FTAI Aviation Ltd (FTAI) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2017 Fortress Transportation and Infrastructure Investors LLC Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Alan Andreini, Head of Investor Relations. Sir, you may begin.

Thank you. I would like to welcome you to the Fortress Transportation and Infrastructure Fourth 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. Also please note that this call is open to the public in listen-only mode and is being webcast.

In addition, we will be discussing some non-GAAP financial measures during the call today. 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 11th dividend as a public company and our 26th consecutive dividend since inception. The dividend of $0.33 per share will be paid on March 27 based on a shareholder record date of March 16.

Now before going over the numbers for each operating entity, I'm pleased to announce the following numbers for Q4 -- Adjusted EBITDA $47.8 million; adjusted net income, $6.2 million; aviation closings in the quarter, $160 million; and, finally, projected Aviation FAD from the existing portfolio plus our current letters of intent, $250 million.

Now let me review the numbers in more detail.

The key metrics for us are adjusted EBITDA and FAD, or funds available for distribution. Adjusted EBITDA for Q4 2017 was $47.8 million compared to Q3 of 2017 of $37.8 million and Q4 of 2016 of $22.4 million. FAD was $47.2 million in Q4 versus $73.6 million in Q3 of 2017 and $20.5 million in Q4 of 2016.

During the fourth quarter the $47.2 million FAD number was comprised of $79.1 million from our equipment leasing portfolio; negative $16.4 million from our infrastructure business; and negative $15.5 million from corporate.

The negative infrastructure number increased due to a one-time charge for interest expense which had been capitalized during the year. The overall infrastructure revenue increased primarily due to butane sales at Repauno, offset by increased operating expenses related to the ramp-up in ethanol and refined products operating expenses at Jefferson. The increase in negative FAD at corporate compared to Q3 was primarily due to the increase in interest expense from the $100 million add-on to our 6 3/4% unsecured debt issue. Finally, $30.2 million of the $79.1 million for the equipment FAD was the result of a sale of our investment in Borr Drilling for a gain of $11.4 million.

Once we normalize the Q4 numbers we again see, as we did in Q3, continuing strength in our ability to generate adjusted EBITDA and FAD on a run-rate basis. More importantly, we see that trend continuing and, in fact, accelerating.

Before going into detail on aviation, let me make the following observations on FTAI in general. Aviation, our core cash flow generator at the moment, continues to outperform and our advanced engine repairs joint venture is moving forward exactly as we had hoped and planned. Jefferson has turned the corner and now we have 2 important new initiatives, refined products to Mexico and ethanol, up and running. And the spread between Western Canadian select and West Texas intermediate is wide again, and the industry is scrambling and economically motivated to again bring meaningful volume of heavy Canadian crude to the Gulf Coast by rail.

Our business plans for Repauno and Hannibal, which we are renaming Long Ridge Energy Terminal, are developing nicely. We are now convinced that market demand exists to turn each of these assets into multibillion-dollar businesses.

Let me now turn to aviation by first setting a backdrop for our business. I cannot remember when the aviation leasing environment has ever been better. While there are some issues with some widebodies, the macros for the industry overall continue to be impressive. Global passenger traffic grew 7.6% in 2017 and is projected to continue growing for the next few years at 5% to 6% per annum. And freighter demand, due to rapidly growing e-commerce, is the strongest in many years.

Here are the aviation numbers for Q4. Aviation had yet another excellent quarter, in fact our best quarter ever. Aviation FAD was $50 million, which included $4 million from sale proceeds. Excluding asset sales, Q4 aviation FAD was $46 million, or $184 million annualized, up from the $174 million annualized in Q3.

The portfolio is performing as well or better than expected and we had an active quarter for investing, closing approximately $160 million in new asset acquisitions, our largest quarter ever for closings. The closings consisted of 11 aircraft, 9 engines and 1 airframe. For all of 2017, we invested approximately $435 million into Aviation.

Our annualized adjusted EBITDA yield and return on equity without gains were 25.6% and 13.7%, respectively, both higher than Q3 2017. We hit our targeted return level of 25% adjusted EBITDA to equity and expect to reach the 15% targeted return on equity as the remaining 3 aircraft purchased off-lease as part of the Air China deal go on lease. We have signed 6-year leases for all 3 of these planes. One will go on lease this quarter and the final 2 will go on lease in Q2.

We currently have letters of intent covering $127 million of new equipment as of today, and since year end 2017 have closed on $53 million of new investments. Once the remaining equipment under LOI are purchased, we expect run-rate aviation FAD to be approximately $250 million per annum, up from the $230 million we projected last quarter.

Turning to Offshore, the offshore market continues to be oversupplied, but is slowly improving. All 3 of our vessels were on lease for all of Q3 and for most of Q4, and all are currently on lease as we speak. We continue to evaluate new opportunities that may fit our existing assets or expand our services with value-added capabilities, and we are seeing some interesting situations. But none are at the point yet there we are ready to make a new investment.

As I mentioned earlier, we did monetize our investment in Borr Drilling for a gain of $11.4 million and proceeds of $30.2 million.

Turning now to infrastructure and Jefferson. Jefferson had an exciting and productive Q4, although Hurricane Harvey caused construction delays and we experienced some normal startup glitches and delays, both the ethanol and refined products businesses are running well now and ramping up nicely.

For refined products, our initial system was designed to handle approximately 20,000 barrels per day, which we expect to be doing by Q2 this year. And with an additional investment of approximately $20 million we can increase the volume capacity to 60,000 barrels per day by Q4 of this year. Given the robust demand for this, we hope to make that decision to proceed within the next few weeks.

On ethanol, the system was designed for 35,000 barrels per day and we should be running fully utilized by Q2 of this year. Jefferson and Green Plains are finding strong demand for export, including to Brazil, India and China, which is a major strength of this facility.

Regarding crude, the good news is, as expected, Canadian production is exceeding pipeline takeaway capacity and thus the spread between WTI and WCS is again above $20 a barrel. The bad news is that getting rail capacity presently is very difficult. We have secured valuable rail slots beginning in Q3 of this year and we are doing everything we can to get more potentially sooner.

On storage we are delivering 500,000 barrels this quarter a little late and are adding an additional 800,000 barrels, which should be online around the end of this year, also a little late. With export opportunities increasing, this new storage will for the first time give us the ability to efficiently deliver into international markets starting in 2019.

With respect to pipeline connections and larger storage deals, we are making solid progress and are in active negotiations with several users, but nothing is finalized yet.

All told, in spite of some weather and construction challenges, terrific progress at Jefferson. For 2018 we are still comfortable with our EBITDA range of $25 million to $40 million, but are most comfortable at the low end of that range.

Turning to the Central Maine & Quebec railroad, in the quarter total revenue increased approximately 8% year-over-year, primarily due to a positive change in freight volume and mix and an increase in higher rate line-haul volumes in chemicals, fertilizers and propane. Most importantly, revenue from new customers continues to grow and we're making good progress towards starting a tank-cleaning operation in Q2 of this year, which we expect will add $3 million to $5 million in annual EBITDA starting in Q2.

Longer term, we continue to feel comfortable that the CMQR will generate $35 million to $40 million in annual and approximately $10 million to $12 million of annual EBITDA, and 2018 has started out very strong.

Repauno. The big opportunity here continues to be natural gas liquids, NGLs. Last year we started with butane storage in our cavern, and going into 2018 we will have the cavern operating for a full year and expect to generate approximately $3 million in EBITDA from that activity. So a positive contributor from Repauno.

We've been spending the last few months working on identifying butane and propane supply from Marcellus producers, beginning discussions with international, mostly European, buyers of the butane and propane and commencing the engineering work to scope out the optimal size and location for new underground storage caverns. Our view remains positive for securing suppliers and off-takers for several million barrels of capacity. We expect the core sampling to be done by the end of Q2.

To remind you of the math, the first 1 million barrels of storage we're expecting to build for approximately $175 million, with $50 million of that being one-time above-ground infrastructure. The second, third, fourth million we expect to build for between $80 million and $100 million -- or $80 to $100 per million barrels of underground storage. And we expect each million barrels of storage to generate approximately $50 million to $60 million in annual EBITDA. I like that math.

Long Ridge Energy Terminal, formerly known as Hannibal. Over the next couple of months we are upgrading the rail infrastructure to enable us to handle unit trains of frac sand. With very high demand for frac sand and an excellent location and the ability to handle both barge and rail deliveries, we expect to generate $3 million in EBITDA this year and potentially lock in some long-term contracts.

Regarding the power plant, we've made great progress. The site is fully permitted, in record time. The gas supply is in place and the power island and EPC contractors have been chosen. The main remaining important activity is selling the output through long-term fixed-price electricity contracts. We have identified and are in discussions with multiple regional industrial users representing over 600 megawatts of demand, for which we expect to sign up half of the output of the plant, or approximately 250 megawatts. For the other half we are targeting onsite users, primarily data centers. If we achieve this outcome, we expect the total EBITDA will exceed $100 million per annum on approximately $550 million investment, starting in 2020.

Financing. With respect to financing all of these projects, we did an equity deal in January. With that deal done we now have significant debt capacity, with debt to total cap today of approximately 37%. So you can expect the next financing that we would do would be debt. In addition, we are finalizing a $50 million revolver at Jefferson.

So in conclusion, aviation continues to outperform, with our profitability metrics improving even as we add new assets. And at Jefferson we have successfully worked through weather delays and startup issues, but we're ramping up now. In the last few months we have taken this business to new levels. Repauno and Long Ridge are moving forward and executing exciting business plans and will be positive EBITDA contributors in 2018.

And while I'm very proud of what we accomplished in 2017, I'm more excited about where we are positioned now as a firm and our prospects for future growth.

With that, let me turn the call back to Alan.

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

(Operator Instructions) And our first question comes from Brian Colley with Stephens.

So just wanted to talk about Aviation Leasing. Just wondering how we should think about the ramp there going forward and when you would expect to get to that $250 million FAD run rate.

I think all those LOIs should be closed by Q2. So I think you would see it fully in Q3.

Okay. That's helpful. And secondly, so last quarter you gave a breakdown of the $25 million to $40 million of EBITDA you expect from Jefferson this year. Just curious if your expectation for the mix of business there within that $25 million to $40 million has changed at all.

Not a lot. I would say the refined products is probably a little bit lower, just because it's been a slower ramp-up. Ethanol is probably a little bit higher. But it's not dramatically different.

Okay. And then could you give an update on how discussions are progressing around a potential crude-by-rail contract? At this point what do you think is the main thing that's holding potential customers back from signing a deal?

Well, we could sell very profitably everything we could get to the terminal right now. As I mentioned, the constraint is currently getting rail capacity. And for a variety of reasons the Canadian railroads had a very busy winter with grain, with frac sand, intermodal. And so when everyone came to them and said, "I'm ready to do crude by rail again," they said, "Well, we're not ready. And, by the way, the last time we did this you didn't -- you left me standing at the altar and I didn't like that." So there's a bit of a negotiation going on and we were able to secure what is pretty limited rail capacity starting in Q3. I think it will be about 5 to 6 trains a month under that contract and we're trying to get more. So as much as we could get right now we could sell it profitably.

Right. So I mean, in the quarter the throughput volumes were up pretty nicely. Just curious when you would expect to recognize the revenue there, because it was down sequentially, so.

Well I would say right now I'm sort of indicating it would be more Q3, beginning of Q3. But we're going to try to do more volume in Q2 if we can get it.

Our next question comes from Chris Wetherbee with Citigroup.

[James Monagan] on for Chris Wetherbee. Wanted to actually follow up with that question on Jefferson with another. There were substantial volumes in Q4. How should we think about those translating into revenue? And then also wanted to get your sense of volumes in Q1 and how those might be translating into revenue as well.

Yes. Well one thing that happened in Q4 is the revenue shifted. As we book a lot of the business through the ethanol, it shows up in Other as opposed to revenue. And so if you want to think about it properly you should really combine those 2, because the ethanol is a joint venture and so it gets booked as Other. And so a lot of the activity in Q4 and in particular December was ethanol. And so then going forward we're expecting approximately 30 trains in Q1 and probably 45 trains in Q2 on ethanol. And on the refined products roughly 10 in quarter 1 and probably 30 in quarter 2.

All right. That's helpful. And then also you had made a comment about e-commerce demand within aviation. I wanted to sort of get more color around that and see how you see that manifesting, and if there's a particular customer or if you -- or if there's a particular customer and what level of demand that might be.

Well it's a great question. Since we are largely an investor in engines and a lot our engines go on 757s and 767s and 737-800s, the longer those aircraft fly the more demand there is for our engines and the more money we'll make. And so it's actually a terrific macro, because if the 757, 76 as a passenger plane might fly for 20 to 25 years, as a freighter it could fly for 35 to 40 years. So that demand from that space makes our engines more valuable. So to me it's a great -- it's icing on the cake, but it's a lot of icing.

All right. And so does that mean that there might be acquisitions and investment in that, since you see it so favorable and that 160 was more opportunistic, or if it's what we should expect moving forward?

Well it's a little bit high. I think last year we started out the year expecting we would invest about $250 million and we ended up doing more than $400 million. I would probably say that the expectation -- maybe you should say the same, but maybe it's a bit higher. I think the size of the market opportunity that we look at keeps growing. And in particular the activity around 737 NGs and A320s is much bigger than the 75 and the 76 market. So in general I think we'll probably do more. But as I've said many times, we don't really budget new investments. They happen because the deals are attractive, not because we're out trying to make them happen.

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

So I wanted to start out -- there's obviously, between the sale of the offshore investment and the equity raise, you're getting a bit of an inflow of capital here. Could you just lay out kind of what are the priorities for that capital? Obviously with all the projects that you have, there's a lot of CapEx needs. Where do you see that capital kind of going throughout the year? And how much incremental capital do you think you might have to raise in terms of debt?

So I think the priorities are aviation, number one. And we have a pretty good pipeline of deal opportunities ahead of us and some of them are probably bigger than they have been. So I think that that's -- part of it is being positioned and to be able to be opportunistic in that. And also just continue the regular-way business. So that's a top priority. And it's a very profitable business from the beginning. It's not -- there should be very little lag in those deals in terms of producing income. And then the second priority for capital this year will be the power plant at Long Ridge Energy Terminal. And that's something, as I mentioned, that's coming together nicely. We're out in the market right now talking to long-term off-takers for power. And as soon as we have that in a position where we're comfortable we've got that locked down, then I think we would go forward with that project. And that's $550 million, so it's sizeable, but it's over 3 years so it's not immediate. But that would be the next priority. And then beyond that, it's not to the level yet where I could specifically identify it. As I mentioned, at Repauno the underground storage caverns are a great opportunity. But we haven't finished the core sampling yet, so it's premature to say that that's -- that's not a committed or go yet.

But -- so you didn't mention Jefferson in there. Is that to say that you think the CapEx needs there are, what, relatively limited? Or what's the thinking around CapEx needs around Jefferson?

Well we've invested in the -- last year we did the ethanol and the refined products. We're doing storage this year. And we believe that most of what we do going forward at Jefferson will be debt-financed at the Jefferson level. So I don't think of that as a corporate FTAI requirement.

Got it. So you expect that will come from the revolver, from that $50 million revolver?

Or long-term debt at Jefferson. We already have $200 million of tax-exempt debt at the Jefferson level. And I would expect if we have an opportunistic invest- -- building out storage or doing a pipeline connection would be what we would do. And I would expect that to have a contract attached to it, which would enable us to debt finance long term on that investment, probably all of it.

Got it. Understood. And then, switching gears a little bit, obviously the returns in aviation look very attractive right now. Are you seeing more money coming into that space? Is there a risk that an influx of capital from competitors could potentially diminish some of the returns there, or the attractiveness of that business?

It's been that way for the last couple of years. I don't think it's much worse than it has been. But there is a lot of capital, but it's mostly focused on newer aircraft with longer-term leases. And so where we've done almost all of our investment have been in older equipment with either shorter leases or off-lease, and we're focused really on the engine. So we don't see any increase in competition in that area.

Okay. That's helpful. And then just last question from me. Joe, maybe you could explain a little bit more this question of the challenges in terms of securing rail capacity for Canadian crude. It seems like if the capital is there and that historically has been a very high return business for the railroads. I guess I'm a little confused as to why it's so difficult to secure capacity or why it would be pushed out so far into third quarter. Maybe you could provide a little more color. I mean, obviously I understand that the rails have gotten burned in the past investing there. But it seems like it's -- somebody would be willing to step in and kind of commit to some sort of take-or-pay arrangement or something like that.

Yes, and we have. I think CN has given 3 slots out to people and we're one of them. So they will make commitments and they will make capacity available. I didn't mean to suggest there was nothing. But in Q1, as they've commented, they had a tremendous amount of grain business. They had a lot of frac sand business. They had a delay at Prince Rupert. They had a lot of intermodal business. And so they just basically said, "We don't have the capacity in Q1." We're trying to get capacity in Q2 from CP as well as CN, so I think that that could open up. And then definitely by Q3 there will be -- we're getting capacity. So I think it will ramp up. And if you look out over the next few years -- for the next 3 years there's no new pipeline that's going to come online. So rail is a solution. So I think it's just that the railroads don't necessarily move quickly, which we know. We've been one. So they're not fast. But they will respond. And I don't think it's a permanent thing. I think they just -- it's a confluence of events that they just said, "We don't have the capacity right now and we want people not to just come in for a quarter and then leave."

Okay. So just -- and then really quickly, so in indicating that you expect EBITDA from Jefferson kind of towards the low end of the $25 million to $40 million range, is that primarily what's driving that? Or is it something else? I mean, help me understand that incremental move.

Yes. It was the delays of getting started. So we had the hurricane, which shut down the terminal for 6 weeks. And then we had construction delays resulting after that. So it was a combination of the delays, and then partly getting this rail capacity more towards the back end of the year, is what's driving it.

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

Maybe just first one here on aviation. Just love to get an update on how you're thinking about the contribution from the engine overall JV, how that's going. Any new thoughts on capacity there, and then just how we should think about kind of the timing of development and how that business is ramping.

Sure. So that's going very well. We're 1 year into what is a 3-year project. And so -- but the first year has gone very well and we've achieved the milestone -- some important milestones there that have given us a lot of confidence that the next 2 years are going to go well. So very pleased with that, looking forward to the potential of that. But it's not an immediate -- it's not going to produce immediate income, but it does give us a tremendous strategic advantage and proprietary products in that space. As I mentioned last time, we're also working on other ways to reduce the costs of those engine overhauls, including working with a parts distributor for lowering the cost of our parts that go into the overhauls, and then an ability to do module swaps with engines. Instead of putting a whole engine into the shop you can swap modules from one engine to the other and then create one good engine where you might have had two mediocre engines. So we've got all those going. And those should start to contribute this year. So I'm very positive on how we've positioned ourselves strategically to be able to take advantage of that CFM56-7B and 5B market, which is the biggest engine market in the world. So all good.

Got it. Okay. Good update. Thanks, Joe. Just on Repauno, I'm trying to think a little bit more about the long-term opportunity there in natural gas liquids. I appreciate the update on kind of the economics of building storage and the EBITDA contribution, which I think should give a pretty good framework. But can you remind us on kind of the total long-term capacity, and then once you have a go there what the timeline would look like around building storage, maybe the first million barrels?

Sure. So the engineers to date have done a number of caverns of similar nature and they're familiar with the geology -- have estimated that they think the total capacity we could build is between 4 million and 6 million barrels of storage capacity underground. But we won't have the final numbers until they're finished with the coring samples. They've started coring samples and they should be done by the end of Q2. They do one a month. So that -- we're reasonably confident based on what we know. And we know a fair amount, that there's going to be significant capacity. And then, as I said, we're talking to off-takers, people who buy propane and butane. And most of those are European or Middle East or African, or it could be Asian. But there's a fair amount of capacity, refining capacity, and chemical plants being built that need propane and butane. So the demand side looks pretty good and we're out engaging with those people now to see if we can sign up long-term off-takes. To build the first cavern is probably 18 months. So if we figure we -- if we got the go in June of this year it would probably be -- seems like everything is 2020. That will be a big year for us. But that's kind of the time line to get in service. The thing, though, is we could start interim service. We don't have to wait for the cavern to deliver to be able to load propane and butane. We can actually do that now through our existing cavern. And we could load directly onto ships. So unlike the power plant where you don't get revenue until you turn it on, with this you could actually see a ramp up in revenue beginning in 2019.

Got it. Okay, that's great. Thanks, Joe. And just last one here on Jefferson. And you have the guidance update. Maybe I'll try to ask a little bit differently. I know that timing can impact the contribution. It's a sliding scale based on the delays in the rail capacity as you highlighted. But based on that $25 million to $40 million range -- and I think the implication here is that the contribution is going to be back-half skewed off of that. Can you maybe give us any perspective of what that implies -- a 4 run rate heading out of the year? I think that's probably a better way to think about it, because to me it seems like the fact that you're still in this range suggests that the run rate of the back half is actually higher than previously implied or thought. And so just trying to make sure that's kind of a reasonable thought, and then any other detail you can provide on that would be helpful.

Yes, I think that's right. The run rate should be higher than we had originally expected by the end of this year, definitely. The volumes -- as I mentioned, we have additional growth opportunities in every category. So we can increase the refined products meaningfully. We can increase the crude. And, as I said, with this new storage tanks that we'll have, we'll have the ability to load directly to ships. So that's a new market for us in 2019. So I expect that the run rate -- my run rate number would be higher than it was previously.

Our next question comes from Rob Salmon with Wolfe Research.

I guess concerning on the Jefferson, can you give us an update with regard to the pipeline and the connection that you are looking to establish, what sort of throughput you think that can provide for Jefferson looking out, and the timing that we should be thinking about that's coming online?

Yes. So we have a signed LOI with TransCanada to connect to Marketlink. So Marketlink has got tremendous capacity. It's a 40-inch pipe, so it's hundreds of thousands of barrels a day. So it could supply us with as much crude as we need. So then the thing is, what you need to do is build storage to handle that. And so that's where we're out having conversations with both local refineries as well as sort of a new entry in that market is some international players have come and looking for storage on the Gulf. And the Gulf is a better location today than Cushing is because Cushing is in the middle of Oklahoma and you can't get easily to water from there. So with export opportunities increasing and the U.S. is increasingly -- is about to become the largest oil producer in the world and surpass Russia, it's a very attractive market for having storage. So what we need is a -- we have the pipeline and we can deliver the crude. Now we need the person who says, "I'll contract for storage." And that's what we're out discussing with a number of different parties for millions of barrels of commitment.

Okay. And then I would imagine from the revenue and EBITDA contribution it will be -- the activities around kind of the refining, which is going to provide a similar benefit to the storage from an EBITDA perspective.

Yes.

Is that a fair way to think about it?

I'm not sure I understood the question.

I guess, Joe, when we're thinking about the -- so you'd be making money off of the storage activity, that would be kind of the big driver of the pipeline and . . .

Yes.

Can you give us a sense as that comes on what that EBITDA potential is?

Yes. I think we have indicated previously that roughly for every million barrels of storage it's about $10 million of annual EBITDA.

That's helpful. And I guess switching gears a little bit here, so to Long Ridge, we've been hearing kind of the -- just the market has been very competitive from a long-term purchaser of power within that region. Can you give us a sense of when you're expecting to kind of get better visibility on timing for those long-term contracts? Do you need the long-term contract to offer data centers within the region? Or is that really dependent on having a power plant up and running? So kind of a two-part question there.

Yes. So the market is always competitive for electricity, but we're out in the market now and engaged with people. And we're hearing good things in terms of -- we have probably the lowest-cost gas. We have very -- a competitive and low-cost infrastructure, given that we already had transmission lines and it's a flat spot on the river that doesn't have to be graded. And then we have the most efficient new technology available with a 6,400 heat rate. So we can compete and make money with anybody. And so we're out and we're looking to sign up on long-term agreements roughly half of the capacity of the power plant. And we hope -- we expect to do that in the next couple of months. To offer to data centers, we don't need to do anything. We're out also talking to that market. And we're offering them the location and the long-term power agreement. And we're sort of thinking that roughly half of the capacity of the power plant we will allocate to the data centers. But the timing of that commitment will be probably after -- it will be later in the year than the other half.

And then from a capital investment perspective, how should we think about the cadence of that $550 million that you discussed over a 3-year period? Is that ratably done over the 3 years? Is it front-end loaded, back-end loaded?

We're still negotiating on that, but I would say for the moment I think ratable is fine. But we're still in discussions on that so it could change. But ratable is not a bad assumption.

All right, appreciate the color. And can you give us -- with regard to the update from an EBITDA and FAD perspective, it sounds like you are very close to kind of fully covering the dividend. Should we think about, based on the timing of the EBITDA coming online, that this would be a second quarter or at the latest a third quarter event?

Yes, that's fair.

(Operator Instructions) Our next question comes from Robert Dodd with Raymond James.

Most of my questions have been answered already, but I've got one kind of overall structure of the entity. Some of the publicly traded LPs have said that obviously contemplating conversion to a C corp post tax reform. At least one of them has already come to the conclusion that that's actually the right idea. Obviously you are not an LP, an LLC. But has that been considered? Is it being considered? Can you give us any color there?

Yes.

(inaudible) off the table given your structure.

We have looked at it. We've tried to figure out some of the nuances of this new tax bill, which is still being analyzed. We have a lot of our income comes from aviation, obviously, and all of that -- that's a non-U. S. entity. And so at the moment we haven't found a way to convert which wouldn't have a meaningful negative cash cost to us. So at this point we don't have a solution. But we'll keep monitoring it. And I've learned in tax that sometimes unexpected things present themselves. So we understand that if we could do it efficiently we would. It's just trying to find the efficient solution.

Thank you. I am not showing any further questions at this time. I would like to turn the call back to Alan Andreini, Head of Investors, sir, for any further remarks.

Thank you for participating in today's conference call. We look forward to updating you after Q1.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.