FTAI Aviation Ltd (FTAI) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fortress Transportation and Infrastructure Investors LLC fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I'd now like to introduce your host for today's conference Alan Andreini, Head of Investor Relations. Please go ahead.

Thank you Cat. I would like to welcome you to the Fortress Transportation and Infrastructure fourth-quarter 2015 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer, and Jon Atkeson, our Chief Financial Officer.

We have posted an investor presentation in 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.

Before I turn the call over to Joe I would like to point out that certain statements made today will be forward-looking statements. 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 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.

Thanks very much, Alan, and welcome everybody to our call. We are pleased to be able to update you on our progress for Fortress Transportation and Infrastructure today.

To start out I'm pleased to announce our third dividend as a public Company and our 18th consecutive dividend since we began FTAI four years ago. The dividend of $0.33 per share will be paid on March 28 based on the shareholder record date as of March 18. We are very committed to this dividend and there's nothing at this time that we see in either the past quarter or as we look ahead which places the dividend in question.

Let me start and give you an overview of some of the highlights for the quarter before I go into more of the numbers and then each of the respective areas in more detail. First of all, just to repeat again I love our aviation business and we continue to successfully deploy additional capital. The market opportunity for older aircraft and engines is tremendous.

Our portfolio continues to grow as we had hoped while we're still maintaining and exceeding the return targets that we've set. The market today for older aircraft keeps expanding due to rising global traffic volumes and low fuel prices which stimulates travel through low fares.

We have a very unique business model which is run by a team of people that we put together over the last four years that have the skills, relationships and engine knowledge which is perfect for this environment. In addition, we put in place the capital structure and a very focused business approach which allows us to be the best in the world at what we do.

Secondly, offshore is a challenging sector to be sure but we have good assets and we know the market will recover eventually. In the meantime our ships are used for necessary maintenance and short-term jobs for existing offshore wells.

Currently, the Pride is on her way to Malaysia where we and Halliburton will be performing work for one of the major oil companies.

Thirdly, most of our investment in containers which totaled approximately $40 million in book equity at December 31, 2015 are finance leases and performance continues on plan. We very recently agreed to sell one of those finance lease portfolios which will generate about $24.5 million in cash for us net of debt for a small book gain and an IRR from inception to date of approximately 16%.

Turning to Jefferson we've made substantial progress in spite of not having any major contract announcement to make today. In addition to crude by rail for the heavy Canadian crude we're also in active negotiations with multiple counterparties regarding one additional storage which is in strong demand, two, diesel trends shipments to Mexico and three, establishing an ethanol hub.

The Central Main & Quebec Railroad, what we call the CMQR, is really a terrific turnaround story largely due to the efforts of a really capable management team led by John Giles. The railroad in the fourth quarter just had its best quarter ever and the success of the CMQR positions us very well to make additional railroad acquisitions in the future.

Rapauno, which is our port terminal on the Delaware River, has made major progress during Q4 and we're shooting for a late Q2, early Q3 close of that facility. We now have four very well defined development projects underway and are actively negotiating with counterparties on an auto import-export terminal, an energy logistics terminal, an industrial warehouse park and a solar power plant.

So let's talk a little bit about the financials now. The key metric as you recall for us continues to be funds available for distribution or FAD. During the fourth quarter total FAD was $10.1 million made up of $24.1 (sic - see Press Release, "$24.2") million from our equipment leasing portfolio, negative $5.4 million from infrastructure and negative $8.7 million from corporate.

Both infrastructure and corporate FAD improved over Q3. Our equipment leasing FAD was predominantly comprised of FAD from aviation of $22.5 million which includes the sale of six engines for a gain of $1.1 million with a FAD contribution from that transaction of $4.6 million. Offshore energy was negative $0.9 million of FAD, in large part due to the Pride being off charter for two months during the fourth quarter.

And shipping containers contributed a positive $2.5 million of FAD. Our infrastructure FAD continues to be negative but less so than in Q3 and we're making good progress at both Jefferson and CMQR. Naturally I'm very pleased that the CMQR turned positive.

So let me start in more detail on the portfolio and I will start on the leasing, equipment leasing segments this quarter. First of all, our aircraft and engine leasing portfolio continues to do very well. As of December 31, 2015 the aviation sector is our largest with approximately $393 million of book equity which includes 18 aircraft and 42 engines.

We continue to see very strong demand for aviation assets around the world and our utilization has remained high. As of the end of February 2016 our current overall utilization is approximately 86% which reflects aircraft utilization of 96% and engine utilization of 56%. As you may recall, we target engine utilization of between 50% and 75%.

During Q4 2015, and so far this year, we've executed multiple aircraft lease extensions which have increased our average remaining lease term for the aircraft from 30 months to 37 months. Also during the quarter we sold six engines for a gain of $1.1 million and we intend to continue to take advantage of our strong sourcing capabilities and realize gains through periodic regular asset sales.

Our target for this business over the next few years is to grow this portfolio with the existing team that we have in place into a $1 billion asset base comprised of approximately 75 to 100 engines and 40 to 50 aircraft while still maintaining our excellent returns of 20% unlevered returns per annum. Given the size of this market and in particular a very large and growing fleet of 10-plus-year-old 737s, 700s and 800s we believe our goals are eminently achievable.

One final note on aviation, in Q1 2016 up through today we have executed approximately $40 million in letters of intent for new acquisitions which we expect to close shortly. That $40 million in new aviation assets along with the $25 million we acquired during Q4 is expected to generate incremental FAD this year of approximately $13 million. Put another way, if we did no more deals during 2016 and we made no asset sales our projected run rate FAD for 2016 for aviation alone would be over $100 million.

Let me turn to offshore now, not as good a story. The offshore market continues to be very challenging as I'm sure you see in the press virtually every day. Currently the Pride came off lease in early November, is now on its way to Malaysia where we partnering with Halliburton will be doing some short-term work for one of the major oil companies.

Also partnering with Halliburton we're in advanced negotiations and discussions and hope to be announcing a longer-term deal with a national oil company for work in that same region. Also we recently terminated our charter on the Pioneer which is one of our other ships due to failure of the charter to make payment. But we expect to have that vessel, which is much smaller than the Pride, rechartered in the next few weeks, albeit at lower rates than the previous charter.

While the market remains difficult and many large projects are being postponed, we see opportunities in inspection, repair and maintenance base as there is still over 3,000 active offshore fields in the world and almost 1,000 of those have subsea structures which have to be maintained. And our vessels are well suited for that work. We eventually will benefit from the fact that the Pride is one of the most technically and operationally capable vessels of its type on the water and virtually no new vessels of its class are being built today.

Our shipping container segment performed on plan with 74% of our assets on finance leases as of year-end 2015 which means we're largely insulated from reductions and lease rates and residual values that the overall market is seeing. As of the end of the year we had approximately $40 million of book equity remaining in this portfolio which is scheduled to run off over the next few years.

As I just mentioned, we have agreed to sell the largest part of that finance lease portfolio and we may sell other remaining container portfolios as well. Those proceeds we expect to reinvest into more interesting assets and higher-yielding assets.

Let me now turn to Jefferson, CMQR, Rapauno and Hannibal, our infrastructure investments. We're extremely excited about the growth potential given the progress we've made and the very specific negotiations we are engaged in with customers at all of these projects. Our Jefferson terminal in Beaumont, Texas has made significant progress this past quarter on four major business development initiatives.

First, we completed the construction of four new 100,000 barrel tanks, bringing our total storage to 700,000 barrels on the site. Six of these seven tanks are now in use by our revenue paying customers. And we've kept one of those tanks open for a train load of crude which is arriving mid-March from Canada for blending and resale to local refineries.

Secondly, we continue to advance the negotiations with several local refineries around a major program to bring heavy Canadian crude in by rail to Jefferson. We have confirmed that Canadian heavy by rail in today's market blended with a WTI or Bakken and delivered to local refineries offers compelling economics to us and is an attractive blend and assay for those refiners. We will continue to market our customized blends and assume more of the logistics responsibilities to ensure that we develop significant recurring volumes through the terminal over time.

Third, Gulf Coast refiners continue to do well and expand and they are always looking for new end markets and Mexico is one of those. Mexico is both opening its markets to outsiders, non-Pemex players, and is also short on diesel and gasoline. We're in negotiations with several parties regarding establishing pipeline connectivity, utilizing storage and then railing or shipping, and transhipping diesel to Mexico.

Fourth, ethanol continues to expand in the US domestically and the market is developing internationally as many densely populated traffic choked cities around the world are focusing very seriously on how to reduce air pollutants. We have a natural advantage in this business given that most ethanol, which is produced or grown from corn in the United States, moves from the origin of the ethanol plants by rail and then can be loaded at Jefferson onto ships for export. We're in advanced negotiations around establishing at Jefferson an ethanol storage and transshipment hub.

As a final piece of the Jefferson update, we expect to close shortly on $144 million of tax exempt financing which I referenced before which will replace the existing 9%, $100 million debt issue outstanding today. Further, this issue provides growth capital for new projects for the terminal and it also importantly establishes our tax exempt authorization so that Jefferson can access additional tax-exempt financing in the future for new projects.

Central Maine & Quebec Railroad, CMQR, the railroad had a great quarter by every measure. In spite of a soft rail market in most of the United States, revenues in the fourth quarter grew to over $7 million and EBITDA came in at positive $1.4 million. And that's a great recovery from basically a cold start from August 2014 when the railroad was -- when we purchased the railroad.

Our new business development projects list, which is long, includes autos, chemical business, propane, wood products and it continues to grow. And 2016, knock on wood, is starting out very strong. It's a terrific job by management with lots more to come in that space.

Turning to Rapauno, we are projecting closing this transaction at the end of Q2 or early Q3. We made a lot of progress in defining the development plan and mapping out a clear path on four specific projects.

First auto. We are currently negotiating with several major auto companies for the construction of a new state-of-the-art car distribution facility which would use approximately 100 acres of the site. A third of the United States population lives within a one-day truck ride of Rapauno which provides manufacturers a great location with great logistics to serve the East Coast markets.

Secondly, energy storage and distribution. We are completing now as we speak the pressure testing on the underground granite storage cavern which has a capacity of about 180,000 barrels. And we're negotiating with a number of different parties regarding their utilizing that for storage of butane.

We're also working on other refined products and crude storage opportunities at Rapauno. The location on the Delaware River is perfect for handling natural gas liquids that come out of the Marcellus and Utica. And the deep water access gives it opportunity to serve the international export markets. We're also working on various refined products that are produced by the three local refineries in that area.

Industrial park. We're completing the permitting process now for up to 1 million square feet of industrial warehouse space which would serve both the perishable and the dry goods sector. We have several tenants lined up as the Philadelphia area is the largest perishable import center in the United States and many of the facilities in that part of the country are very old.

Lastly, solar, New Jersey is a very solar friendly state and that combined with the recent extension of the ITC for solar makes Rapauno a great location for approximately 25 to 30 megawatt solar facility. We're in discussions around developing that ourselves or partnering with others being able to put that in service by 2017.

Turning to Hannibal, we continue to move forward on this project but it's at a slower pace than we originally anticipated. The long-term thesis which is driven by access to low-cost gas in the region remains intact.

So projects like power generation, gas to liquids which can be located on sites that have excellent logistics which Hannibal does continue to make tremendous sense. Having said that, with drilling activity in that region greatly reduced, we're being very prudent and patient and plan to delay closing on that until the larger projects that I mentioned are better defined.

With respect to capital allocation decision we face today we're in an enviable spot. We believe we have the ability to maintain our dividend while we have substantial dry powder available for new investments. We're very committed to the dividend.

With our projected growth in aviation the FAD contribution from that alone will soon cover 100% of the dividend. Assuming our existing infrastructure investments become cash flow breakeven or better, CMQR is there and Jefferson is very close then the dividend would be covered without reflecting any contributions from new acquisitions or the existing infrastructure investments.

For new acquisitions, this is the best market I have seen since 2009 and 2010. Many very high-quality companies that had access over the last few years to cheap, readily available debt are today overleveraged which is now suddenly out of favor in public markets. As such, investing in public securities, particularly discounted high-yield debt or loans, offers highly attractive returns or even better cheap entry points for equity ownership.

In addition, some of these investments would add value to our existing portfolio which for us would be winning squared. The great thing about where we are today is we can take advantage of opportunities in sectors which are capital short while still maintaining a great deal of financial flexibility for ourselves.

With that I will turn it back over to Alan.

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

(Operator Instructions) Justin Long, Stephens.

Thanks and good morning guys. My first question was on Jefferson.

You mentioned a few potential opportunities at Jefferson from a high level. But is there any additional detail you can provide regarding when these contracts could be finalized and how meaningful they could be to FAD? And really what kind of hit rate do you need in the current pipeline at Jefferson to get that asset to breakeven?

Sure. So the asset is, from a terminal operating point of view the asset is very close to breakeven. So it's not a very much of a needing an additional contribution to get us there and get us over that.

And I would say any one of these projects really achieves that. Any of the projects I mentioned are material in the context of Jefferson. And I think importantly each one of those projects is a start.

So you start with a customer and they are going to be doing storage or they are doing diesel. That's step one of what is typically what we would expect to be multiple steps which could end up being, any one of those could end up being quite meaningful over time. So they are all big projects, they are all big players in the region, these are huge markets and we have a great facility and great infrastructure.

Okay, thanks. And I wanted to secondly ask about the sequential step-up in the pipeline. I was curious if you could provide some more color on the key driver to that increase.

Joe, you mentioned the acquisition environment is the best you've seen since 2009. But if you look at the opportunities within that pipeline, has the mix changed significantly or does the opportunity set by end market look pretty similar to what you were seeing in the prior quarter?

It's pretty similar across type of company. Clearly there's more, any company that has an energy connection is more likely to be at a cheaper price and distressed or offering a better value opportunity than they did in the past. So I would say that within the energy sector there are more opportunities.

But there's still a lot of opportunities in aviation, different types of equipment leasing, railroads, ports. And the common theme that we look at a lot is companies that took advantage of a lot of cheap debt and overleveraged.

It's amazing how the easy money period of the last four years does -- because it's available people often take it. So that is not always a good thing. And today some of those companies are having difficulty and that to us presents a very good value opportunity.

Okay great. I will go ahead and pass it along. I appreciate the time.

Ari Rosa, Bank of America.

Hey, good morning, guys. So just wanted to continue on that line of questioning on Jefferson.

Sequentially obviously we've seen trains per day coming down. And just I guess I was hoping you guys could address that and then maybe you can contextualize that on kind of what's driving it and how maybe it speaks to your view on kind of the larger condition of the economy, especially the industrial economy.

Sure. On the trains per day I think it really revolves around the customer that we have brings in Canadian crude and they have undergone a switch from one producer to another. And there are some Canadian supply chains up there which are being changed.

There are Canadian producers that are in distress and they are shutting in production. So there will continue to be a market in Canada which is more confusing to figure out than it has been in the past.

So that makes it a little harder, which is one of the reasons why I say we are being more proactive about lining up the Canadian crude, lining up the railcars, lining up the transportation, lining up the blend and really marketing the whole product. Because I think one of the things that happens is the Gulf Coast refineries get a little frustrated that it's not simple. And so that could be a deterrent and we're trying to remove that.

As it relates to the industrial economy, the refineries are doing very well, particularly in the Gulf region. So we haven't seen any slowdown and that's the primary metric that I would monitor from the point of view of Jefferson, if that's what your question was really around, Jefferson and Jefferson related.

You know, I guess along those lines though so the refineries I guess are still very active. What's kind of driving the delays then in securing a contract?

It's an environment I think in the energy space, I think I've seen it across every sector. It's so easy for people to just not do anything and postpone. There's no speed of decision-making in that space right now.

Whereas you go back a couple of years ago when oil was very high, people have a sense of urgency and they are doing things quickly. It's just part of the psychology. I mean nobody really wants to go up the chain with new ideas and commitments unless they've thought it through and so there's a lot more pondering of possibilities.

Okay, that's helpful. Then to turn to the FAD for a minute, I guess I don't want to be too backward looking in this comment but I see half the FAD is being generated from sale of assets and I'm wondering how concerned maybe we should be about that? And talking about the aviation portfolio getting to $100 million of FAD for 2016, at what point I guess do you anticipate FAD exceeding the quarterly distribution?

Well, just in terms of asset sales it's part of our business strategy, particularly in aviation, is to be active in buying and selling. And we have a great origination capability. We can buy airplanes and sell off the airframes and keep the engines and we have multiple sourcing opportunities.

And when we have engines available sometimes people will come in and say I'd rather not lease the asset, I'd rather buy it and we have a price for that. So I would expect that we're going to continue to see -- I know people always get it, they want to put assets sales in a different category but we really view it as part of our business on a regular basis.

So we expect that we will continue to see asset sales. And it's part of the overall trading strategy that we've developed and built at the aviation business.

Any comment on looking forward when FAD might exceed distributions?

Well I would say the best guidance was what I said in that if we deploy $25 million new aviation in Q4 and we've got $40 million of LOI signed for new deals today if we do that the FAD from aviation alone should be over $100 million. The dividend is $100 million.

Okay, that's helpful. Let me sneak one more in.

Just at the time of the IPO we spoke a lot about targeting dividend increases. Is that still on the table or is just kind of looking at where the dividend yield is currently is that something that you're not really seeing as a possibility going forward? Not going forward, indefinitely but for 2016?

I think our view of that hasn't changed that much. It's 10% increase is $10 million a year on $100 million. So it's not a huge amount of growth for us to be able to cover that increase.

Frankly, though, the market doesn't seem to believe in the dividend we have right now. So talking about growth seems a bit like why don't we focus on what we have and then if people believe that's solid then the stock should trade a lot better.

That absolutely makes sense. I will turn it over. Thank you, guys.

Devin Ryan, JMP Securities.

Hey, good morning everyone. Maybe first here a follow-up on Jefferson. I appreciate the commentary.

It sounds like there's a lot of different types of irons in the fire there. And really honing on the comment that a contract is the start to further opportunities, I know that we're all anxious around seeing an announcement there.

But how selective do you guys have to be around who you partner with to make sure you're shaping the terminal for the best long-term positioning? You're trying to get a sense there versus how many of the opportunities you're looking at are really truly complementary where you can execute on a number of them at once?

That's a great question and we do talk a lot about that. We're not going to do any deals just to announce a deal. So we have a lot of capacity there now but over time we expect that we won't have a lot of capacity, it's going to fill up.

The key areas that I mentioned, though, the crude by rail obviously is a core business the infrastructure has built. The diesel refined product activity, we're seeing a lot of discussion around that right now. There's a tremendous amount of activity from pipelines and refineries.

That is very complementary because to the extent we do business with Exxon or Total on a refined product basis I think it's very likely that that will evolve. And matter of fact we've had discussions with them about -- they would like to sign up to have flexible capacity. So they might be able to shift it over time from crude to refined products.

And that's appealing to them because then they have an alternative use for a take-or-pay commitment. So I think it will definitely -- those are very symbiotic and I think in the discussions we have with the major refineries I think all of them we talk about both crude and refined products. And that's a big opportunity that I think Mexico is kind of a bit of a stimulus here, that Mexican market opening up.

It's not that easy to get diesel and gasoline into Mexico safely. So rail is on the table and I think that gives us a good spot, plus dock capacity is also very short supply. We have two docks today and we can build an additional three docks.

And so when we have these discussions with people they are trying to figure out how much of that can I commit for and how much can I have in the future.

The ethanol opportunity is a little bit more discreet. It doesn't really necessarily relate to crude but it also doesn't take away from the capability, the capacity of the terminal. And I think it does provide an excellent other product for us, particularly something that people feel like the expert opportunity is real.

And we have, again, we have the rail, almost all ethanol moves through the United States by rail because it's too corrosive to put in pipelines. So it's a natural advantage for us and it's an export opportunity. And again with the dock capacity and the rail space and the truck ramp we should be in a great position for that and it doesn't take away in any way from the other opportunities.

Terrific. Great color.

Maybe moving on to the Pride and Halliburton, thanks for the update there. Just with respect to timing of revenues coming back online, how should we think about that?

And then related to the ROV support vessel that went off lease, I know that deal is structured a bit differently, that the downside is protected there. So I just love a little bit of color around how that works and the protection that's provided.

Sure. So on the second one, first on the Pioneer the ROV support vessel, the charter had invested $6 million in equity and owned 15% of the vessel. But given that the charter defaulted that equity interest is deeply subordinated.

It's effectively economically lost. So that $6 million equity was underneath our investment. So we've taken over the vessel.

So that mitigates somewhat. We also had collected, what, $12 million of cash on that vessel. We bought it for 30 or is it 41 (multiple speakers) affected 12 and 6 underneath it. So we will work our way out of that.

It's a very flexible vessel. There's short-term jobs in the near future, although they are not going to be at the same rate we had previously, it will be at a lower rate. And over time I suspect that we will look to monetize both that vessel as well the Pride at some point.

And the Pride, we have a lot of people interested in that vessel. It's getting, again, getting people over the line in this energy environment. We had one deal that all we needed was one more signature from the CEO and that seemed like low risk but we're still waiting for that.

So those are the types of things that it's hard to say. The Pride, though, will do short-term jobs over the near-term and we've got one lined up and we're working very closely with Halliburton.

Halliburton actually really likes the vessel. They go in and pitch it as a total package with other services and positioned as a way to save cost as opposed to spend more money which doesn't really work today.

So this vessel has 2,000 meters, square meters of deck capacity which means you have to do less back-and-forth to the offshore installations which saves money ultimately. So that's the way we're positioning it. Unfortunately it's a horrible market.

Everybody, originally it felt like the state-owned oil companies would not cut CapEx the same as the majors but that's not true. Everybody is going through ratcheting back of CapEx right now and that will probably last for the next three to six months but we'll work our way out of it. It's not great but we'll get our money and make a return and do something more fun.

Okay got it, thanks. Then just a last quick one here, CMQR, really nice to see that contributing positively.

I know it's small in the contribution today. But if we think about that business to the extent you don't do another acquisition there, which sounds like you actually may be looking at some, but just without that view how meaningful can that business be just based on the outlook now that it's scaling and getting some pretty good momentum?

Well, I mean we always thought that that was ultimately a sort of $25 million to $30 million revenue business with typically at RailAmerica the bigger short lines that we used to manage would operate with 25%, 30% EBITDA margins. I still believe that's kind of the base goal for that and management agrees with that.

And then on top of that you know you can swing for the fences on some of the bigger deals. And we've got a pipeline, the key thing is to have a business development team try to have five or 10 projects in the pipeline that are meaningful. And those can be woodchips to Europe or autos across from Canada or butane to Marcus Hook and things, a lot of different unrelated projects, but they can be needle movers in and of itself.

Then in addition the state went out and wanted to get a new operator for the Rockland sub which is a 100 mile line. We got selected which bodes well for us getting other business. They like us in the state of Maine.

So we'll take over some business opportunity there. And that expands our reach. And we'll continue to look around the area for other related opportunities.

Sometimes there are also investment opportunities on the line that we could participate in. If people want to put a new facility for woodchips or opportunity to generate some additional volume we could participate as an equity investor with them as well.

So that's one of the great things about the rail business is it's connected to a lot of different businesses and companies. And the port of Searsport is working with us very closely. So I think this thing it's like concentric circles, they just keep expanding, getting bigger.

And if you have a really capable management team things find you're much better positioned and you find new opportunities every month. So I'm very excited about that.

I don't think there could be a better turnaround story in the rail business either given the history of this line and what we've been able to do with it. So if we can manage this one I don't know that there's anything that would compare, be harder.

Got it. Thanks. I appreciate the color.

Art Hatfield, Raymond James.

Yes, thanks for the time this meeting. This is Derek Rabe on for Art. Last quarter it seemed like Hannibal was very close to closing.

I wanted to circle back to this. I appreciate the earlier color but I just want to make sure I fully understand. What was it in particular about the projects as you progressed throughout the last quarter that led to the delay in closing and then if you're willing is there a new target date for closing this?

Sure. So there were two parts to Hannibal. One is the near-term part was there were a lot of service providers out there when there was a lot of drilling of people moving in frac sand and pipe and then moving out product natural gas liquids, condensates.

And those opportunities when we first came into the investment back in the fourth quarter we had a list of probably six or eight of those that people were they wanted to do storage, they wanted to bring frac sand on and on. And there was probably $10 million of income that we could see our way to generate on a regional investment.

But in the fourth quarter gas prices came down and the drilling activity slowed down. I think pretty much that whole list evaporated, it just went away.

And so that doesn't mean that it won't come back but we said the second part of the investment is that the longer-term opportunity really is being able to put a facility in that region on a site that has great logistics and be able to buy gas on a long-term basis at a huge discount. And it could be Henry Hub minus 50, Henry Hub minus $1.

And so lots and lots of companies that have gas as a major cost of goods sold are very interested in that. Those projects are still very much alive. So what we've said is well we don't have to rush this.

We don't have to close it immediately. Let's keep it open and see how those big projects develop. So we've pushed it off I would say six months.

It could be longer. We don't really have a lot of downside and it's really more of an option.

And things like power plants and gas liquids, they are all -- there's a lot of people out there still highly interested in that and they love the site. So I'm not saying we won't move forward, I'd just say that it seems prudent to just slow it down.

Great, that's helpful. And then on the shipping container business, did you any impairments in the quarter?

And then just looking at your portfolio it looks like the remaining lease terms for those portfolios were just over 12 months. Can you just talk, remind me about your long-term strategy in this business?

Well, long-term strategy, we've had a long history in the container space and the period uphill 2012 or 2013 was a very good period. And largely if you look back, way back, you go back into the mid-1990s container prices came down from like 1995 to 2004. And that was a bad time to be in the container leasing business.

Then from 2004 to 2012, container prices went up because of China and steel prices. And that was a great time to be in the container leasing business. Starting in 2013 we kind of didn't see any terrific opportunities, so we liked what we owned and we stopped any new investing.

The environment today, it's not terrific for any new investments, so we have a portfolio which is relatively small. It's good assets but we could probably do things that are more fun and more interesting and more lucrative elsewhere with that capital and we can get good prices for those assets today.

So that was really the strategy. We could revisit containers again but the outlook isn't -- I don't see a catalyst and most people I talk to are not really looking for a big catalyst that's going to all of a sudden make that a change to the picture dramatically. Do you want to talk about the --

We did not take any impairments during the quarter on that. As you recall we took an impairment at the end of the third quarter on the operating lease assets in our joint venture. But since then we haven't taken any impairments.

And the cash flow profile is --

The cash flow profile, yes, it's about 12 months left. I think the assets in the joint venture have a year, year and half left in terms of contracted lease term --

Of the asset we sold.

No, of what's left.

Okay.

And then the one we have, the remaining one on our balance sheet has I think it's two or three years left. The one that we sold is just important to point out the net proceeds of that will be roughly $25 million when we close that. That's the asset that had a maturity at the end of next year anyway.

And so we would have collected that money at the end of next year when that asset was going to mature. So effectively what we've done is just bring forward that proceed from 2017 until this year.

Great, thanks for the color. That's all I have.

Matthew Howlett, UBS.

Thanks guys. Thanks for taking my question.

Joe, can you just walk us through the leverage, the long-term leverage target is 50%, I want to know if that is still the case. And can you walk us through the cash and will you buy something with leverage on it or will you look for other ways to get financing?

Sure. So we have our target is still the same at 50% or less of total debt to total capital. As you're aware we varied depending on the asset, we've invested in how we finance it all the way from 0% debt on the aviation portfolio by design up to as high as 70% originally on containers and probably more of the infrastructure on a mature basis is more 50-50 in that range.

So that we will definitely look at financing on an individual basis going forward depending on what it is and the size of it and how to best optimize the structure. In addition to that, we did spend time with rating agencies going through getting a rating for FTAI and so we could access public markets on the debt side. As well on a basis we're prepared if we need to.

And obviously the high-yield market is you're better to be a buyer than a seller right now, so wouldn't be rushing necessarily to do that. But we could ultimately access debt for the FTAI on a general basis, not an asset specific basis as well, but we would still keep the overall leverage under that 50%.

Right, got you. But the cash is going to be deployed really before any really we see any new debt come on to the Company, is that kind of how to look at that?

Yes, we have $350 million to invest before we would need to borrow additionally. But there are deals there larger than that that would require both that $350 million plus debt as well.

Right, got you. And then just on the funding side on the Jefferson with the taxes and bonds, I mean presumably you're close to a contract.

You wouldn't have done that if you didn't think that there was some near-term contracts with all the big refineries. I mean is there something can we look kind of more into that how you're setting that up today or was it more opportunistic that you wanted just to get into that market?

No, I think it's definitely related. And it took us three to four months to get that set up because to use the port authority's tax-exempt authority we had to go to the port authority, we had to do all -- we had to get the authorizations, we have to go to the Texas Attorney General's office and the many different levels of approval.

So you can't just snap your finger when you're ready and do those deals. The tax-exempt market is a little bit takes longer lead time.

But for us it's a great market because going forward we could do 100% financing of let's say we have a new contract and we want to build a new dock or we want to build storage, we could debt finance 100% of that in a tax-exempt market. And in particular if it's connected with a contract we think the rates should be much lower than the taxable market. So ultimately that was always part of our thinking and strategy and now we're in a position to be able to utilize that and marry it up with a new investment opportunity.

Right, got you. Thanks for that.

And just a last question, you talked about the returns being back to 2008, 2009 levels and you've done sort of 20% since you raised money in this vehicle. The guidance is sort of 15% to 25% IRR. So can we presume that we're on the upper end of that on new acquisitions here as we sit here today and look at your excess capital position?

Yes, I would think so. Definitely return profiles have improved.

Great, that's terrific. Thanks guys.

Rob Salmon, Deutsche Bank.

Hey, good morning guys and thanks for taking the question. You know, with regard to the capital deployment obviously you've got a bunch of firepower on hand, Joe. It sounded like you're seeing better underlying returns on the potential investments.

How are you weighing that kind of near-term market uncertainty versus the higher returns in terms of putting that capital to work? Is this something you feel like you're going to be more opportunistic and wait or do you still kind of want to put the capital to work faster now?

Well, it feels like a good time to invest to me now. We didn't predict that this would happen and the markets would kind of meltdown starting in October or August. It was really the markets running to a downward spiral and then in the energy in China the commodities and then the election.

And so it's all -- we didn't foresee any of that. But we didn't necessarily feel great about the prices in some of the deals we were seeing. But today it feels much better.

Prices are in many places are very attractive. Capital is short. MLPs and high-yield issuers and bank lending, all those capital sources are pretty much if not totally shut down they are much, much harder for people to access.

And we love to invest in markets when capital is short. If capital is readily available prices go up. If capital is tight prices go down.

So I think today feels much, much better from that point of view and oil is $30. Could it go to $10? Of course, but it feels like a lot of things are already out there in the market and you can see what you're getting.

And the economy overall, you know it doesn't feel that bad. And we started to see traffic volumes on the freight side trending down in the third quarter last year and you never know how far they are going to go and how severe that will be but it feels like we've now kind of bottomed out on freight flows. So it feels like a good time to put capital to work.

That makes sense and I guess we've seen you guys put or get signed letters of intent for the aviation leasing. I think in your prepared comments you had mentioned it was going to be $13 million contribution in 2016 leading the way to $100 million of FAD on a run rate basis once that's fully implemented.

How should I think about the step-up in terms of that $13 million? I'm assuming it's much more fourth-quarter loaded versus second or third quarter. But if you could kind of walk us through that step-up to getting at the $100 million run rate?

Sure. Of the $13 million, the capital that's generating that is the $25 million that we invested at the tail end of the fourth quarter, aviation assets and then the $40 million of letters of intent or LOIs that we've signed up. I expect those to close between now and probably the middle of the second quarter. So I would think by the third quarter that capital should be generating that additional FAD for the aviation business.

Got it. That's helpful. Then in terms of just for modeling purposes, obviously there's a lot of puts and takes in the offshore energy business.

Can you give us a sense in terms of the total operating expenses they stepped up in Q4 which makes a lot of sense. You have got some vessels which were off-chartered during that time and there's some more expenses associated with that. How much of an incremental step-up should we be expecting as we're looking out to may be the first and second quarters associated with the ROV support vessel coming off lease?

Well, firstly I think there were a lot of expenses in the fourth quarter. The bulk of that related to putting the Pride through a dry dock and getting some thrusters and other parts of the vessel repaired or replaced in preparation for putting it on to new charters.

So that's done and that largely all took place in the fourth quarter. So there's probably $2 million of expense that should be one-time in nature relative to that.

There will be some expenses with regard to the Pioneer, the ROV support vessel, in the first quarter but much, much smaller than that in terms of what we're doing with regard to taking that and then putting it on new lease. That vessel, the Pioneer, generated about $0.5 million a month in terms of net revenue to us which means sort of net of our 85% ownership of that asset.

So we expect to get that back on hire in the next few months and we'll recover a bunch of that of revenue. But I would think it would be less, probably half of what that number would be, maybe a little bit more when we get it back on hire.

Got it. And I would imagine the repositioning of the Pride, I am assuming you're paying for that since it's not currently on lease given that it's moving to Asia but that would be considerably smaller than the $2 million of dry dock expense that was incurred in the fourth quarter?

Yes, that's correct. And obviously the fuel prices being where they are it helps tremendously there.

Makes sense. Bunker is definitely cheap right now.

You guys talked very positively about the CMQR both in the prepared remarks as well as the comments. Is there any expenses or capital investment that I should be thinking about as you guys extend out that additional 60 mile in the Rockland subdivision that occurred in January to get this up and running? And are there any sort of revenues that we should be thinking about associated with that railroad?

There's no capital required on our part on that. It's a 10-year lease and we don't have to put any of the CapEx on that. So that's actually pure incremental cash flow.

I think we're still -- it's a little early for us to be trying to figure out -- we just took that over on January 1 and it's a little early for us to be very sure about the revenue opportunities. It's not huge right now but I think it is something we will talk more about in the future on that.

Got it. And with that railroad and I would guess to a lesser extent Jefferson we've been hearing in the news flow a little bit about railcar storage of crude. Is that something that you guys would contemplate doing or have there been inquiries to do something like that on any of your lines?

Yes, actually we're looking at doing it at Jefferson so we could do a storage play of crude. We've talked about it.

It's something, it's early stage but it's something we're definitely looking at. And then on the CMQR we've had several railcar leasing companies have come and said I need a storage location, do you have any spare miles?

If you remember way back we had RailAmerica we actually built a whole business in 2010 around railcar storage and generated $15 million a year that year for storage. So it's definitely picking up. There's a lot of excess railcars out there and the best place to park them is on a short line.

Sorry, Joe. I broke up. I went over you there.

No, we'll probably do some of that at CMQR. I have already talked about it with Jon and we're looking at how we structure that and how we go after it.

Got it. That makes a lot of sense.

I guess my final one will be on Jefferson before I turn it over to someone else. You guys added a lot of incremental storage capacity at Jefferson in terms of those tanks that came online.

What was the utilization like in the fourth quarter? Because I'm assuming you didn't have them for the full quarter and should that drive better underlying rail volumes as we look out given some of the noise you had alluded to with regard to the sourcing in Canada?

The storage didn't come online until like late December. There's nothing -- the incremental storage that we had is 400,000 I don't think had any revenue in Q4. But they were online in early January so they should see it in Q1.

And as to the -- it's an essential ingredient in all of these conversations and negotiations for crude by rail or even ethanol and diesel to have storage. So we're going to be building more storage. Part of that is there's one specific contract that we're negotiating that is a new storage deal which will involve primarily ship activity.

So it's very much needed and part of the equation and it's a great asset to have today available. And for instance, I mentioned the fourth tank we're bringing in crude from Western Canada in the next couple of weeks and we will be we'll be blending that up with WTI or local and shipping that out. So it's really nice to have that.

That makes sense. I appreciate the color.

Christian Wetherbee, Citigroup.

Good morning guys. This is Prashant in for Chris.

My first question, I wanted to go back to the capital market opportunities you discussed in the prepared remarks, Joe. I wanted to get a sense of how we should think about what you guys have in mind in terms of total spend and the opportunity set.

Would the investments be more in the infrastructure or the energy side? And how would you position the investments?

And I'm thinking about you mentioned four different things at Jefferson as avenues for growth and wondering if any of those are sort of potential areas we should be considering as far as you looking for investments there? And just generally sort of a ramp in terms of when you expect to start to deploy capital towards that?

Sure. So great question. All of the investments we're looking at on the debt side somehow relate to things that we feel like we know what we're doing.

And it could be terminals relating to Jefferson on the crude storage and refined products and ethanol side or it could be railroad opportunities and other things that are -- that might help us enhance the whole portfolio. And how it ramps, these are pretty opportunistic as you can imagine. What you want to do is you don't want to buy a diversified portfolio of securities.

You want to buy securities in businesses that you would love to own if the opportunity arose. So you want to have enough of a position that you can actually execute on that if the opportunities present itself.

So it's a scenario where you either credits get better and recover and you make a bunch of money or credits don't recover and maybe you get a chance to acquire an equity ownership or control. We're in the market and the markets are presenting interesting opportunities.

It's again it's pretty opportunistic and so I can't -- it's hard for me to do a ramp. It's much more lumpy and difficult to project than it is in other spaces. So I can't -- I'm not sure I can help you model that one.

Okay, that's great color. I appreciate that. Is there a, could I ask is there a sort of target minimum return you're looking for or any other metrics that are key in terms of what's investable for you?

You know, the return profiles are similar to what we've been looking at across the board. Obviously they could be substantially higher than -- what you want is a base return profile that fits in your 15% to 25% range and that's the profile you feel like that's probably the worst I could do and then you hopefully have upside from there.

And sometimes you can have spectacular upside from there. In terms of the other size, was that the question --

Or what you look for in terms of let's call them screening criteria, how levered the companies are, is there a point at which it's too levered relative to the return? Or what you expect for the balance sheet metrics, things like that, is there anything that you maybe you could call out that could be helpful in terms of getting our heads around what to look at?

Well, all of the companies are too levered or you wouldn't be looking at them. That's a check the box. And so that's the beauty of it and those markets can be pretty unforgiving and that's what we like.

So I think in terms of they are all overlevered and that's part of why they are attractive and what you look at is the effect of price that you're buying it at. So if securities are at a deep discount and you look at the effective multiple you're paying assuming that you'd end up converting.

But the size is a function of you want to have a big enough position that you have a seat at the table and that is very case specific. It's very much situational.

Okay, that's helpful. Thanks. And then just one final.

On the remaining container portfolio the 12 to 18 month left in terms of the revenue and investment horizon, would you be moving -- should we be think about you maybe moving faster in terms of exiting completely from containers given the market? Or how do you balance that versus the cash flows that you expect to come in over the next year to year and a half?

I think we have prices in mind for all of that. And if we find the right opportunity we would monetize it.

Okay and --

It's not really strategic anymore and profile and the cash flows it's fairly short.

Okay. The gains would also be more kind of de minimis or nominal --

So I wouldn't expect there to be huge gains. It's really just freeing up capital to do something more interesting.

Okay, great. Thanks for the time, guys.

Brandon Oglenski, Barclays.

Hi, good morning, this is actually Eric Morgan on for Brandon. Thanks for taking my question. I just wanted to follow up real quick on the question around urgency of deploying dry powder.

I appreciate a lot of the commentary on the current environment. Just wondering if you still think it's achievable to be mostly deployed by the end of 2016?

I do. Yes, we've got a very active pipeline of deal opportunities and some of them are quite large.

Okay, and then I guess just given these opportunities do you expect any change in -- is there any change in where you expect the breakdown of the portfolio to shake out longer term once you're fully deployed?

No, I think most of the -- on the equipment side most of what we're looking at is aviation. So I think we continue to grow that.

As I mentioned I would love to see that develop into a $1 billion business that generates 20% a year every year, year in and year out. That's my aspiration.

So we will continue growing that. And then the other infrastructure opportunities I think will be spread across the same types of things, you know, the Jefferson, Rapauno, rail, infrastructure similar to what we're looking at, similar to what we have today.

Got it. Thanks for the time.

Jared Shojaian, Wolfe Research.

Hi, good morning. So Joe, just to follow up on that and just some of the commentary you've made on the aviation side and you said there's strong demand and you love the business right now.

So I guess what's prohibiting you from making that an even bigger part of your business right now? Why not just use all of your cash balance to just buy aviation assets? Is this more about wanting to grow the infrastructure side of the business right now or what is I guess how are you thinking about that?

No, I think that you could go out and buy as much as you want right now but we try to buy at very no-brainer prices. So that just takes time. And to the extent my experience over the years has been if you go out and you try to rush it you overpay and that we don't want to do.

So I think we've been very good, very disciplined. The opportunities will present themselves. Even the financing markets on the aviation side, the securitization markets have been affected negatively which means that the sellers have fewer options to turn around and monetize.

So I feel good about where prices are coming and what we're looking at. And I just don't want to -- I would not want to tell our management team there to go invest $200 million tomorrow. And they could do it but you wouldn't want them to.

Okay, so it doesn't sound like it has anything to do with diversification I guess because if I just look at your stock you're basically trading in lockstep with crude oil right now. So I guess are there any other ways -- I'm sorry?

As are a lot of companies.

Right, right but I mean if 50% of your assets are going to be in aviation I would think that there's a natural offset there. So are there other ways to diversify your FAD and some of the revenue that you're bringing in?

Sure. I think -- and a number of the investments we're looking at would achieve that for sure.

Okay, that's great. Then just lastly more I guess thematically, you expressed some frustration in your stock price here and I mean clearly the market doesn't believe your dividend yield.

What recourse do you have? Is there any way you can unlock value here whether it's through a share repurchase program, I don't know if there's restrictions there or if it's through M&A, I don't know if there's any discussion there, or is there anything else as far as just unlocking value that you guys have contemplated? Thanks guys.

You know, we've talked about share repurchases extensively. It's a tool that we know we have and we've used in other situations.

We decided at this point not to pursue that at the moment given the investment opportunities we have in the outlook. And I think the key from my point of view the key value opportunity is to deploy the capital in a way that enhances the existing investments we have. And so that's what I refer to as winning squared.

And if we can do that I think the market will take care of itself which it always does. So I'm not trying to come up with a short-term fix for something that really is a long-term value opportunity.

Got it. Thanks, guys.

That does conclude today's Q&A portion of the call. I'd 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 again after Q1.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program.

You may all disconnect. Everyone have a great day.