge energy power plant. Both processes are in advanced stages, and we expect to have agreements signed soon. Assuming these market conditions continue, we will look to more infrastructure monetizations in 2020.

So with that, I will 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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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Justin Long with Stephens.

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

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To start, Joe, I was wondering if you could expand on that last point around potentially monetizing some of the company's infrastructure assets going forward. You mentioned that you've invested around $800 million in these assets. Could you maybe provide a little bit more color on what you feel like you could get for those assets in today's market? And how you would think about redeploying that capital? It sounds like aviation would be a primary focus there, but would love to get your thoughts.

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

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Sure. Good question. I'm not going to project asset values individually or really in total, except to say that I think every asset that we've invested in, in infrastructure is worth more than what we've -- our cost basis. And so I expect to have gains from everything we sell. And -- so if you take some math around that, what I was thinking about $800 million invested in infrastructure, if you pick a number and say, we monetized that for $1 billion, just as an example, and we reinvest all of that in aviation, our target EBITDA return from aviation is 25%, which we've been consistently achieving. So that would be an incremental $250 million in EBITDA. And if you add that to the $350 million on our current portfolio, that would be $600 million in EBITDA. And if you think, well, aviation should probably trade at least at an 8x EBITDA multiple, then I could probably argue a higher number, but pick 8, that's $4.8 billion, and you have $1.2 billion of debt. So the equity value would be $3.6 billion, which is a $40 stock price. So that's kind of -- when we sort of think about an endpoint and where we could try to -- what we could try to achieve, I think that's not a bad road map.

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

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Great. That's really helpful. And secondly, I think last quarter, you mentioned that Jefferson was capable of $100 million in EBITDA on a run rate basis, sometime around the middle of next year. Is that still your expectation? And could you share how much of that $100 million is related to crude by rail versus other areas of cash generation?

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

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Yes, I do believe that's achievable by the latter half of next year, 2020. If you think about -- when I think about Jefferson, we've indicated that for every 1 million barrels of storage, you generate typically $10 million to $15 million in annual EBITDA. And the terminal starts the year with $20 million of fixed costs. So the first 2 million barrels, which is where we were at the end of 2019 -- 2018 we're covering our costs and breaking even EBITDA. And incrementally, then what you do is you add storage and you increase the amount of turns that you can get off of that storage. And so at the end of this year, we'll end with 4 million barrels of storage. We're targeting potentially up to 6 million next year, and it could go higher than that. And then in addition, with the pipeline connectivity, we should significantly increase the velocity of product that flows through the terminal. So that's how you -- those are sort of the building blocks to get to the $100 million that I think is very achievable.

The mix between crude-by-rail and other products, I think, it's probably going to be 2/3 crude through the terminal and 1/3 refined products. But there are a couple of big projects out in the market now that could swing back towards refined products. So its -- that's a good thing. It's just that I can't accurately predict the mix. And it's really not substantively different to us. I think we do make -- the highest contribution we will make is by moving barrels in from Canada by rail, storing them, then blending them and then shipping them out. And so we get -- that's kind of -- that's the full Chinese menu of fees. And -- but the other businesses, you could have refined products, and you might have a refined products tank that you could turn the tank 4, 5x a month. So it's all -- it's all good.

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Operator [6]

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And our next question comes from the line of Brandon Oglenski with Barclays.

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Brandon Robert Oglenski, Barclays Bank PLC, Research Division - VP & Senior Equity Analyst [7]

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Joe, I guess, I wanted to come back to the discussion on aviation. I mean you guys are clearly doing a pretty decent job with that portfolio, but obviously, benefiting from the MAX being grounded. But I think you also mentioned something about your joint venture on the engine repair side. I know this is something that's come up a couple of times now. Can you just tell us a little bit more about the scope and scale of that project?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [8]

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Yes. So as I mentioned, 2020 will be a big year for that. We expect to have the first products available and approved so that we could be selling products out of the joint venture to the broad airline market in 2020. And it really is focused on the CFM56 engine. So -- which is -- for those of you who remember, it's the engine I always talk about. So it's the biggest engine market in the world.

Just to put some -- and in that joint venture, we can make money and have a big contribution, a lot of upside, at least 2 different ways. And I'd say at least because there's other things that are in development, which we could add to. But the first way is that we own 25% of the joint venture, the equity of that. And so as an owner, there'll be about 15,000 engines that will be in the aftermarket, in other words not covered by power-by-the-hour contracts in the near future. So that represents approximately about 3,000 shop visits a year. And when we went into the joint venture based on historical precedent, it's not unreasonable to assume that we could capture 5% to 10% of the market. So that represents between 150 and 300 shop visits that we could supply and service out of the joint venture which means that our 25% interest in that based on the margins would produce between $50 million and $100 million per annum of profits to us, with no additional capital. So that's number one, which is pretty good.

And our total investment, to remind people, in the joint venture is $30 million. So that's number one. The second way we make money is that we have, as part of the joint venture agreement, we have the right to buy those products from the joint venture at cost. In other words, with no profit, no markup for the manufacturer or the producer of those. And that represents, for every shop visit we do, we're estimating that we can save $2 million off of the list price from the original equipment manufacturer per shop visit. So if our fleet of engines is 300 -- pick a number, 300 engines and we're shopping 60 a year, that's another $120 million of savings for us, per annum. So $50 million to $100 million from owning the JV and over $100 million from being able to buy from the JV at cost.

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Brandon Robert Oglenski, Barclays Bank PLC, Research Division - VP & Senior Equity Analyst [9]

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I appreciate that, Joe. And what's the timing or the proposed timing on when this is going to really ramp up?

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

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It will be in stages. I think we expect to have the first product available in the first half of the year and the second product in the second half of the year, and then we've got additional products coming behind that so that we would have -- we expect all of the products to be available by 2022.

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Brandon Robert Oglenski, Barclays Bank PLC, Research Division - VP & Senior Equity Analyst [11]

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Okay. I appreciate that. It sounds pretty exciting. And then, I guess, to your comments at the end of the prepared remarks here. When -- you went to IPO. I guess the idea was we can invest across infrastructure and equipment leasing cycles and really take advantage of when asset values come up and come down. Should we be thinking long term now that this is just becoming more of an aviation leasing company? Or do you still see infrastructure playing a pretty significant role going forward?

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

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I don't know. To be straight I think the conditions that exist today and you see it from not just us or many other people is the private market values of infrastructure are much higher than the public market values. So -- and we'll make good money off of our infrastructure investments, whether we -- whether we do that again or repeat in this company, I don't know.

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Operator [13]

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

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [14]

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Great. First question, just on -- Canada made some statements around production and crude-by-rail, and you saw WCS, WTI blow out a little bit on the announcement along with the leak at the Keystone Pipeline. And so I'm just curious what you think the implications are on crude-by-rail at Jefferson and how you're thinking about implications of that, along with all the other comments you made about Jefferson?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [15]

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It's positive for crude-by-rail and for us. It -- the Alberta government is encouraging producers effectively to use rail, which is great. And I think what I've said over the next 3 to 4 years, most industry participants see the crude-by-rail market as being a very strong and very active from the Canadian market. And so we're well positioned to capture that. We have a Canadian producer, as I mentioned, that just took storage in our terminal, which is the first time that has happened in addition to local refiners having a position, we have a producer. So I see more of that coming over the next 3 to 4 years as do most people.

Beyond that, as I mentioned, we have been investing in time and not money yet, but time in helping encourage and hopefully developing a diluent recovery unit, a DRU. And that's made progress. And I think that a DRU project is very likely going to be firmed up by the end of the year, which means you'd have a permanent supply of crude moving by rail. And I mean permanent, meaning 10 to 15 years because we invest in the hardware to make that happen. You're going to -- we're going to have producers and consumers who will sign up for 10- to 15-year take-or-pay. So -- and that -- when you take the diluent out of the crude, it also has the added benefit is that crude then becomes classified as not hazardous from the railroad point of view which means you get lower rail rates and you get -- you can use different railcars, not the 117J. So it's positive. I think in the short term, what they're doing spreads now back out to '20, I hear this morning. So -- but really, we're focused a lot on the long term and trying to turn this into a 10- to 15-year effective pipeline.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [16]

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Great. Appreciate the detail. And then just a quick follow-up on CMQR. Just if you can give us maybe a little more detail around where that asset stands and the potential for sale and timing there? And anything else you can provide would be helpful.

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

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I think I'm just going to stick to close.

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Operator [18]

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And our next question comes from the line of Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [19]

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So I wanted to come back to the comments about sort of the split of infrastructure relative to aviation with the potentials for monetization of some of these infrastructure assets. I guess how do we think about sort of the duration of the lease terms in a scenario like that?

Do you anticipate that evolving significantly from sort of maybe the initial view of having the aviation to generate a lot of cash, having the infrastructure to generate a lot of term? That's always been a sort of good and appropriate balance in our mind. I just want to make sure I understand if that is viewed as that's changing? Or maybe I'm not thinking about it the right way?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [20]

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No, I think what we were saying is that clearly the private market values of infrastructure are higher than public market values. And if we can -- and it doesn't feel like we're getting a lot of credit from our stock price for the -- for what we think is the value of infrastructure given that we don't have a lot of EBITDA contribution from that yet. So we're just playing around with the numbers. If we were to turn the value of those into cash flow at aviation, it should be highly, highly accretive to value. So we haven't made a final determination. It's sort of just trying to take a view of what current market is and what we think the market environment will be for the next few years. And then not be stuck on doing it one particular way.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [21]

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Okay. Okay. No, that's fair. And then in terms of Jefferson, as we think about pipeline connections, and -- can you talk a little bit about potentially timing and then maybe how we should be thinking about contracting related to the pipeline?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [22]

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Yes. The -- I said all 3 of those pipeline projects should be completed sort of around the middle of the year. The -- I would say the -- some and maybe one in the end of Q2 and one in Q3 and one in Q4 is kind of the way I see it. And we have contractual arrangements in place on each one of those already. I would say it's not fully contracted, but in each pipeline opportunity, we have an anchor tenant, an anchor customer. And then that optionality, so to speak, of having those available for customers, I think, will allow us to pick up a lot of additional business and a lot of additional volume.

There is the one piece of the puzzle that we didn't have, and it's important because people want every option. And now we have every option. We have excellent rail. We have truck. We have 40-foot water depth, so we can load Aframaxes, we can bring in barges, and we can ship out barges. And now we'll have pipe in and out.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [23]

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Okay. Okay. That's helpful.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [24]

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And once you're wired in by pipe to someone, it's very hard for anybody to undercut you.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [25]

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Yes. I would imagine it's a very sticky relationship at that point. That certainly makes sense.

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

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Yes.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [27]

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And then just coming back to your comments lastly on refined products, making sure we understand, obviously, there's been some delay in terminal offtake in Mexico. I believe that's expected to ramp back up in the first part of 2020. Is that sort of how you view it? Would you expect to see those volumes begin to accelerate as you move into the first half of next year?

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

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Yes. That's what we're being told. Obviously, it's not our decision, it's the customer's, but every expectation is that those issues -- they had facilities in Mexico that were finished. It took 4 months to get a final letter on it. I mean it's that kind of stuff that happened. So we're told that the volume should ramp next year. We're building -- one of the main reasons for building the pipeline across -- under the river to Exxon is for that refined product flow, which they want. Today, we're running about 20,000 barrels a day, and the plan is to have that ramp to 60,000.

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Operator [29]

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And our next question comes from the line of Ari Rosa with Bank of America.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [30]

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Congrats on a really strong quarter here. So first question, obviously, you guys stepped up the asset sales here on the aviation side. Maybe you could talk a little bit about how you think about which assets to sell, as you look at the portfolio? And maybe give us a little bit better sense of if there's anything we can expect from a modeling standpoint in terms of the stability of cash flows to be generated from the asset sales on a fairly consistent basis?

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [31]

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It will be a regular program for us. So -- and as I mentioned, I think previous calls, we had appraised value of the fleet at the end of the year was $1.5 billion and book value was $1.1 billion. And so we see that as opportunity to continue to show gains and prove that out.

And then in terms of evaluating assets, this quarter, we sold a number of engines. And as I mentioned in the last call, there's a lot of shortage of parts in the market right now. So people are scrambling for parts. And so what we did is we took some engines that, that we could have put through the shop. And instead of putting them through the shop, we just sold them for parts, like an engine, there was a runout engine 6 months ago, that was worth $2 million, we sold for $4 million. So that's a -- and that $4 million represents probably the total profit we would ever make from that engine over the next 10 years today. So it's hard to turn those down. And so I see the -- we'll go through the portfolio and focus on what are the lower cash-yielding investments and then look at monetizing those. But it will be a regular program. I can't predict the quantum, but it's part of our MO.

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

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Fair enough. I guess we'll just expect it to be lumpy. And so second question. Just maybe a little bit more color on kind of how things are progressing at Repauno? And it seems like sometimes that gets deemphasized just because there's so much activity at the other locations. But maybe if you could just give us an update on kind of what you're seeing there, market conditions, and how you guys are progressing in terms of CapEx spending and development there?

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

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Yes, good question. It's going quite well. As I mentioned, the macro for natural gas liquids being exported from the United States is excellent. So you got production volumes that continue rising in -- and we're really focused on the Marcellus production volumes. So there's lots of increased volume, and there's no increased -- really effective increase in U.S. consumption or very little. So all of that has to find its way to the water. And -- so we have very good dialogue with customers about Phase 1 volumes.

We're looking, as I mentioned, to sign 3-year contracts. We expect that to happen shortly. And we have started some of the preliminary construction there, not the major part of it. We want to have a contract before we do that. But we should be operational in the middle of 2020 with probably between 25,000 and 30,000 barrels a day flowing through the terminal.

And then after we do that, we will engage with customers about Phase 2, which will allow us to load VLGCs, which is -- that is the most efficient way to export. And we can gain additional profits and volumes from Phase 2, but we have to have caverns built to do that. So we're actively continuing to do the engineering design and work on the caverns. Very confident that, that works. So we expect this to all continue marching forward, and it's a great macro.

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

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That's terrific update. And then just last one for me, Joe. Maybe -- there's a little esoteric, but maybe you could just speculate on kind of that gap between private market valuations and public market valuations. What do you think that -- what do you attribute that to essentially in? I guess along with that, obviously, as I look at some of these projects, whether it's Long Ridge or Repauno and even Jefferson, which is kind of the farthest along, it seems, obviously, they're not yet at the stage of kind of generating stable EBITDA, and it sounds like that's more in the pipeline for 2020. Do you think maybe that shifts that balance between private market and public market valuations?

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

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Okay. There's several parts there. I'll start with this. I read an article in the FT about a month ago that sort of captured what I thought was -- what was happening. And that is -- the article was that investors would rather own an office building in LA than the stock of a REIT that owns an office building in LA.

And I think the reason is that people don't want to have to explain to anybody what happened on the last day of the quarter when somebody sold 25,000 shares and the stock went down $0.50. So there's the investment and lots of people all over the world want to own real assets and infrastructure. So there's new funds and new investors that show up almost every week looking for infrastructure assets. And yields in Japan are 2%. So 4% sounds great.

So I think that the private market values you might see infrastructure assets trade between -- in the private market between 15 and 20x EBITDA in some cases today, whereas as a public stock, you might trade at 10 to 12. There are other parts of the...

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

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So go ahead, I'm sorry.

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

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There were other parts of your question, I can't remember exactly.

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

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No. It was just a -- that itself is great color. The other part was essentially just asking if as more stable EBITDA materializes at Jefferson or at Long Ridge, maybe if you start to see that gap close, but it sounds like you're talking maybe more about kind of the dynamics of public markets versus private markets, and that's really what you're attributing the difference to. And so that's -- it sounds like a compelling opportunity regardless monetizing in that way.

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

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Yes, and that's a good point also is that when you go out and sell assets today, everybody shows what they call adjusted EBITDA, and adjusted EBITDA can be some spectacular adjustments that people make off of actual markets and the public markets tend to trade off actual. But private markets right now are buying adjusted. So you could -- without looking at trailing EBITDA, if you have contracts at Jefferson and you have adjustments, you could sell potentially off of that. So it's -- there's several differences -- significant differences between the private and the public markets right now that's sort of -- and I don't -- I mean based on the flow of capital and the amount of money that seems to be being raised from infrastructure funds, I don't see that slowing down.

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Operator [40]

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

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [41]

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I guess Joe, to continue on with the thought process that we could see FTAI's service offering kind of shift towards more infrastructure -- away from infrastructure more to the equipment leasing and particularly the aviation side of the business, how should we think about the dividend, if you guys kind of play out there? Because as Chris is alluding to, there are a little bit different revenue streams between the 2 and required investment thereof. So I'm curious to get -- if you guys do play this out, how you think about dividend and dividend growth longer term.

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

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So I don't think that would change. The approach we took at the beginning is to pay out 50% of FAD. And that gives a good yield to the equity as well as allows capital to be reinvested in growth. And that sort of is a model that works both in our minds for infrastructure as well as equipment leasing. And I think we've maintained the same policy. And obviously, we're going to -- right now, 100% of our -- more than that 100% of our EBITDA is aviation. So if we were to monetize assets and invest in -- monetize assets today that have no EBITDA and turn those into EBITDA assets, then it's going to be more growth.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [43]

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Clearly, in the short term, it would definitely be a tailwind there from that perspective. I guess shifting gears a little bit here, a follow-up with regard to the outlook for the growth that we should be thinking about within the infrastructure business at Jefferson. Can you give us an update in terms of the projected CapEx? Have any -- has the timing or anything changed at all there, looking out to 2020?

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

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No, we are very close to launching a bond deal for Jefferson, as I mentioned in the last call, which would raise an incremental $250 million of capital, which would fund the pipeline projects, additional storage, additional rail capacity so that all of the CapEx for 2020 would be funded with this offering that we expect to conclude here fairly soon.

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Robert Hudson Salmon, Wolfe Research, LLC - Research Analyst [45]

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All right. That's helpful. So kind of internally generated investment funding there. In your prepared remarks, you had noted that we're kind of close -- it felt like a little bit closer on the CMQR relative to the 50% interest sale. Can you give us a sense of the infrastructure sales? Should we still be expecting that as kind of a 2019 event? Or could that push into early 2020?

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

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Yes. No, I said they're both close.

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Operator [47]

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(Operator Instructions) And our next question comes from the line of 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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A couple about Jefferson and then a couple about aviation, if I can. On the Jefferson side, Joe, when you're talking about $100 million run rate EBITDA kind of kicking in mid -- maybe second half of next year, how much of that is going to come from third-party contracts versus the Canadian crude marketing? Tying in with the -- your comment about adjusted EBITDA, I mean, the higher multiples presumably go with third-party long-term contracted revenue rather than whether you're getting some temporary WTI WTS spread?

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

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Right. So our assumption now is 100% will come from third-party business. As I mentioned, we only do the Canadian marketing program on an opportunistic basis. And so we don't know what the spreads will be and whether we'll be able to be opportunistic. So we're not modeling. We're not taking any of that in.

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

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Got it. Got it. Then on aviation, so really good color here. When you talk about, obviously, the current portfolio generating $350 million if you were to sell the infrastructure for $1 billion, that goes to kind of $600 million. Obviously, I think that does not include the JV, which given like starting next year would -- could add more to that. And then the value you can get -- one of the questions is the value you can get from doing the engine shop visit itself, I mean, the average cost that you've gotten an engine right now is about $2 million, right? And if you could get an average -- if you put it to buy an end-of-cycle engine, put it to shop visit and sell it with $2 million in cost savings, you've got to -- whatever the sale price is, you've got 100% gain on kind of your original purchase price on the engine. I guess the contingency on that is what's the capacity you think you have to bring those in to run shop visits yourself versus just run them kind of through the JV? I mean -- how many engines can you actually manage through shop visits per year?

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

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Well, our current plan is to -- the JV -- by the way, the JV is not going to do shop visits. It's just a product that we're going to use in the shop visit. But our assumption today is that we'll have probably between 50 and 70 shop visits a year on our own portfolio in the near term. That's based on reasonable growth in the number of CFM engines that we own. I think our capacity, ultimately, today, we own probably 200 CFM56 engines, and our capacity is -- could be 1,000. And our ambition is 1,000.

And if we have a lower cost than anyone else in the world, which I think we will, that's a heck of an advantage. So -- and I'm not being -- every time I look at this, I think I'm just amazed at what an opportunity this is and how big it is. So we started this 4 or 5 years ago. So I don't think anybody else was doing it then. And it's all going to happen really in the next couple of years. A lot of these engines that are covered under power-by-the-hour program are coming off those programs and will be up for grabs in the aftermarket, and it's 22,000 of these engines, like it's a stunning market size.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [52]

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Got it. Got it. On that, if you were to get to 1,000 engines, apart from the capital required to do that, which you could reinvest from the infrastructure sales, et cetera, how much -- I mean, you don't have the capacity to handle that many in terms of taking the shop visits up by a factor of 5 as well. And you've talked -- I would think. Like you've talked in the past that shop visits taking longer and longer.

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Joseph P. Adams, Fortress Transportation and Infrastructure Investors LLC - Chairman & CEO [53]

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Yes, that's a good point. We've actually, over the last year, we've spent a lot of time thinking about and working on partnerships and arrangements on the shop itself. And so we have conversations going with multiple parties right now, major airlines all the way down to small shops to try to figure that out and align ourselves such that we will be able to control our shop visits and manage them more effectively ourselves. We also have some ideas as to how to change the shop visit practice that I've mentioned modules before about how CFM56 engine is really 4 different modules.

And so if you only need to work on 1 module, you don't need to send the whole engine. You don't need to have the engine sit in the shop for 6 months. You can actually swap a module out and shorten that to 3 weeks instead of 6 months. So we have a whole list of initiatives that we're working on there to make sure that we both can manage that number of shop visits ourselves and control it, importantly, because we don't want to be beholden to third parties that we don't control. So that's actually a very good question, and it's something we're working on. It's on our priority to-do list.

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Operator [54]

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And this concludes today's question-and-answer session. I would now like to turn the call back to Alan Andreini for any further remarks.

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Alan John Andreini, Fortress Transportation and Infrastructure Investors LLC - IR [55]

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

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Operator [56]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.