Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Fortress Transportation and Infrastructure Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to introduce your host for today’s call, Alan Andreini. You may begin.

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

Thank you, Alan. To start the call, I’m pleased to announce our 17th dividend as a public company and our 32nd consecutive dividend since inception. The dividend of $0.33 per share will be paid on August 27, based on a shareholder record date of August 16. The key metrics for us are adjusted EBITDA and FAD or funds available for distribution.Adjusted EBITDA for Q2 2019 was $94.1 million compared to Q1 of 2019 of $66.3 million and Q2 of 2018 of $52.2 million. FAD was $86.9 million in Q2 versus $70.2 million in Q1 of 2018 and $44.8 million in Q2 of 2018. During the first quarter, the $86.9 million FAD number was comprised of $126.8 million from our equipment leasing portfolio, negative $10 million from our infrastructure business and negative $29.9 million from corporate.Now let’s turn to Aviation. Our Aviation business just completed its best quarter ever. Adjusted EBITDA in Q2 was approximately $103.6 million or $324 million annualized, up from $290 million annualized in Q1. During Q2 we closed $87.1 million in new investments and we ended Q2 with $340 million approximately and signed letters of intent or purchase agreement, which includes the $160 million for Avianca planes, which we announced on July 24. The large increase from the $290 million annualized number in Q1 to the $324 million annualized number in Q2 was a result of a couple of things.Number one, three of the five aircraft we had off lease in Q1, started new six-year leases in Q2 and we put five new aircraft and seven new engines on lease and Q2. As we mentioned on our Q1 call, we have started harvesting the premium in our portfolio by selling in Q2 $61.3 million of assets that had a book value of $38.7 million for a gain…

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

Thank you. [Operator Instructions] Our first question comes from Devin Ryan from JMP Securities. Your line is open.

Great. Good morning. A couple of questions here on aviation, I guess the first one, would love to just get some thoughts around implications of the 737 MAX grounding, whether you’re seeing any impact on your business or whether you expect any going forward?

Yes. Thanks, Devin. I think the MAX grounding is had a positive impact on us in several ways. One of which is that today, every 737 NG and A320 CO aircraft and engine is on lease and flying today. And in our fleet, that’s a total of about 185 engines. So it’s pretty sizeable now. The market is very tight and lease rates are probably up around 10%. So that’s a benefit. The second benefit is maybe not as obvious and that we’ve seen the part out value of engines rise dramatically. Example that is six months ago, I run out CFM56 engine core was worth about $2 million. And we just sold one recently here for over $4 million. And then, thirdly, if you think about the life expectancy of the economics, usefulness and life expectancy of particularly 737 NG, we believe that that has probably increased by three to five years for very good for our fleet.

Terrific. Thanks for all the color there. And then just a follow-up on the Avianca deal, given that it’s your largest yet and given the relationship with United, how does this tie-in with the broader United partnership if you can. And then if you also can just be more specific around your closing date and kind of when it will start contributing and whether we should think about returns being consistent with the overall portfolio there?

Well, yes. The return profile, I think it’s very good. So it’s certainly meets our targets and we expected to realize maybe slightly better returns on this, but it’s a very attractive deal. It’s really mostly an engine play in that the A318 is not the most attractive airframe to lease. But the engines are very strong. And so we likely will sell the airframes and then focus on the engine. So and it’s a perfect fit for our type of deal. The deals will close starting in September, basically September through December, probably fairly ratably. And as to the relationship, I think it is a good tie-in with United. We’ve had conversations with Avianca about maintenance about advanced engine repair JV that we have – as have we had those with United. And so I think that the United constellation of airlines around the world will provide us, I think very good leverage for both assets sourcing as well as the joint venture, repair initiative that will kick in next year.

Great. Very helpful. Thanks Joe.

Our next question comes from Justin Long from Stephens. Your line is open.

Thanks. Good morning. So maybe shifting to Jefferson with a couple of questions there, first, I was wondering if you could provide an update on your longer term thoughts around crude-by-rail with some of the back and forth we’ve seen on pipelines, the Alberta government, et cetera. How do you see crude-by-rail and that opportunity playing out for Jefferson over the next three to five years?

Thanks, Justin. Sure. Yes, I think that for the next three years, we have been actively lighting up a rail volumes and I think that the most of the producers in Canada and the buyers on the Gulf expect that rail will play a significant role, while those pipeline situation gets sorted out. So for the next three to four years and could be longer, I think crude-by-rail in the conventional way is looking very, very good. And we see that in committed volumes, whereas in the past. I think that’s been – people have been less willing to do that. So I think that the 2020, 2021, 2022 period is going to – we’re going to see strong crude-by-rail from Canada in the conventional way. So thinking out beyond that, and I mentioned this last time, we really have two projects that both I take advanced in this quarter, which would be 10 to 15-year deals for a rail.And as I mentioned, we make the highest contribution at Jefferson by moving product in by rail. So it’s something we’re keenly focused on. It’s not the only way to make money, but it’s the highest margin. And one of them is the waxy crude from Utah. And that product will never move by pipe. So it’s always going to be a rail move. We had several handful of test trains that came in the quarter. The test ran very well and the client is interested in upping the volume. So I think that’s something, you’re going to be hearing about for us, hopefully for a very, very long time. And I think that’s a long term project that will pay off for us. I believe given our location and capability.And then the second is longer term, if you want a…

Okay. And you factor in all the opportunities on the horizon for Jefferson, including some of the things that you just mentioned. Do you now think we’ll get breakeven or to breakeven EBITDA for that asset here in the third quarter? I know you were hoping to get there in the second quarter, but just wanted to get your updated thoughts around the timing of kind of breakeven and then maybe longer term as we look into 2020, where you see the adjusted EBITDA going on a run rate basis?

Sure. Well, just in terms of profitability, I think we took advantage of the WCS/WTI spread in Q4 of last year and Q1 of this year, where we made probably $4 million to $5 million in each of those two quarters. And so that was a good source of income and I believe that will come back periodically from time to time. Then we’ll take advantage of it. Unfortunately, because of the production curtailments in Q2, the spread was not wide enough to make money. So we didn’t have any of that income in Q2.Having said that, our totaling volumes have been increasing, as we mentioned in the call, in the second quarter, we were doing sort of in the 20-ish – high 20-ish trains per month. Q3, it should be in the 30s and Q4 well into the 40s. So while for current profitability, I think Q3 should be breakeven or maybe slightly positive, Q4 should definitely be positive. So in that I don’t think it will – and then we have a next year, we have additional crude-by-rail.But we also have importantly pipe connections. And so then that leverages the whole infrastructure of the terminal and that’s where I think the profitability should really kick in. And the number, I mentioned, last time was $100 million run rate by the middle of 2020, which I still believe, is very, very doable. So it’s – the outlook is very good. I know it’s frustrating that, it doesn’t quite get there as fast as we would like. But strategically and tactically and every other way, we’ve made huge strides.

It makes sense. I appreciate the time. Thanks, Joe.

Our next question comes from Chris Wetherbee from Citi. Your line is open.

Yes, thanks. Good morning, Joe. I wanted to, as you pick up, I guess on Jefferson for a moment. Talk a little bit about the refined products are ramp up and maybe talked and think a little bit about the store, the offload tank situation in Mexico. We’ve heard sort of conflicting things around permitting times and processes down there. How do you think about that by sort of timing of that? It sounds like you have confidence, if you start to see that ramp up again in the second half. But can you give us a little bit more color on sort of what you’re seeing in terms of actual development of that offloading tank situation in Mexico?

Sure. I mean, we’re not there on the ground, but from what we hear from people who are, is the situations, it’s just been delays and it’s not shocking that building new things in Mexico has been delayed. So that’s – but we hear end of August, it should be largely new storage tanks and new facilities are going to come online. And it’s not that complicated to build a receiving terminal. It’s just that – it’s in Mexico. So – but the demand is very strong. The customers’ – long term are very positive about that. And I think they would not be going forward with a pipeline project if they didn’t feel pretty good about it. So that that pipeline will allow volumes to ramp from 20,000 barrels a day currently up to 60,000 barrels a day. So I think the outlook is good, but it is Mexico, so.

Got it. Yes, I think, it’s going to be cautious about it. It makes sense. And then maybe switching gears onto the aviation side. So you’re in a little bit of a harvest mode, taking advantage of the game that you have there. How should we think about that progress through the back half of the year? Is 2Q, a reasonably good benchmark to you as to think about sort of the opportunities set for you in the next couple of quarters? Or is there another way we should be focused on?

I don’t think it’s a bad way. And I think as I mentioned in the remarks, we are going to continue the program in Q3, because we have assets identified and deals being negotiated. So I feel pretty good about that. It’s always harder to forecast asset sales on a quarterly basis. So I don’t know what Q4 will look like. And but the market is, as I mentioned, the market is very strong and we have – we bought assets many times off lease or that needed maintenance work and repair. And once we do that, the market is very strong. There’s lots of capital that’s trying to get into aircraft leasing and we’re happy to help them.

Yes. Got it. It makes sense. And I guess one final one, just touching on the dividend and I kind of have to ask the question. You can answer it, sort of how you think is appropriate. I guess when you think about the two times distribution coverage, when we hit that breakpoint, is there a period of time that you need to see sustainability of that 2x coverage before you think about sort of increasing the dividend. Is it sort of once you get there that’s all you need to see to get more comfortable taking it up? Just kind of get a sense roughly of your thinking around that process of how much you need to see before you ultimately step up and increase the dividend?

Yes, we would want it. I mean, you would want to raise it, because you’ve had a one-time event, so you want it sustainable for sure. But I think we’ll have – as we mentioned, we’re signing up more and more long term contracts with customers. So the visibility – forward-looking visibility in my mind just gets better. So I don’t think that will be the biggest issue. But you definitely want – you don’t want to ever want to cut the dividend. So you want to make sure if you raise it that you’re going to stay there.

Got it. It makes sense. Thanks very much for the time this morning guys. I appreciate it.

Our next question comes from Brandon Oglenski from Barclays. Your line is open.

Hey, good morning everyone and thanks for taking my question. Hey Joe, I wanted to come back to this advanced engines repairs JV that you’re talking about in your prepared remarks. I guess could we get a little bit more detail there? I mean, how much contribution is this adding today? Is it up and running? What could it get to?

Well, there’s no contribution today. As I mentioned, the first commercially available products we expect to have will be next year in 2020. And we said, we expect a meaningful EBITDA contribution in the back half of next year. And I don’t – meaningful to me is, it could be $15 million, $20 million. And the market opportunity is tremendous. It’s going to grow from there. If you look at the aftermarket repair of engines that are on existing 737 NGs and A320s, that market is going to grow almost certainly over the next 10 years in double.So our timing is perfect with the introduction of these products. We’ve obviously been having conversations with airlines now in more detail and the receptivity is extremely high because airlines are frustrated at maintenance costs and engines keep going up well above inflation. And that’s not something that they’re happy about. So the macro and market environment is excellent and the customer receptivity is tremendous. So I fully expected that will be a huge part of our story and a huge contributor incrementally to our Aviation business starting next year.

Okay. And you’ve also mentioned products a couple of times in R&D spend. Can you go a little bit deeper there too?

We’re not really doing that yet for commercial reasons.

Okay. And obviously, you guys are doing well in the Aviation side, but this is year four here of waiting for infrastructure to deliver returns. So I think you mentioned 15% target ROE on the leasing business. I’m not sure you mentioned that on infrastructure. Can you talk about where you want returns to get long-term? And then, I know it’s kind of a long question, but what is the capital require now to facilitate these pipelines in and out of Jefferson? Is this just a base that we got to build more before they come?

So starting with the first question, the return profile, what we’ve said is that we’re looking to build infrastructure for roughly 3x, 4x, 5x EBITDA. And we expect the value of those projects that once they’re stabilized in delivering those contracted cash flows to be 12x, 14x. In some cases, in today’s world you can see infrastructure projects trading as high as 20x. So it’s different metric than return on equity, which we look at for the Aviation business. It’s really a value creation and we expect to create some of that value this year with the sale of Long Ridge, 50% Long Ridge power plant and the CMQR railroad that we expect to realize some of that value this year. And as a developer, three to four years to build and sell is not a bad turnaround time.So that’s how we think about that. The pipeline projects as I mentioned, it’s roughly $90 million to build the crude outbound pipeline, which is about 12 – 10 to 12 mile pipeline, and then $20 million to build the multi pipeline connections to the local refinery. So figure $110 million net, that $110 million will be funded by the debt deal that I mentioned that we’re going to do. So we’re raising $500 million of debt to refinance $250 million of existing debt and add $250 million of new capital. So that’s all in that number.And it does – there is a leveraging effect as I mentioned, when you have existing infrastructures, tanks, rail cars, rail tracks, everything, docs built and you add pipeline connectivity, it’s extremely high contribution. And there’s roughly $20 million of SG&A at the terminal that you have to first cover before you make money. But then once you cover that, it’s all high margin and incremental. So it’s not really a build that they will come, but it’s sort of leveraging off of the infrastructure and once you achieve a certain level, it’s highly accretive.

Okay. Thank you, Joe.

Thanks.

[Operator Instructions] Our next question comes from Rob Salmon from Wolfe Research. Your line is open.

Hey, good morning, guys and thanks for taking the question. Joe, you just alluded to the CMQR sale. Could you give us an update on where you guys are with the solicitation of bids in the RFP? Clearly this quarter we had a big industry event with Brookfield acquiring Genesee for around 13x our 2019 estimate and it implies closer to 14x for the North American properties. So I’d love to get your perspective and in terms of valuations as well as what sort of interests you guys have received on the offering.

I would characterize the market as very strong, it’s a sellers market, so there’s lots of interest out there, it’s a nice – I think the difference in this asset is that it’s a very manageable size for lots of people. So we have very strong interest. The market is still preliminary stage, so this is sort of non-binding, but I would say there’s lots of people spending time and money, which is a good sign. In terms of valuation, we’re not really giving guidance to people at this point. But we have said in the past, we think, we can realize $100 million or more and I would stick by those numbers.

That’s helpful. One of the things you had been kind of talking about was the opportunity to nicely expand EBITDA as the car cleaning business comes online. Could you give us a little bit more color of the expenses that flowed through the P&L in the second quarter? And what if any revenue contribution you had had from the car cleaning business at the CMQR? And what your expectations are looking forward with regard to that business? And if you could talk a little bit about seasonality, obviously it’s a harsher weather, where the property is located. But I would imagine you guys contemplated that as you built out the business.

Yes. So it’s not very seasonal. We don’t expect it to be seasonal. It’s really driven by owners of cars that are coming off one service and going into another service or some regular maintenance and repair. So we don’t believe, we don’t have a long history, but we don’t believe that it’ll be very seasonal. And because it’s in May, it doesn’t make much of a difference to anybody. So that’s one thing. I think that we had probably $0.5 million of expenses in Q2 that flowed through the P&L. So we didn’t have a lot of revenue. We inducted cars into the system really starting in April, May, and you don’t get paid until they’re finished. So the revenue from the work we were doing in Q2, it was more expenses revenue.But the business is ramping and customer list is growing. It’s a very nice business in that, it’s extremely high margin. Customers are not that price sensitive. We put a few million dollars in some automated equipment that shortens the cycle time, requires less man hours, so to speak. And not many people in the industry – this is not the most sexy industry as you can imagine. So when you put some money in and you create a better product, we should be able to sort of capitalize on that. And it’s very sticky. As I mentioned, the revenue – once you get people using the system and they like the main element is service. So if you give good service you can get a lot of repeat customer. And as I said, it’s very high margin business. So we think that will play very well. It’ll produce good numbers for us later this year and we also think, buyers will think, we’ll look at that very attractively.

Got it. Make sense. One final kind of follow-up question. You’d spoken positively on the Aviation sales earlier in the call. Can you give us an update on the appraised value of your portfolio? Last quarter you were talking about $1.5 billion and you realize some good proceeds off the sales. I was curious kind of what the current mark to market number is?

So it’s about the same. We do an annual – a full annual appraisal, but in the interim we have updates. It’s about the same $1.5 billion. But if you look at – as I mentioned, one metric was the part out value of engines right now has gone skyrocketing. So we have – I mentioned a run out core six months ago for a CFM56, worth probably $2 million and we’ve just recently sold a few at $4 million. So the market appraisals done always, capture that, but we are.

Makes sense. I appreciate the time.

Our next question comes from Robert Dodd from Raymond James. Your line is open.

Hi, guys. Just going to financing, kind of stemming back to Jefferson and then the Repauno. On Jefferson, Joe, you indicated obviously the two pipelines that your building $110 million in capital, you’re going to get – the plan is that incremental $250 million in non-recourse debt later in the year, which obviously is good. Would you expect that $250 million to obviously cover the pipelines, but also the 2 million barrels of incremental storage cost to build out that et cetera? I mean, how long in terms of the projects you have on the boards right now, would you expect that incremental $250 million to last you at Jefferson?

Yes. That covers – the $250 million will cover everything through 2020, which includes an additional dock and includes 2 million barrels of storage to pipelines. And it’s the full capital budget for 2020.

Got it.

Which at that point we’ll have 6.4 million barrels of storage, two deepwater docks, one barge dock, thousands of feet of rail track. I don’t even know the number, but it’s a lot. And pipeline connections. So that covers everything. The debt markets are so strong right now. As you can see the interest costs, total $500 million will be materially less than our current rate.

Okay. I appreciate that color. If I can – the obvious question then goes to the Repauno. Some of the projects that are coming up at the Repauno, the granite storage cabins, you’ve given us numbers on those before. And those are expensive projects that can generate a lot of EBITDA. But they’re expensive project. So what would – I presume non-recourse financing on that side as well. But you have a timeline of when you expect to put those financing structures in place for the pretty significant investments at Repauno over the next few years.

Yes. We are working as we speak on debt financing, non-recourse debt financing for next year spend at Repauno. We’re really Q4, Q1 which we estimate to be $70 million and we will probably target raising more than that in a non-recourse debt financing. So between probably $70 million and 100 million for that. And we think that’s very doable. So that will cover what we call Phase 1 of the spent. And the goal is to have a contract signed by the end of Q3 and then we will easily raise that debt financing and we’ve already started conversations on that.Phase 2, we’re not really focused on yet because we want to complete Phase 1 and then very likely we’ll go to the same or similar potential buyers to line up contracts for Phase 2, which is as you mentioned, is the granite storage and the bigger VLGC opportunity. But again, I think that once we have a contract, the debt financing on that will be readily available for actually more than our capital, more debt financing available than the capital we will need to spend.

Okay. Got it. I appreciate that. Thank you.

Yes.

I’m showing no further questions at this time. I would now like to turn the call back over to Alan Andreini for closing remarks.

Thank you all for participating in today’s conference call. We look forward to updating you after Q3.

Ladies and gentlemen, thank you for participating in today’s conferences. This concludes the program. You may disconnect and have a wonderful day.