Good day, ladies and gentlemen, and welcome to the Fortress Transportation and Infrastructure Investors LLC First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Alan Andreini. Sir, you may begin..

Thank you, operator. I would like to welcome you to the Fortress Transportation and Infrastructure first quarter 2019 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; and Scott Christopher, our Chief Financial Officer.

We have posted an investor presentation and press release on our website, which we encourage you to download, if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast..

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

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

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

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

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

Aviation was able to maintain our targeted return of 25% EBITDA to invested capital in Q1, even though we quote lost EBITDA of approximately $5 million in Q1, resulting from downtime due to the transitioning of 5 aircrafts on to 6 year leases with new operators, and due to 14 engines being inducted for shop visits in Q1.

Both of these are great long-term outcomes, which will be better reflected in future quarters. And we’re expecting strong EBITDA growth in Q2 and beyond without any gains from asset sales..

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

Thank you. Our first question comes from Justin Long with Stephens. Your line is now open..

Thanks and good morning. So to start, Joe, you seem to have a lot more confidence in the ramp at Jefferson. We’ve been waiting for this asset to inflect positively for a while.

So can you just talk about the level of visibility to that $100 million EBITDA projection that you discussed earlier?.

Sure. And, yeah, I think that observation is correct. A couple of reasons; one is, as I mentioned, the new tanks to come online, the 800,000 barrels, that came online in April, is fully committed and contracted for the next three or five years. And so, that provides a minimum of – minimum revenue commitment for those.

But in addition to that, when somebody runs the tank that means they’re going to do something with it. So in addition to that, you will see volumes coming in most likely by rail and some other means to get it in. And it also goes out by barge or ultimately by pipes. So those tanks will get used and generate additional revenue.

Secondly, crude by rail from Canada, starting last year, I think a number of producers and many people realized there is not enough pipeline takeaway capacity. So they began the process of getting commitments and buying railcars, obtaining rail rates from the railroads and rail slots, and committing to terminal loading capability in Canada.

So lot of those programs are now just about to start up and starting up in the summer. And so, that means volumes by rail will be coming to the Gulf Coast and we see ourselves being able to get some of that volume, obviously, not all of it, but a decent amount.

And having the new storage available and the new storage coming online puts us really in a very good position to get that. So we see we have pretty good visibility on future crude by rail from Canada volumes for this year and next. And then thirdly, as I mentioned, the pipelines, having pipelines available gives you ratable flow.

So you get regular take or pay contracts. So you have crude flowing every day through the terminal. It’s also very efficient, so it gives – puts you in a very good competitive position to do additional services like blending. And so, we see additional upside from having those pipes that’s not really reflected today in any of the numbers.

So I think for those reasons we feel very good about the – the past chapter on Jefferson is closed and the new chapter of positive EBITDA is open, so..

Great. That’s helpful. And secondly, I wanted to ask about the partnership that was just announced with United.

Can you talk a little bit more in detail about what this entails and any thoughts around the financial impact you expect both this year and maybe longer term?.

Sure, it’s a partnership where we’re buying some engines from United and then we’re going to be doing the maintenance work at United’s maintenance MRO shop in San Francisco. We have total of, I believe, 16 engines now, Pratt 4000 engines.

And so, what it enables us to do is, the positive for us is we can buy engines and overhaul them much more cheaply than we could do it by buying them in the open market. So there is an embedded gain in each one of those engines as we finish the work.

United also benefits because they get to consume some used serviceable material, which is an added benefit to them and it’s an attractive cost for both of us. And it generates third-party work for them. So it’s a very nice template for other assets. And so, when I mentioned it, they were very excited about it.

United has lots of airplanes and lots of engines. They have nearly 600 CFM56 engines and over 200 V2500 engines. And so, the Pratt deal is a nice place to start. But we don’t see it as the end. We see it as the beginning..

Helpful.

And any thoughts around the financial impact this year?.

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

Okay. I appreciate the time and congrats on the quarter..

Thank you..

Thank you. And our next question comes from Devin Ryan with JMP Securities. Your line is now open..

All right, great. Good morning, and, yeah, thanks for all the detail that you always provide, very helpful. And maybe a follow up here just on Aviation, you mentioned some sales expected in the second quarter. I think it was $20 million plus.

Can you just maybe help us with what’s the base of assets that that’s off? I’m assuming just given that number, it’s probably pretty large implied gains, and so, any help there? And just in terms of thinking about kind of gains going forward, maybe talk a little bit about what’s driving those in the portfolio, its depreciation schedules or just kind of where you purchase the assets? And then, related, just how you’re thinking about kind of the ability to turn over the portfolio? How much should we think potentially could be turned over, over maybe the next couple of years?.

Sure. So to start with, I mentioned $20 million gains. The assets that we’re targeting have a book value of less than $50 million. So we’re looking at under $50 million of book value with a gain of, in excess of $20 million. And I think that’s kind of representative.

We’ve talked in the past about having assets there appraised at a $1.5 billion and carried on the books at a $1.1 billion. So it’s going to be even slightly better ratio than that. I think the thought process as we mentioned is I think we’re pretty good at buying assets cheaply and then adding value.

And we’re finding buyers who are willing to pay us prices that we – at a cap rate that we wouldn’t invest at. So effectively just monetize the amount and then we believe we can do that over and over again. So I think that it’s the program for us now. It’s obviously not something would happen every single quarter.

But I think we could see regular asset sale program that we will do every year. So it could be $100 million or so of book value that we could do that with. So I feel very good about that..

Okay, very helpful, terrific. And then, maybe just a follow-up here on – some of the asset sales outside of Aviation, so CMQR, sounds like the process has started, Long Ridge, and moving forward.

Maybe just help us a little bit with timing of when you expect there would actually be something hard there, where you have a timeframe of kind of a closing and should we think about the capital coming in for the most part getting recycled back into Aviation or are there other material business needs where capital would go or would you even reduce that?.

Sure. So as I mentioned in the remarks, I think our goal for the power plant is in Q3, by the end of Q3 to close that. And I would say CMQR my hope would be this year, in the calendar year. With respect to the capital most likely it would be invested in Aviation.

To the extent that we don’t have Aviation investment opportunities we like, we would reduce debt..

Got it.

And then to be clear on Long Ridge, when you say closed, you mean actually close on the capital or close on unannounced transaction?.

Both..

Got it. Thanks very much..

Thank you..

Thank you. And our next question comes from Chris Wetherbee with Citi. Your line is now open..

Yeah, hey. Thanks. Good morning, guys. I wanted to follow up on the United transaction. Certainly, seems like a really interesting one.

I guess the question I have is sort of how does this either open the door or potentially close the door to other relationships with carriers in this space? I don’t know if you need to be exclusive to one airline per se or how do you think about sort of building of these types of relationships more broadly across the space.

Are there other opportunities to do that?.

Yes, there are. And I think it’s a door opener. It’s quite – it’s a very credibility enhancing transaction, I think, for us and for the program. So I think – and there’s other aspects to that, the deal that we haven’t disclosed, so I think, it’d be interesting to other airlines.

And so if you’re looking at airlines, you’re trying to figure out how to reduce their cost per available seat mile, while I believe almost every airline, the world is thinking about doing and they’ll be interested in this what we’re doing with United.

So I think, it opens lots of doors and it doesn’t – United is somewhat unique and that they have a big MRO operation and looking to build third-party business that’s not every airline in the world doesn’t have that. So I don’t see that is being a deterrent to anybody else to do business with us. It’s simply, and I think, it’s just a good template..

Okay. And I don’t want to get ahead of myself, but just when you think about sort of the development of those types of relationships with other airlines.

How do you think about it? Is that sort of a multiyear window, sort of this is the beginning over a period of time? Can you do stuff a little quicker, just want to get a rough sense of how you’re thinking about the timing of the opportunity?.

I think, I can – I mean, for me the window for – if you look at the fleets that we’re targeting, the big one is 737-800 NGs and A320s. And those fleets, the aftermarket opportunity as we’ve said before, gross, it almost doubles over the next 10 years.

So it’s really the ideal opportunity timeframe for us to develop all that is in the next two to three years. And that’s – I think, we find as we go and talk to people that there is pretty broad agreement on the other side that’s also the case. This is the time to get in now. Three years now, it’ll be too late..

Okay. That makes sense.

Just want to get specific when you’re thinking about infrastructure, it sounds like you turn the corner there, you say the drag is over, should we assume that infrastructure is positive from a FAD perspective going forward from 2Q on, is that what you’re – would that be what you’re suggesting when you make that statement?.

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

Okay. Okay. That’s helpful. And then when you think – last question for you just on Jefferson.

Curious about the refined product opportunity of the exports into Mexico, wanted to get a sense on how that looked in the quarter? And then, what your expectations are for that going forward to the rest of 2019?.

Sure. So I think first quarter’s 15,000 barrels a day. And we should be in the 20s in Q2 and then I’m hopeful that will be Q3 in the 30,000 barrels a day range. And then part of the pipeline project that you mentioned would allow us to go over 40,000 barrels a day, up to potentially 60,000 in 2020.

And if you look at the, for instance, I think, the Exxon has 200 stations of under the mobile brand opened today. And I believe they have stated their goal is to double that to 400 by the end of the year. So it’s a pretty – Mexico is a enormous market.

It’s 700,000 or 800,000 barrels a day of imported gasoline and diesel into the country, so it’s – globally it’s one of the biggest markets and might be the biggest markets as I know, but it’s enormous. So it’s a long-term, it’s both a short-term and long-term opportunity for us..

Okay. That sounds good. Joe, thanks for the time. I appreciate it..

Thank you..

Thank you. And our next question comes from Rob Salmon with Wolfe Research. Your line is now open..

Hey, good morning, guys. A couple of follow-up questions on Jefferson and then one on the dividend. I guess, Joe, if you were thinking about the – that ramp up to 40,000 to 60,000 barrels a day of refined product as we look out to 2020.

Could you give us a sense of kind of the timeline, when you’re expecting that? Is that a year-end number or kind of should we be thinking about the beginning of the year.

And then also for the third quarter, once we’d be getting to that that run rate of 30,000 barrels?.

I think that in the third quarter, we should be at that run rate for most of the quarter, I believe. That’s the current outlook. The 60,000, I would not assume it happens on 1/1/2020, I would say, more likely middle. If we got to that, we’d be middle of 2020, that’s when we would have pipeline connectivity available.

And that’s not a guarantee, I’m just saying, we’ll have the capability to do that. And based on with the way things have gone, it feels like that likely, but it’s certainly not guaranteed at this point..

I understand. There’s always a little bit of uncertainty there. Frankly, the volumes at Jefferson, particularly the roughly almost 40% sequential increase in crude throughput was surprising just given that the spreads have tightened.

Could you give us a sense of what drove that sequential increase and how you guys are thinking about volumes as you look out, given the additional 800,000 barrels that came on in the month of April?.

Sure. So as I mentioned the Canadian producers and shippers and everyone who started the process is really gearing up to, if you go back to crude-by-rail last year. And so there were a lot of commitments that people made in terms of obtaining railcars, negotiating rail slots from and getting loading capacity.

And all of those decisions were made on multiyear committed basis. And they’re paying – those producers are paying for that whether the use it or not. So actually, when you look at the marginal cost of crude-by-rail versus pipe, you can justify the lower spread is $8 to $10 a barrel, some people say $8.

So in that circumstance those volumes are going to move by rail. And that’s – I think, it’s a little less of a ability – well, less ability, you just turn it on and turn it off every quarter. So that’s why I feel for the next several years, we see a fair amount of volume that’s lined up pointed at the Gulf of Mexico.

And so I think that – it feels pretty good that we’re going to see a decent share of that, given that we invested in the new tanks that came online. In April, the new tanks are coming online, and in December you have to have storage available to be able to handle that. So we’re in a good position to do that.

And then in addition, we started the process of adding the pipeline inbound and outbound, so that will facilitate blending on the inbound side and also facilitate growing the volumes on the outbound side. So I think, we’re as well-positioned for that as we could be..

Okay. Really helpful there. Kind of final one on the dividend. The FAD ex sales coverage, it was pretty stable at 1.5 times clearly, you’ve highlighted an improving infrastructure outlook with the profitability improvements we’re seeing at Jefferson and the additional barrels that are coming online.

How should we think about kind of a potential dividend increase as the cash flow is ramp here?.

While we feel like when we close to our target of 2 to 1 coverage in Q2, so and then, we’ll have to see from there what we feel like the growth rate is. But definitely it’s – it feels like we’ve got sequential growth for a while here so..

Got it. I appreciate the time..

Thanks..

Thank you. And our next question comes from Ariel Rosa with Bank of America. Your line is now open..

Hey, good morning, guys. Congrats on all the progress that’s going on.

Joe, just wanted to get your thoughts, first on any impact from IMO 2020 and how that might evolve particularly over at Jefferson?.

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

Yeah. That makes sense. Okay, great.

Shifting a little bit in terms of the – the partnership with United and bigger picture in terms of how do you see the repair business evolving? Maybe you could talk about how you see the Aviation segment developing in terms of the mix between maintenance and repair services versus leasing revenue? And if you’re thinking is kind of changed relative to where it was maybe a year-ago, and how those two opportunities that’s kind of play out?.

Yeah. I am very excited about where we are right now, and our ability to really create value by having a permanent advantage in managing shop visits for less than other people can do. And so, I’ve talked about that for many years as a sort of barrier to entry or widening the modes or barrier to entry, competitive advantage, whatever.

How we monetize that is twofold, one is you monetize it by getting higher returns on your lease assets, which we’re doing, and I think, we’ll see that continue to grow. And then as we get better and further into this, we’re going to try to monetize it on a fee basis.

And we haven’t totally figure that out, yet, but I’d say, we’re a lot closer to figuring it out than we were. And the market size in this aftermarket repair business over the next, as I said, three to five years, the growth is enormous. And you talk to any MRO shop out there, there are all very busy.

Part prices are high, new service material tough to get. All of those conditions just make this circumstance what we’re doing were ideal – and ideal partner to help people solve those problems. And I’m sure, we’re going to figure out how to monetize that..

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

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

On top of the $400 million?.

Yeah..

Got it. Okay, great. That’s really helpful. And then just last question for me. Obviously, a lot of great development projects in the pipeline, let me just pick your brain a little bit on risk of a downturn and what steps you guys are taking to kind of mitigate the potential impact that can have to FTAI, and it’s cash flow streams.

I hear you kind of putting in place some longer-term contracts at Jefferson. Just your broader thoughts on how downturn might impact the various lines of business. And what steps you guys can take maybe in advance to just protect yourself against some of those impact..

Sure. That’s a good question. And certainly, the assets we have are diversified, right. So we have, in the one sense if oil prices go up that’s good for Jefferson and energy in general, which we have a couple of place there. And then on the other side, energy price is go down, Aviation benefit. So I think, we’ve got some diversification across that.

We are trying to get longer term contracts and you remember, Long Ridge we have 8.5 year power purchase agreements in place, which we put for the power plant. We’re lengthening relationship at Jefferson, new contracts, we’re trying and pushing for three and sometimes five years.

On Repauno, which is really a natural gas liquids play, which really no correlation with any other player in the portfolio. There we’re trying to get five year contracts as well. So think, pushing out the contractual coverage and having diversification for different asset is the best protection we can get..

Great. That makes a lot of sense. Thanks for the time..

Yeah..

Thank you. And our next question comes from Brandon Oglenski with Barclays. Your line is now open..

Hey, this is David on for Barclays. Thanks for taking my call.

With the $190 million LOI you mentioned, could you just talk about what that impact might look like in terms of capital commitments and where you’re comfortable taking leverage based on that?.

Sure. So we’re watching the numbers. We’ve got obviously the additional investments in Aviation. We’ll push that up on the one hand and then the assets sales, we’ll push that down on the other hand. So we’ll try to manage it appropriately.

And we’ll have the need for some additional financing this year, which the markets, the high-end markets, very, very robust now again. And so, we’ve got a number of different ideas on that. But we are cognizant of leverage creeping up and want to make sure we are prudent on that..

Great.

And kind of those ideas of the equity portion of that, yeah, could you just discuss what’s some of the ideas on how you want to consider funding the equity portion of the capital commitment?.

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

Great. Thanks for taking the question..

Thank you. Our next question comes from Robert Dodd with Raymond James. Your line is now open..

Hi, guys. On the Aviation business, but some kind of at a different angle, obviously, you gave us the indication run rate EBITDA when the LOIs and the existing book is done, $380 million.

Can you tell – give us a little bit more detail on, A, what that – does that include, for example, the United engines coming out of the shop visits – and, obviously, that takes a little while but – and then being put into a service and could you give us – some of the other businesses, you give us longer term expectations, and Jefferson, for example, $100 million by the mid-2020, on Aviation with the advanced repair coming in at 2020.

Any indication you can give us on what you’d expect for EBITDA from kind of the combined all of those Aviation initiatives, kind of mid-2020 or in 2020?.

Well, we don’t budget new investments. So those happen when we see good deals. As I mentioned, what we have now is signed deals, which – if we closed everything, it would be $380 million of EBITDA annualized. We’ve always targeted new investments to generate 25% of invested capital in annual EBITDA, and I see that trending up.

So, I think over the next two quarters, that should – we should beat that number. So – but that’s all the guidance we really give in terms of it’s – it’s very hard to budget new investments..

Fair comment, Joe. But, I mean, obviously, advanced engine repair isn’t – it’s been a long running project. It’s not a new investment as such. But I take your point.

And then, just going back to the question about funding, on timing wise, obviously, you’ve got a number of asset sales coming towards the end of the year, some on Aviation, during the next quarter, do you feel comfortable on that level, which taking it up just in the short-term to fund the LOIs with a view to then reducing it later or would there be a greater consideration of other, obviously, non-debt financing sources depending on timing of those LOIs versus the asset sales?.

Yeah, I think we’re comfortable taking the leverage up, knowing that, having confidence in the asset sales a little bit. But we’re also mindful that we need to be prudent and not take it up too high..

Okay. Got it. Thank you..

Yeah..

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

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

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