FTAI Aviation Ltd (FTAI) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2017 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. (Operator Instructions) I would now like to introduce your host for today's conference, Mr. Alan Andreini. Mr. Andreini, you may begin.

Thank you. I would like to welcome you to the Fortress Transportation Infrastructure third quarter 2017 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 in our press release on our website, which we encourage you to download if you have not already done so. And 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. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding 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.

Thank you, Alan. To start, I'm pleased to announce our 10th dividend as a public company and our 25th consecutive dividend since our inception. The dividend of $0.33 per share will be paid on November 27 based on a shareholder record date of November 17.

So let's start with the numbers for the quarter first. The key metrics for us are adjusted EBITDA and FAD, our Funds Available for Distribution. Adjusted EBITDA for Q3 2017 was $37.8 million compared to Q2 of 2017 of $28.8 million and Q3 of 2016 of $20.3 million. FAD was $73.6 million in Q3 of 2017 versus $34.6 million in Q2 of 2017 and $10.1 million in Q3 of 2016.

During the third quarter, the $73.6 million FAD number was comprised of $96.9 million from our Equipment Leasing portfolio, a negative $8.5 million from our Infrastructure business, a negative $14.8 million from corporate. The negative Infrastructure number was higher than Q2 and was -- which was primarily caused by throughput reduction at Jefferson due to construction activity at the terminal, a timing issue on deferred revenue, and Hurricane Harvey.

The increase in the negative FAD at Corporate compared to Q2 was primarily due to the increase in interest expense from the $100 million add on to our 6.75% unsecured debt issue and $60 million drawn on our credit facility as at -- as of at the end of Q3. That credit facility was subsequently repaid down to zero on October 3 and remains un-drawn as of this call.

Finally, $56.9 million of the $96.9 million for the equipment FAD was the result of the sale of 2 aircraft, 3 airframes and 4 engines for a gain of $2.9 million; 2 of the airframe sales were from the Air China deal and were scheduled. The sales of the 2 aircraft were opportunistic sales made of newer planes when we received an attractive offer. All $56.9 million of the sale proceeds is being redeployed into the aviation business.

Once we normalized the Q3 numbers, we see at the end of Q3 what we saw at the end of Q2, our ability to generate adjusted EBITDA and FAD on a run-rate basis continues to strengthen and we see that growth not only continuing but accelerating. We're confident in that projection because we have 4 aircraft from the Air China deal yet to go on lease and we expect Infrastructure to be approaching breakeven in Q4.

Let's turn to Aviation first, our largest business segment. This will sound repetitious, but Aviation had another excellent quarter, in fact our best quarter ever. Aviation FAD was $100.5 million, which included $56.9 million from sale proceeds. Excluding asset sales, Q3 Aviation FAD was $43.6 million or $174.4 million annualized, up from the $146.4 million annualized number in Q2 of this year.

The portfolio is performing as well or better than expected and we had an active quarter for investing, closing $43.5 million in new asset acquisitions consisting of 5 aircraft and 1 engine. Through September 30 year-to-date, we have closed on $275 million of new investments. With that $275 million closed and with approximately $185 million in letters of intent signed but not yet closed as of this call, we are now projecting that net of asset sales we will exceed $400 million in new Aviation investment for 2017. In short, our Aviation business continues to grow faster than we had expected.

Our annualized adjusted EBITDA yield and return on equity without gains were 24.9% and 13.0% respectively, both higher than Q2 2017. We expect to realize our target return levels of 25% adjusted EBITDA to equity and 15% return on equity as the remaining aircraft purchased off lease as part of the Air China deal go on lease.

To that point, let me update you on that deal. Of the 11 airplanes in the deal we have closed on all of them, 2 of the planes went on 6-year leases at the end of June, 3 went on 6-year leases in July, and 4 are in heavy maintenance; 2 have been sold for part-out and of the remaining 4 aircraft, 2 should go into revenue service in Q4 and the remaining 2 will go into revenue service in Q1 of 2018. Therefore, we will see more of the impact of this deal in Q4 and the full impact at the end of Q1 of 2018.

Before reviewing more of the specifics in the Aviation portfolio, I want to highlight the environment in which we are operating today. The worldwide aviation macros are even stronger this quarter than they were last quarter. Revenue passenger miles were up a little over 7% through August 30 versus 2016 according to IATA, above the 5% to 6% historical growth average. The IATA numbers continue to predict that by 2035 global air travel will double to 7.2 billion passengers.

In addition to the continuation of the strong industry macros that relate to the growth in passenger miles, our portfolio is also benefiting from the rapid growth in e-commerce as most of our fleet is comprised of 12- to 20-year old A320s, 737 Next-Gens, 767s, 757s and 747s, which are all freighter convertible aircraft. This means that our passenger and engine types will be flying the remaining years of passenger traffic plus the customarily 10 to 15 years of additional life for freighter use.

Given the growth in the 737-800 and A320 aircraft and engine markets and our strategic position in those, we could not be more positive about the future of our Aviation business.

Our first joint venture signed a little less than a year ago is progressing nicely. This first year has been focused mostly on design and engineering activities, while 2018 we will be concentrating on testing and production, and in 2019 on commercial development.

We've also recently signed another agreement with a leading aviation parts distributor and overhaul management company to jointly develop component inventory for the CFM56-7B and 5B engines to be able to afford airline operators and leassors the opportunity to more effective efficiently manage shop visits. The combination of these 2 products and joint ventures would give us a very powerful and exclusive position in the largest single commercial engine market in the world.

Let me finish Aviation by letting you know where we are as of this call. We currently have letters of intent covering $185 million of new equipment. Once the remaining equipment under LOI are purchased or closed and taking into consideration the sale of the assets we noted in our discussion of Aviation FAD for Q3, we expect run-rate Aviation FAD to be approximately $230 million per annum, up from the $220 million we projected last quarter.

Turning now to Offshore, our 3 vessels were on lease for all of Q3 this year. We expect shortly to extend the Pioneer for another 12 months charter through all of 2018. The Pride, which finished -- is finishing a 5-month job in mid-November of this year, has also a few new charter opportunities, but the winter months tend to be more challenging due to weather. Our investment in bore drilling has done well, $18 million investment is currently valued at $32 million and we are starting to see new opportunities that may fit with our existing assets while expanding our capabilities by adding value-added engineering services. We feel the risk return profile has improved, but still there is no assurance that anything will happen.

Let's now turn to Infrastructure and Jefferson. The activity in Jefferson in Q3 was primarily around finishing construction of our 3 projects and the commercial developments for each one of those. Even with Harvey causing 6 to 8 weeks delay, we're on track for Jefferson to be at $15 million to $20 million run rate EBITDA by year-end 2017. This week as a matter, both our refined products and ethanol operations started up and we are now receiving product into the terminal. For 2018, we expect Jefferson to post $25 million to $40 million of EBITDA for the year comprised of approximately $8 million to $12 million from storage activities, $4 million to $8 million from Canadian crude by rail, $8 million to $12 million from refined products to Mexico, and $5 million to $8 million from our ethanol business.

Beyond 2019, the terminal is extremely well positioned to capitalize on growth in the local refinery market through storage deals, growth in the U.S. crude export business, and growth in refined products export and distribution. As such, we have executed a letter of intent with TransCanada to connect Jefferson terminal to the market linked pipeline for inbound crude and we are actively negotiating 2 additional pipeline connection agreements for outbound crude and inbound and outbound refined products. We expect to utilize these connections to allow us to sign additional storage deals in early 2018, which would provide meaningful growth for the terminal in 2019 to 2022.

Turning to the Central Maine and Quebec Railroad, the CMQR had its best quarter ever in Q3 with $8.3 million of revenue and $1.2 million of EBITDA. The best part of this story is that approximately 25% of the revenue came from new business initiatives and it's a lot harder to grow revenue than it is to cut costs. The team is also planning to start a new service business in Q2 2018 which we expect will add $3 million to $5 million of annual EBITDA when ramped up by the end of 2018. Longer term, we still expect CMQR to generate at least $35 million to $40 million of revenue per annum and $10 million to $12 million of EBITDA.

Repauno had a good quarter also with the first real commercial activity taking place by storing butane in the existing underground granite storage cavern. We got started a little late in the season and therefore only utilized about 40% of the capacity of the cavern, but we will generate a little over $1 million in EBITDA in Q4 of this year. Importantly though, we are in the natural gas liquids business, which we believe we can grow meaningfully.

The granite formation under our Repauno site is only found in a handful of places around the United States. Our site importantly is closer to the Marcellus and Utica region than the Gulf Coast is and it's on deep water. Our engineering work today would indicate that we could build up to 6 million barrels of new underground storage at a cost of approximately $100 to $125 per barrel versus approximately $350 per barrel for comparable above ground pressurized and insulated storage.

Our current plan or expectation would be to start by building 1 million barrels, which including the above ground connected infrastructure would represent a total investment of approximately $175 million that should generate $50 million to $60 million in annual EBITDA after a 2-year build period, very exciting opportunity for us looking ahead.

The auto terminal decision that Repauno has been delayed by the auto company yet again, so who knows if or when this happens. But given the natural gas liquid opportunity that I just mentioned, it's not the main driver of value creation in any event.

Lastly, Hannibal is shaping up quite nicely. Most of our time and attention at Hannibal has been focusing on the power plant and by the end of this month, we expect to have all the necessary permits in place, fixed price construction contracts, and a fully negotiated gas drilling joint venture. We are presently offering and negotiating long-term fixed-price power purchase agreements with large Ohio based industrial users and expect to have agreements in place for some of the 485 megawatts before financial close.

Based on today's rates and gas prices, we believe the plant and the gas joint venture could produce $80 million to $100 million of annual EBITDA on $550 million of total invested capital beginning in 2020. If we can attract tenants to our property at Hannibal, who also commit to use power, there is also a pretty good upside on those numbers as well. In the near term, we're looking at frac sand storage and transload deals, which also have been picking up in activity and are looking interesting again at Hannibal.

On financing, our credit profile continues to improve. Since our last call, we added $100 million to our $250 million unsecured deal done last March. The original deal was done at a yield of maturity of approximately 7.5% and the add-on was done at yield of approximately 6% and the bonds recently traded just a shade over 5%.

In conclusion, Aviation continues to perform extremely well. We have just completed yet another quarter of both portfolio growth and improved returns. Offshore is off the bottom and as crude prices improve and as delayed maintenance in offshore facilities becomes more of an issue, our options in this space are becoming more interesting.

Infrastructure, our growth engine, is tracking as we had originally planned by creating our own dropdown pipeline for 2018, 2019 and 2020 with Jefferson, Repauno and Hannibal, we feel that we're creating a growth story with visibility for the next 5 to 10 years.

With that, I'll turn the call back over to Alan.

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

(Operator Instructions) And our first question comes from Chris Wetherbee with Citi Group.

I wanted to touch base as you start on the TransCanada letter of intent, Joe, I don't know, can you -- could you give us a little bit more color in terms of potential timing and then maybe take us through sort of what type revenue opportunities this could present to you and maybe sort of how you think about that progressing over the next year or 2? I guess, I just want to understand sort of the build up process and maybe what the revenue opportunities might look like.

Sure, it would allow the Jefferson terminal to receive crude by pipeline and that the market linked pipeline is one of the largest pipelines supplying crude to the Gulf Coast. It can bring it in from Canada, which is obviously crude that a lot of the Gulf Coast refineries use and so that -- and so as opposed to us really relying solely on crude by rail, it would give us direct connectivity to Canada by pipeline in a very significant quantity. From a TransCanada point of view, it adds another destination for their customers, so it's a good thing. They like to have more places to be able to offer to deliver the crude -- the revenue up and it probably takes 18 months to 2 years for us to build that out. And then in connection with that, obviously the -- once you bring the crude into the terminal you to have a place to store it. So the revenue opportunity will primarily for us be driven off of storage and potentially blending and other services that you provide as well there what the terminal today provides. And I think, as I mentioned the last time, the total capital opportunity -- if we look at building say 3 million barrels to 5 million barrels of storage in connection with that, you can look at capital costs are roughly $50 per barrel. Then the pipeline would add say another $100 millions to the capital costs and we believe that we can sign take or pay deals and have reserved capacity from several users for that storage space lined up.

That's really helpful to put some parameters around that, I appreciate that. And then 2 other quick ones, first on Repauno, the 1 million barrels of storage there, it looks like a really interesting return on the capital deployed. Can you talk a little bit about sort of the timing of that prospect and then if you think about going from 1 million barrels to potentially 6 million barrels over a period of time, the economics sort of look similar as you work to scale up. I'm just trying to get a sense of maybe what that ultimately could look like.

The economics get better as you scale up because some of the frontend -- some of the capital you invest in the first million barrels is shared by all of the subsequent investments. So the incremental investment per barrel goes down a fair amount when you go up from 1 million barrels to 6 million barrels. And what we're looking at is really being able to provide the entire logistics chain, sourcing natural gas liquids from the Marcellus and Utica potentially using Hannibal as a point of origin, moving it most likely by rail, and then bringing it to Repauno putting it in storage and then loading ships from Repauno. So we would provide the entire from origin to destination through -- that we would manage and arrange. So I think that's one of the reasons why the economics are better. When you provide more along the line, you have the opportunity to capture more of the profit.

And from a timing perspective on that million barrels, just want to make sure I don't know if missed it?

Unfortunately, everything is 2 years.

Then last question I mean, just want to take a kind of step back and think about it, now you have a lot lined up here obviously. Aviation is really ramping up to a very high level and then next year sounds like a big year in particular for Jefferson. As you guys start thinking about the distribution and getting coverage, can you just sort of remind us maybe how you want to think about distribution coverage and sort of increasing that distribution? So what do you need or what are the coverage ratio that you want to be looking at and sort of using as a framework as you think about 2018 to 2019?

Yes, so we like to have 2 to 1 coverage of the distribution. So when we have the dividend covered 2x, we have $100 million today, so we would look to cover that with $200 million of FAD from the various businesses. And so at the point in which time we exceeded, the 2 to 1 is when we would consider raising the dividend.

And our next question comes from Justin Long with Stephens.

So you gave the guidance for 2018 for Jefferson to be $25 million to $40 million of EBITDA. I wanted to ask about that and just get your level of visibility to that forecast. Is it the right way to think about it that you've got that amount under contract today and any spot moves that you would get would be incremental to that forecast?

I would say that it's not 100% under contract, so some of that is based on conversations we're having with regard to new customers, particular refined products is an example to Mexico. We have one existing customer and tenant who is signed up for a minimum volume, but there are 3 or 4 others who we are in active negotiations and discussions with about also serving those. So there's some assumption that we convert some of that -- some of those conversations into business next year. And then on the storage side, it's -- I would say it's largely all contracted. With respect to the Canadian crude by rail, that's a business that is more up to us in terms of how much of that we decide to do. So you basically buy the crude, bring it down and sell it at the same time to local refineries. So we have experience and have been doing that. So I think we have a reasonably good view on how much activity is sustainable in the next year and based on a lot of history and having brought a number of trains in and sold them already. So that's kind of a -- it's a little bit of a mix. I would say it's more contracted than not and it's also very specific projects that we -- with very specific customers that we've identified.

And maybe to follow up on the storage piece, could you just talk about the storage opportunity at Jefferson and then what would a blue sky scenario look like from a FAD perspective on that front?

Well, I think we've -- what we've talked about is looking at adding chunks of storage in 3 million barrel to 5 million barrel chunks. So if we had a customer that was looking for a certain capacity, that would be the -- that would be how we would build it out. As I think we've mentioned before, today we have about 2 million barrels -- 1.8 million barrels built, we've got another 750,000 million barrels under construction or 1.9 million barrels -- 170,000 million barrels, 750,000 million barrels under construction. So next year, we'll be at 2.5 million barrels or 2.6 million barrels. The capacity of the terminal is over 20 million barrels in total. So we could do 3 million barrels to 5 million barrel additions a few times. And we indicated, I think previously that when you look at the totality of what we would earn of that for all the different services, you can generate roughly $10 million to $12 million of EBITDA for 1 million barrels of storage.

And I think you mentioned with TransCanada maybe the range is 3 million barrels to 5 million barrels, but there are a couple other pipeline discussion that you're having. Is the range pretty similar when you look at the storage opportunity under other deals?

Yes, I mean it's -- we're looking at additional crude pipeline connectivity outbound, which potentially could facilitate export barrels. And then we're looking at refined products inbound and outbound, which is a whole different dynamic, but also in the same size range.

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

Maybe first question here, I appreciate that the Hurricane Harvey created some delays, but it was really great to see Jefferson was less affected I think than most in the hurricane. And so, can you talk a little bit about why or how that was the case? And then just how dialogs might have changed with potential partners after the hurricane or maybe even it brought some new parties to the table?

Well, the -- I think part of the reason that the facility did well is because there's been hurricanes in the past down there and so I think people know that when we build new facilities we've been raising the ground level putting in more fill. So I think the last time Hurricane Andrew, the facility withstood that well and then when we designed and built this, it was built at a higher floodplain. So I think that when you look at some of the properties there were most sectors, the properties that were typically older where they hadn't had the planning. So I think going forward, the first question everybody's going to ask going -- when you start a conversation now is, how did you in Harvey? And so I think that's a good -- it's very positive for us there was no flooding at the terminal, so that's a good starting point. And then -- because that's not true for everyone. So it will be a good selling point for us going forward for additional volume and additional connectivity.

Maybe a bigger picture question here, when you think about developing your infrastructure assets kind of in totality Jefferson, Hannibal, Repauno, you mentioned in the prepared remarks kind of a drop down pipeline. Can you just give us more detail around how long a view, of how these assets might have maybe connectivity with each other, kind of what you mean by that? And also any kind of longer-term synergies that we should be thinking about as they are developed with you owning them versus if they were held by all 3 separate parties?

Sure, so the -- I mean each of them, they are different locations obviously, so you have different customer bases, but there are probably more similarities in each one of these properties than there are differences. So they are each port and rail terminals that have rail access and they are on water and we've got a lot of land to develop. So they're similar in that ways. In terms of the immediate connectivity, as I mentioned, we are looking at potentially connecting by having volumes originate at Hannibal and the Marcellus and Utica shipped to Repauno. So there is connectivity, there's potential to do the same type of thing with Jefferson and some products as well from Marcellus and Utica. So going forward, I would say that we will look at commercial opportunities to link them and there probably will be some. So I think that that dynamic is a good one and then they're all exceptional properties, great locations, and great physical attributes in that way. We are also getting in the power business at Hannibal, which is exciting and interesting, and it's been a good experience. I think we've approached that in a good way and a smart way. And so I think we'll learn from that and hopefully that will help us at our other locations as well.

And then maybe just last quick one here, just within the Aviation obviously, it had kind of an active period of sales. And I know you guys are opportunistic and then some are kind of event specific, but are there consistent buyers or is it just every situation to you is idiosyncratic and if there's a good offer then you'll consider that? I am just trying to get really a sense of kind of the outlook for sales and I know it's difficult probably even to speak about them for us to model, but I'm just trying to think if there is any theme we should be thinking about as we're thinking about the bigger picture.

Well, usually when we're selling, most commonly we're selling to airlines. So airlines, particularly on the engine side, if an airline is in need of a certain engine and have -- usually it's a result of unscheduled maintenance, and then they need an engine, they need a certain type. And so then they are a very frequent buyer of engines in the secondary market. And so that's probably our biggest source of sales for engines. Airplanes, it's a little bit all over the place. Right now there is lots of buyers of airplanes, particularly if you have cash flow attached to it. So -- because there is a lot of securitization options for people. So that one is really purely more opportunistic, I would say.

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

I wanted to actually continue on that line of thinking a little bit. Recently, I've heard some rumblings that there is -- seems to be more capital entering the aviation leasing business. Could you just discuss that? And is there any threat that we could see returns be threatened by that over the next kind of over the medium- to long-term, call it, I don't know, 24 months to 36 months?

Sure, there is more capital in the space I would say as a general matter. There are lots of people that -- people have seen the returns have been very good and it's -- as I mentioned, the macro is quite positive. So that does attract capital. And most of the money is directed towards aircraft and also aircraft that have cash flow attached or longer term leases. So I think that's where the -- that's where I see the biggest pressure and compression on returns. But that's not an area where we tend to -- most of our deals we're buying that have no cash flow attached or they're short stub leases and we're not competing against that capital. So from our point of view, I haven't -- we haven't seen compression of returns in our market, which is knock on wood is good. It's not to say it couldn't happen, but I think that the most -- the lowest barrier to entry part of the business is to buy an airplane that has a 5-year lease and put it in a trust. So that's what a lot of people are doing and that's not what we're doing. So -- and I think we're trying to move further and further in our engine business, as I mentioned towards on -- towards the industrial side of the business as opposed to the finance side of the business. So to the extent we develop exclusive proprietary products in the engine side, it would be harder and harder for people to do what we do.

And then just on the M&A front, it sounds like obviously you have a lot of irons in the fire here. Would you say that you're pretty comfortable of where the portfolio stands right now or are you still looking to add to the portfolio beyond some pickups of aviation assets? And then similarly, now that the offshore market is strengthening, has there been any kind of divesting that piece of the business as it seems to be kind of increasingly non-core?

Well, in terms of M&A we do look at lots of things that are offered in the market. We continue it's -- I think it's a good discipline just to see what's out there and what pricing it is, where things are. So we are active in evaluating and looking at things. The good news is that we have a business right now, we have properties right now that we can develop and build. And so we don't feel compelled to pay top dollar for infrastructure assets today, which is -- it's a pretty competitive and fully priced market I think. So in that environment, from my point of view, it's better to build than to buy. If things were to reverse themselves and went the other way, all of a sudden existing assets were cheap relative to building, we would probably do the opposite. But right now, we can keep doing what we're doing without having to chase other deals or chase a very competitive M&A market. On the offshore side, the offshore is still extremely distressed and there's more companies, literally every week or every couple of days there is another company that's liquidating or shutting down, which for me is very it's -- I look at that and it makes me smile. But because the market is getting rationalized pretty quickly or fairly quickly. So what we do there, as I mentioned, we have looked at a couple of deals where we can either contribute our assets to a bigger enterprise or add us -- add on a capability that we currently don't have. And I think that there is potential we could make a lot of money off of that. But we haven't found it yet and I would say we're still in this period where there are -- it's still a very muddied time in this space, but it's starting to settle out I think.

And then just lastly, in terms of the capital needs, obviously a lot of projects in process. In aggregate could you just talk about what your thinking is around kind of need of capital and how you would be looking to raise that capital? Is that most -- is that going to be a fourth quarter event, is it first half '18 that you're kind of looking, I would assume primarily the debt market, but maybe if you could just kind of give a little more color around that, that would be great?

Yes, with respect to the infrastructure, which is where Aviation will continue to grow and will fund that as we have been doing. Infrastructure is where we have larger capital investments really. It's potential up to $1 billion at Jefferson, it's $550 million for the power plant at Hannibal, and $200 million at Repauno. I would think we will do a lot of that with project finance at the debt -- debt project finance at the asset level. So when you have contracts and committed revenue streams, I think the pricing and the flexibility to get by funding a good portion of that way is quite advantageous.

And our next question comes from Robert Dodd with Raymond James.

A follow to that one since it was my question. On -- as those projects get further on and you do the debt financing obviously, I mean you are at -- you call it 38 debt to total capitals per day, how high would you feel comfortable -- obviously, you have a target there, but how high would you actually feel comfortable taking that before feeling the need to make a more substantial adjustment and would you think that would come, what would the, your ranked expectations, would you think that raising equity would be the way to do it, or would it be bringing in partners to offload some of the debt burden, I guess, from that perspective, on a GAAP perspective, is your target debt to total cap on a consolidated basis or would you be looking at that on a economic debt load basis?

Well, I think we've indicated, we did not want to go above 50% debt to total cap as in -- on a consolidated basis. And funding each one of the projects we have looked at bringing equity partners on several other projects and it's really just a function of price and terms will -- if it makes sense we will do it, if it doesn't we won't. It does add, it does always add an element of complexity, when you bring in a partner. So there's a sort of a hidden cost of doing that. But I will look at it either way.

Just one follow up no, actually well it is a -- you gave us a usual range for Jefferson EBITDA $25 million to $40 million next year, on Repauno you gave $1 million for Q4, any range you'd like to give for 2018, I mean is it going to be 5 to 10 for more things going on there?

We haven't given any guidance on that yet.

And our next question comes from Rob Norfleet with Alembic Global Advisors.

Joe, quick question, you had mentioned within Aviation the JV, with the parts and components supplier, can you kind of frame for us how that kind of gives you a strategic advantage or kind of a proprietary product in the market? And I guess, I'm looking at from a standpoint, I mean a plane obviously comes in for maintenance every 3 to 5 years I mean how would this potentially reduce the cost to a customer? And again, maybe what advantage will that give you relative to your peers?

Yes. It is a good question and I think I've mentioned a few times, an engine is somewhat unique in that you spend almost the same amount of money you spent to buy it every 5 years for the -- to overhaul it. And so for a typical 737-800 a CFM56-7B engine you might pay $4 million for it and the overhaul cost every 5 years could be $3 million to $4 million. And so what we've been focusing on -- and that's a huge expense for everyone. It's a big expense for airlines, it's a big expense for aircraft owners. And if we can be better at that and better in a way of, 2 ways, one is provide that same overhaul for less money and also do it more efficiently, i.e. faster, then we create a big competitive advantage for ourselves. And so the 2 products are or 2 joint ventures are really focused on that, the first one is on how do you do it cheaper. And that -- there's meaningful money in there in that there is a $4 million overhaul, there's a lot of potential to reduce that. And so that's one, and then the second really with being in the parts and as I mentioned the second joint venture is, is that as you reach a certain critical size and you have a number of engines, each engine has 4 different modules, and those modules can be moved and swapped from one engine to another. So you have the potential to change modules in a way that you can shorten the time that an engine needs to be in the shop. And so, if you cut down instead of a 5-month shop visit, you can actually give someone an engine a lot quicker have it spend less time in shop, you save money that way. And you also become just better at optimizing the component values in the engines. So really, I feel like if we do both of those things we have a very, very complete offering, a very compelling offering and a highly exclusive offering, meaning that it's only us. So that's why, whenever I talk about it and when you look at the engine size of the CFM56-7B and 5B market, it's enormous. It's the biggest single engine market in the world. So that's why we're so excited.

And just last question I had, and I know there have been a lot of questions asked around capital allocation, I guess but my question I just wanted to steer a little bit around how are you really at this point prioritizing which projects you're (inaudible) capital to? Just because you have so much stuff going on at one time it seems like you can start something today, or you could defer something for another 12 to 18 months, especially now that you this potential investment at Repauno, are you basing it on IRR solely, is it on EBITDA contribution, I just want to kind of understand, with all these various investments that you have that you're going to be making over the next few years how you really prioritize that?

Sure, so I mean to get to the list that I just mentioned is, it wasn't, we're not doing 100% of what we looked at. So we look at a lot of investments and we decided, which ones were the most attractive and that's the ones that I'm talking about today. There were a lot more investments that we looked at or considered before we got to that list. And it is, it's a combination of IRR on a project basis, as well as just value creation for the for the entity I mean so that, for example, if you think about Hannibal, you can build a power plant, and if it if that's all you do that's fine, it could be between a 15% and 20% un-levered return, for example. But the beauty of Hannibal is that we have 300 acres of developable land there. And so having a power plant on the property gives us an advantage in multiple ways, one is you can attract tenants to do things because they have, you have low cost electricity available. And 2, you can make money by selling them that electricity at a higher price, because you don't have any distribution costs to move it off the property and you save that way. So that means you get to keep that money for the good guys. So it's -- so it has a, as I call, winning squared aspect to it. So that's how we look at each one of these projects in depth and we try to figure out, sort out, which ones are fit that profile the most. And the best investments usually ever are always add-on investments to something you already own to get it -- like with the earlier question about when you build the first million barrels of storage you have to put in the infrastructure to do that, the next million barrels you don't have to add that infrastructure. So it's a lot lower capital costs, so the returns are higher and the risk is lower.

And our next question comes from Brandon Oglenski with Barclays.

This is Van Kegel for Brandon, thanks for taking my question. Kind of similar to the 50% debt to total cap ratio you've talked about in the past, do you have any thoughts on a comfortable level from a net debt to EBITDA perspective?

Sure. And I wouldn't go over 4.

And then forgive the simplistic question, but from the debt project financing at the asset level for Jefferson and Hannibal that you might do, how would that impact your debt to cap versus just raising at the corporate level?

From a consolidated viewpoint it has no difference, there's no difference, from an economic difference it's a question of is it recourse or not but it has no difference from a consolidated debt ratio.

And on infrastructure FAD, did I hear that it would be effectively breakeven at 4Q or is that on an EBITDA basis?

We did, we said EBITDA was approaching breakeven rate…

Do you have an idea of when the FAD could potentially swing to breakeven or positive?

Not at this point, no.

And then sorry, one last one, on corporate FAD what's the rate -- the run rate ex interest expense?

What have we been, $7.5 million a quarter?

Yes.

$7.5 million a quarter, $30 million a year.

Yes.

And our next question comes from Reno Bianchi with Cantor Fitzgerald.

If I heard you correctly, you mentioned that your letter of intent in Aviation business is $185 million, which I think is a little bit higher than $160 million that was provided in presentation. So I have 2 questions, first, I'm wondering what the rationale for the increase? And second, whether you can provide a little bit more clarity to the (inaudible) engine that were up for lease at the end of the third quarter, I'm wondering whether revision reflect the fact that you expect more engine to be working in the next 12 months?

Well, the first question I think the $160 million went to $185 million because we signed another deal.

Yes, so that's just additional business signed subsequent to 930.

Is that -- and then the second question is we have continued to acquire engines, the engines utilization at the end of the quarter, for the quarter was 78% or something?

Yes.

Which is pretty good. I mean we've said we've been targeting 50% to 75%. Seasonally, the summer is usually a little bit higher because airlines fly more hours and it's hot, so they tend to blow engines in the summer but the -- and we acquire, we've been acquiring a fair number of engines, we now have what 104, 108 something like that, north of 100.

Yes.

So I'm not sure if I answered the second question.

It basically if I understand correctly the $185 million I just am assuming is predominantly reflect this 4 aircraft from the Air China deals and the additional aircraft than you have sourced after [inventory] is that correct?

No, the $185 million is all new deals. The -- all the Air China deals have closed, so we own all of those. So the $185 million is all new investment, non-Air China.

And 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 further remarks.

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

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.