FTAI Aviation Ltd (FTAI) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fortress Transportation and Infrastructure second-quarter 2015 earnings conference call. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Alan Andreini, Head of Investor Relations. Sir, you may begin.

Thank you. I would like to welcome you to the Fortress Transportation and Infrastructure second-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 a lot, Alan. I am very pleased to welcome everyone to our quarterly earnings call today and really excited to be able to update everyone on our progress as a public company.

As many of you know when we started FTAI, Fortress Transportation and Infrastructure in 2011 we designed it to be a company that would deliver strong recurring cash flow from equipment leasing and combining that with income and growth from infrastructure investments. That business model has worked successfully since the beginning and it continues to work very well today.

Our transportation leasing assets are throwing off solid cash flow while our infrastructure investments in Jefferson, CMQR and Repauno continue to grow in value. This model has made it possible for us to make 15 consecutive quarterly dividend payments since we started and today we are very pleased to declare our 16th quarterly dividend and our first as a public company.

The Q2 dividend will be $0.15 per share which is equivalent to $0.33 per share per quarter prorated for the period that we have been public and the dividend will be paid on August 31.

So on the call today I will take you through a discussion of FAD or funds available for distribution, a key financial metric for our business and then I will review the portfolio by sector and conclude with some comments on the investment pipeline.

Turning first to the financial review during Q2, our equipment portfolio generated $23.4 million of FAD, up about 10% or $2 million since the first quarter of this year which represents a cash yield of over 21%. Aviation made up about 71% of second-quarter FAD or $16.7 million; offshore generated about 17% or $4 million; and containers generated about 12% or $2.7 million of that amount.

Corporate expenses were negative $7 million of FAD in Q2 which brings our equipment leasing FAD net of corporate to $16.4 million for the quarter.

Since we have gone public and since the IPO, we have invested or committed to invest an additional $150 million in aviation assets and we expect these aviation investments to generate another $7.5 million in quarterly FAD or $30 million per annum in the near-term. So on a run rate basis, this implies a total of $24 million of equipment leasing FAD net of corporate or $96 million annually. That is approximately equal to our dividend and that does not reflect any contribution from the $450 million of cash equity we have available to invest today and likewise it doesn't reflect any contribution from Jefferson or CMQR which produced Q2 negative adjusted EBITDA of $3 million but which are expected to be substantial positive contributors in 2016.

Before turning to the infrastructure segment, let me walk through our equipment leasing portfolio. Lease cash flow continued to be strong across all three segments of our equipment portfolio with aviation as the real star. Our aviation assets generated a cash yield in excess of 25% on an unlevered basis in the second quarter on $262 million of average invested equity.

Our engine leasing business generates great returns and allows us to unlock value that others cannot. Our strategy we believe will continue to deliver a sustainable pipeline of attractive investment opportunities for many years to come.

As I mentioned earlier, since going public since the IPO, we have funded or committed to fund approximately $150 million in new aviation investments including 19 engines for $58 million and four aircraft for $92 million. As of this call we have closed on $65 million of that and we expect to close on the remaining $85 million in the next few weeks. These new investments bring our aviation fleet to 17 aircraft and 45 engines representing a total investment of $400 million and we expect that by the end of this year we will invest in at least another $100 million more of similar type deals in aviation.

Looking further ahead as I mentioned before, another big growth opportunity we see will come as the current generation of 737-700s and 737-800 next-generation models come out of production over the next few years. This means that the 5,000 aircraft and 10,000 engines that are in service today in that fleet will move squarely into our target market.

Turning to the offshore segment where we have $125 million of equity invested, it continues to generate the cash flow we had projected. The Pride which is our largest asset, recently had its charter extended with the existing operator through to September 30 of this year and that operator is likely to exercise its option to extend the charter further through the remainder of 2015 based on projects that we believe are available for that vessel in West Africa where it is currently operating.

We are in multiple conversations, probably 8 to 10 serious projects with potential charterers lessees for the vessel starting in early 2016.

For certain, the environment in offshore energy is challenging but we know that the Pride is one of the best assets in the world, it has proven in the field in the construction support market. Lots of projects that need this type of vessel are still moving forward and our two other offshore vessels are performing on plan and those have an average remaining contracted lease term of approximately five years.

Finally in the shipping container segment, it is also performing on plan. We continue to collect strong contracted cash flow from a series of investments that we made in 2011 and 2012 totaling about $55 million in equity invested in that sector. About 75% of our assets in this sector are on finance leases where we have no residual or utilization exposure. For the balance, our exposure is minimal. We haven't made any new investments in this asset class since 2012. We don't currently see this as an attractive area to put more capital to work due to very low cash on cash yields and declining residual values due to steel prices coming down.

While we continue to be long-term believers in their intermodal transport we feel no pressure to invest in that or any other specific segment and the beauty of our structure is that we never feel forced to make investments in any one area in order to maintain market share or keep a sales force busy.

Now let me turn and discuss our three current infrastructure investments. I will start with Jefferson Energy Terminal, probably our most exciting asset in terms of upside growth potential. We were drawn to Jefferson originally by its excellent location in Beaumont, Texas, its unique multimodal logistics capability and the exclusive right to handle liquid hydrocarbons through the port of Beaumont. We currently hold a 30-year lease with the Port of Beaumont and are working to extend that to a 50-year lease following the state of Texas's recent decision to permit port leases of up to 50 years.

The value proposition that we saw in Jefferson is as good as ever and in fact the range of possibilities is even greater than we originally forecasted. Naturally I wish these contracts were being completed faster but when you are talking about major multiyear commitments, final decisions often take time.

Having said that, Exxon recently announced the expansion of their refinery directly across the river and that certainly reinforces our confidence in the long-term potential for this asset.

Let me highlight, talk about a few of the opportunities which we are currently negotiating at Jefferson. Firstly, we are actively pursuing three large crude by rail projects bringing in mostly heavy crude from Canada. And as you may remember, Jefferson is uniquely well-positioned to move heavy crude because of our heated system. Canadian crude by rail to the Gulf is an economically viable and advantaged move and while crude prices are volatile and lower what matters to refiners is the price differential between WCS and Maya and WTI. With WCS differentials more favorable again, we are already seeing an increase in inquiries and we fully expect to sign one to two additional crude by rail contracts sometime this year.

We are also very close on two deals to bring in crude by Aframax Vessel which we would then store in our tanks and then ship out via barge. In both of these deals the customer is expected to commit to three or more years of take or pay contract.

In addition to these core services, Jefferson's great location and strong logistics attributes are attracting other new opportunities including potentially putting an on-site asphalt plant and locating a condensate splitter on the property for lightly processing crude in a segregated system. And we look forward to keeping you updated about all these developments over the next coming months.

Let me turn now to our short line rail infrastructure investment, the Central Maine and Quebec Railroad, or what we call the CMQR. We were a little disappointed in Q2 with traffic levels. We had expected the seasonal drop off in propane traffic but we experienced weaker than expected traffic in construction products and pulp and paper products. The slowdown was mostly related to unscheduled plant maintenance and a shortage of boxcars at two of our customers.

With those issues now resolved, we have seen volumes recover in July to levels that we had expected. CMQR has a healthy list of active development projects including the use of Searsport, Maine, the port for new export and import activities. Many of these projects represent material upside for CMQR as even one or two successes in this new development would drive substantial additional traffic across the line.

While CMQR is our smallest infrastructure investment and our smallest contributor to FAD, it is an important asset because it has the potential to grow into a much larger platform. John Giles who successfully ran Rail America for us runs CMQR and as you can imagine we are looking at multiple opportunities to expand our short line business which is a sector that we like and know very well.

Let me conclude the infrastructure segment review with a few comments on Repauno. Since signing the purchase agreement, we have been very impressed with the level of interest that the site has generated. We have basically completed our due diligence and we can close at any time now. However, our purchase agreement allows us to wait to close until certain building permits are received which I expect will occur around year-end. We are currently working on the master plan which encompasses several businesses. One, a natural gas liquids logistics storage and distribution business which could include LNG liquefaction.

Two, an auto import/export terminal making use of the dock. Three, a handling and distribution facilities -- or a series of buildings for perishable goods. And four, a bulk commodity transloading operation. At the current accelerated pace of development, we expect to have parts of the facility up and operational and generating revenue in Q2 2016.

In addition to our Repauno property, we are hitting very close on another Repauno like investment on the Ohio River in the heart of the Marcellus and Utica region. This property is an abandoned manufacturing site like Repauno, a 1,700-acre industrial site which we would also redevelop for use in natural gas liquids logistics and other new industrial uses. Repauno on the Delaware River will have some of these same capabilities and we are excited to be able to offer multiple sites to some of the same potential customers.

Talking about the pipeline regarding future investments, as of today we have approximately $450 million in available equity to deploy. As I mentioned we expect to deploy another $100 million into aviation by the end of this year. Add-ons to our existing infrastructure investments particularly Repauno, CMQR and potentially the Ohio investment are expected to take up another $100 million to $200 million of that equity. That leaves us with $200 million to invest in a new platform and we are looking at many new opportunities all the time.

With current leverage at less than 20% of debt to total capital, we are also working to put in place a new debt facility which would allow us to execute on larger, strategic transactions if we choose to.

So to sum up, I am pleased with our progress since the IPO. While every quarter has positives and negatives we had a lot more positives this quarter than negatives. Our equipment leasing business is performing extremely well and we are deploying capital faster than anticipated and the resultant FAD contribution is growing also.

Aviation is the star and we will continue to allocate capital to that segment as long as we are receiving great returns. And on the infrastructure front, the outlook for our three current investments and the infrastructure market in general in North America is really good.

At the IPO we stated that we expected to deploy $600 million in available equity by year-end and we are on track to do that. We also stated our intention to pay our first dividend at the end of Q2 and more importantly be able to grow that dividend at 10% per year and I continue to feel good about meeting or exceeding that target as well.

So with that I will turn the call back over to Alan.

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

(Operator Instructions). Chris Wetherbee, Citi.

Great, thanks, and good morning, guys. Maybe just a first question about sort of the cadence of investment as we think about the second half of the year. Joe, you mentioned $100 million going into the aviation and then $100 million to $200 million into the infrastructure assets. How should we think about that? Is aviation sort of front and center in terms of targets and timing or is that something that we should see spread out evenly over the back half of the year?

I think as I mentioned on the road show, we have seen investment activity tends to sort of congregate around Q2 and Q4 in that sector. You have a lot of deals that start out in the beginning of the year and then they get closed in the second quarter and then people finish that and they start work in Q3 on things that they need to get done by year-end. So I would expect that $100 million to probably be concentrated in October and November type timeframe.

Okay, that is helpful. And when you think about this Repauno like investment, I guess if you could give a little bit more sort of color on that. I mean maybe just roughly size it up within that pocket of $100 million to $200 million for the infrastructure and again on timing on that, that would be helpful.

Timing, as mentioned we are getting pretty close. It actually could happen in the next month or two and then we really need to master plan, it will be the same process as Repauno really. You start off with a list of potential activities, you talk with everybody you can talk to and then try to figure out the highest and best use and then go about implementing it.

I do think this one given the activity levels in Marcellus and Utica, there are some more immediate opportunities there that could generate revenue faster than Repauno, things like water, water rights and processing and frac sand and there is a railroad on the property. So there are some things that might happen a little bit quicker than Repauno in this particular instance.

Okay, great. Just two other quick ones here. First, just on the debt side, you mentioned a new potential debt facility. Looking at sort of your leverage or lack thereof right now it feels like that number could be around $1 billion, just want to get a rough sense of how we should be thinking about that debt facility?

That is probably a bit higher than we are thinking. I would think more in the $400 million to $500 million range.

Okay so that is what we should be thinking about, that is fair. And then lastly, just on Jefferson trying to get a rough sense, I mean in terms of the ramp up as we think about the rest of the year, spreads have obviously widened out quite a bit here over the course of the last month or so probably the widest levels we have seen all year. How soon should we be seeing some of these crude by rail projects hit? Are these things that we could see in the third quarter, maybe fourth quarter? If you could give us a little color on that, that would be great.

Yes, I think we have seen the level of inquiry pick up in the last few weeks as differentials have widened out. Once it is up to 16 to 17 WCS to Maya which is above levels it is back to the historical levels that we have seen before and it is above where it makes a lot of economic sense. We have had people call and say can we schedule something October, November. I think it's really -- we could see some additional volumes in Q4 as a result of that. I don't think you will see much in Q3.

Okay, that is great. Thanks very much for the time.

One of the constraints we still have and I mentioned when we went out is we still don't have enough storage capacity delivered. And we have been building it and ramping it up but there is a lead time on delivering a storage tank and unfortunately that sometimes means that we can't do everything we would like to do today but we are building storage as fast as we can.

So that is a situation that would be better in fourth quarter in terms of the storage capabilities? Is that the right way to think about it?

Yes, the two deals that I mentioned, the two Aframax ship deals would be hopefully be concluded this quarter and we would start generating income in Q4 on those.

Okay, that is great. Thanks so much for the time, guys. Appreciate it.

Ariel Rosa, Bank of America.

Good morning. Just a few quick questions. First, just on the macro outlook obviously we have seen some weakening here from a lot of the industrials' names. What is your guys feeling on that in terms of has it opened up certain opportunities when you look at acquisitions or do you guys have a pretty set idea of where you would like to target acquisitions over the next six to 12 months?

I think it does open up. You've got three macro trends that are sort of in the headlines right now. One is commodity prices are down, China is slowing and then renminbi revaluation and then interest rates going up. And a lot of sectors have seen a pretty disproportionate impact in their pricing in stock prices so with $450 million in capital and some additional debt capacity, that makes me feel kind of good. So we think that will present opportunities that we probably might not have seen otherwise.

So I think it is a very good environment for us with low debt and a lot of cash and while we are not going to stray from what we have said we are looking at and what we like, I do think it will open up more opportunities.

Okay, that is helpful. Just to turn to Jefferson for a minute, understand obviously the development is taking a little bit longer than expected. But want to understand in terms of the negotiations with potential customers, what are those conversations? What are the tripping points? I guess in advance of the IPO, we were kind of under the impression that maybe that was at more of an advanced stage than it seems to be. Just maybe what are the key tripping points that seem to still be up for negotiation?

The negotiations focus usually on the blends of crude that people want, the refineries want, our ability to sort of handle it, to have the capacity in the system which usually revolves around storage. And then lastly, delivering it to them. How do you get it to them?

The last one we have had a lot of conversations with all the various refiners about pipeline connections and so those three things are really in the mix on almost every discussion. And I tried to set the expectation at the IPO that those take time to engineer new blends and new delivery systems. And that we expected to have some material developments in 2016 but 2015 is going to be hard to point to specific here it is and it all happened and that is a little bit of, that is the challenges. These do take time to put in place. As I mentioned, we are short a little bit on storage right now of what we would like to have. We could actually have more business if we had more tanks.

So I guess is that -- am I right to understand that part of the challenge here is just kind of the capabilities that Jefferson aren't where you want them to be at I guess? And to what extent is that the limiting factor versus getting the contracts in place? Like if the contracts were in place, could you guys be fully operational?

Yes, I wouldn't say it is the capabilities but if we had an infinite amount of storage tanks and pipeline connections we would absolutely have more business. So I'd turn it the other way but it is not that we are not happy with the capabilities, we are just -- this was a development project and we are developing so it is in the works. But we feel good about every indication and every negotiation is you are dealing with serious counterparties who ultimately will do something.

So we are not seeing any change in their attitude. As a matter of fact, you see Exxon expanding their refinery. Really what we care about the most is we want those refineries to be healthy and highly utilized and all indications are that the Gulf Coast's PADD 3 refineries are in great shape and that is good for us.

So in terms of just kind of the storage capabilities and the transfer capabilities with the pipelines, you feel that is kind of an end of year or fourth-quarter type of build out?

Sure. We will be -- it will be much further along than that. It won't mean that we will have a pipeline that is built but we will be much further along with sort of having those things in place. And they are not sort of, they are customized investments, they are not generic, it is not like building an office building and then leasing it. You have to design it for what they want.

Yes, of course. Just one last question, I know there was some talk of increasing the debt load on the aviation assets or levering up the aviation assets, is that still on track?

I think we would do that. We mentioned putting in place a new debt facility. I think that is effectively the same thing. We will likely do a debt facility and leave the aviation assets as an unencumbered asset for the benefit of all lenders.

Got it. So it will just be in aggregate for the entire portfolio?

Yes, yes.

Okay, sounds good. Thank you, guys.

Devin Ryan, JMP.

Thanks, good morning. Maybe just coming back to the question on the debt just so I fully understand, is the $400 million to $500 million of incremental debt, is that the size of the new facility or is that just where you would like to be over time as the business expands?

It could be either. We could do it in one step or we could do it over time. It would really depend on what investment we are looking at making.

Okay, got it. Helpful. With respect to the construction support vessel, can you give any more details around what the terms are looking like? I know you probably can't get into too specifics but is pricing shaping up similar to the existing contract and just given some pressure in commodities, would that argue for maybe a shorter-term contract? Just trying to think about how that is all coming together?

Yes, the rates are down. I think the original contract was 51,000 a day on a bare boat and the new extension is 42,000 and then I think the option period is at 40,000 a day. So that is generally I think where rates have come generally down 20% to 30% in that sector.

And our goal is to keep it short. We wouldn't want to lock that in for a long period of time because we do believe over the next two to three years that should trend back up to where capital would indicate it should be which is more like 60,000 a day.

So there is lots of work out there that clearly what has happened is the majors, the state-owned oil companies have read the newspaper and they all come to people and saying you have got to cut your rates and lower your costs and that is what -- and they have the ability to postpone projects which gives them more leverage. So that is what is really going on and we think that will for a vessel like the Pride that will end at some point out there in the future because there aren't any new vessels being built.

Helpful. And then maybe just more broadly thinking about the volatility in commodity prices on the overall business, so clearly maybe a little bit of pressure on offshore energy, you are locked in on those contracts. The flipside is there are some natural hedge in the aviation business or it would seem to be. Are there any other considerations? Just trying to think about the bigger picture of how softer commodity prices impact the overall business?

Yes, I think oil prices being down definitely helps aviation, it helps the airlines, it keeps fares lower which means more people travel and it makes older assets more valuable. So it is good for our aviation business.

The other place where I think it is interesting is in gas. In North America, gas is cheap and it is going to be cheap for quite a while. There's a tremendous amount of it so when you look at the investments in Repauno and potentially in Ohio, what we are doing is repurposing old manufacturing facilities that had really good logistics capabilities and repurposing those to be able to facilitate two things.

One is the development of gas itself which requires things to come in and out of the facility as well as handling the natural gas liquids and the offtake. And secondly, you have a lot of businesses that are looking to locate. The businesses that use gas as an energy source or a feedstock want to locate close to those gas supplies so fertilizer plants or chemical companies are all looking to locate in areas where they can get cheap gas and lock that in for a long period of time. That to me is kind of an interesting North American infrastructure play is doing -- we have got two properties right now and there might be more like that.

Great, thanks. And then just last for me with respect to the comment about looking at maybe some new platforms, just trying to get some detail there. Is that in reference to a new project or asset type that is within equipment and infrastructure that just something that looks very different to the existing investments? Just trying to get some sense of what something new would be?

And then is that captured in the $2 billion backlog? So really what I'm trying to get that is it just a generic comment or is there something specific that's targeted that just looks a little bit different than the existing types of investments you are in?

There are specific opportunities that we are looking at right now. We are always in the market and I would say they are not very different but they might be companies or platforms that we wouldn't have in our portfolio today. But it is still the same types of things that we like which is aviation and ports and railroads and intermodal, all of those sectors are sectors that we try to look at everything that is available for sale. And what we would like on a macro basis and then see if it fits and makes sense. It is specific projects in similar sectors and there is a fair amount of activity out there right now. That is what it is.

Okay, great. Thanks for the update and appreciate all the additional details in the slide deck.

Art Hatfield, Raymond James.

Good morning, everyone. Thanks for the time today and for the help with the extensive slide deck. Most of my questions have been answered but just one quick follow-up on CMQR. You mentioned that you had a paper customer that was dealing with [shorter-term] boxcars. I know typically boxcars are a per diem business, has that customer been able to lock up some equipment longer-term or is this something that could be potentially a recurring theme if the market for boxcars remains tight?

Good question. I believe we locked in boxcars I think for three years. We went out and aimed I think 70 or 80 boxcars and we have locked them in for some period of time so I don't think that will be a recurring problem.

Perfect. That is all I have got. Everything else got answered on earlier questions. Thanks for the time this morning.

Justin Long, Stephens. (Operator Instructions).

Thanks and good morning. I wanted to ask as we get down the home stretch for closing Repauno, do you have an expectation for how much this asset could contribute to FAD in 2016? I know there is still a handful of options you are contemplating for that facility but just sharing a ballpark expectation would be helpful.

Yes, I think during the road show I think I mentioned probably $10 million to $15 million contribution. That is a very, very rough swag but I will try to keep and update people on that as we go forward and lay out the more precise schedule.

But nothing since that time has changed your expectation on that front?

It hasn't changed. It has actually become more concrete I would say. The guess was a decent guess and I think as we get forward I think we have some pretty -- we have one project that actually is going ahead and will go into permitting in the next week or two that I think would drive -- would fulfill that guess.

Okay, that is really helpful. In terms of the Ohio River opportunity, is it fair to say that that would be similar in size? Is it smaller, bigger, could you just help us frame that up?

It feels similar in size.

Okay, great. And the next thing I wanted to ask is right now clearly the aviation segment is a big contributor to cash flow. Can you just speak to the level of visibility you feel like you have in that business over the next 12 months? I wanted to see if there were any assets coming off lease and just get a sense for your general comfort with the sustainability and the predictability of aviation's FAD?

Sure, Justin, it is Jon Atkeson so I think on the aviation side we feel very good about the predictability. The average remaining lease term on our airplanes is about three years and on the engines it is over a year so certainly well into 2016 and beyond we feel pretty good about the recurring nature of those cash flows. And there aren't any aircraft coming off lease next year that are material in any way so we feel very good about that.

Okay, great. That is all I had. I appreciate the time.

Brandon Oglenski, Barclays.

Good morning, gentlemen, and welcome to public reporting. Joe, I am going to be critical here but I feel like that is what this call is for.

Let's walk back through that FAD math again because I think in this quarter you had about $8 million, right? So if we look at your dividend you need about $25 million a quarter give or take. How do you get there again? Can you just give us some confidence there because it sounds like by your prepared comments maybe Jefferson hits breakeven by the fourth quarter but I might be jumping the gun there. So just tell me how we get to that $25 million of FAD a quarter?

So the $8 million of FAD is after Jefferson and CMQR which were negative $8 million for the quarter so that is about (multiple speakers) so what we did is we said okay, take the $16 million, let's hold CMQR and Jefferson aside for the moment, take the $16 million, which is the equipment FAD and we are adding $150 million of new equipment which we think generates a 20% contribution. So that is the $30 million of additional FAD or $7.5 million per quarter. So that $16 million gets us to -- goes up to $24 million. That is the $24 million that we multiplied by 4 to get the $96 million which is the dividend. So we have held CMQR and Jefferson aside.

CMQR as I mentioned, didn't have a great quarter which was disappointing to us. There is some seasonal aspect to that in that propane is a nice contributor and we had a couple of customers that were less than we expected but I fully expect that CMQR will be breakeven or a positive contributor in 2016 so I don't think of that as a drag.

Jefferson is a variable. We had continuing development expenses and we didn't add any new customers in Q2. We probably won't have much new customer business in Q3. I think Q4 has a shot at being breakeven and then we believe in 2016 it should be a meaningful significant positive so that is how we did the math.

Okay, appreciate that but I guess when I look at the Jefferson assumptions that we had not that long ago during the IPO process, we really had that business ramping up quite a bit in 2016. In this energy environment, I mean I know spreads have widened in the last month but I have to assume that volatility creates a little bit of uncertainty with the customer base and so is this just going to be more of an opportunistic business, we will have quarters where it better and quarters where it is worse unless we get some sort of sustainable spread in the energy markets here?

No, I think it is a very, it is a great logistics investment in infrastructure in that region and it has got a lot of different capability. But as we were starting up it was inherently difficult to forecast quarter by quarter and when I went out and talked to people I said 2015 is very hard for us to predict. But I feel very confident that long-term this will be a great asset.

Our view hasn't changed on that and it is not -- volatility clearly obviously if oil prices are jumping around and people are cutting budgets and they postpone meetings, yes, that takes a little bit more time. But we haven't seen anybody in our target market who has said I am no longer interested in talking to you or I don't ever think that I will use your facility. They are all still engaged.

Okay, appreciate the time. Thank you.

Rob Salmon, Deutsche Bank.

As a follow-up to Brandon's question, could you give us a sense in terms of, Joe, when you are referencing breakeven, was that from a FAD perspective or from an EBITDA perspective as you were highlighting the CMQR and Jefferson kind of over the next couple of quarters?

I would say it would be from a FAD point of view.

And can you give us a little bit more color about the new aviation contracts that you just signed? Are they similar in terms of average age as to your existing portfolio as well as the lease terms on both engines and aircraft?

Yes, it is Jon, again. So I think on the four aircraft, two of them are more modern but the other two are squarely in the same age range as what we own today. The average age of our aircraft is between 14 and 15 years old today.

And then on the engines, historically we have acquired engines off lease so the bulk of the engines we have acquired there have been off lease when we have acquired them. We actually have acquired our first engine on lease in that batch. But we have actually been able to lease up a number of those engines in the $150 million of aggregate aviation investment very quickly. So a number of those are already on lease in Q3.

That is great, Jon. Then when I am thinking about kind of the overall returns of that profile, should I still be contemplating kind of a higher return on equity with regard to the engines and a bit lower in terms of the 20% threshold that you guys highlighted in the press release with the aircraft?

Yes. I think it is going to be a higher return from the engines and a little bit lower on the planes.

And then, Joe, just to switch it back a little bit to Jefferson, can you give us a sense how we should be thinking about OpEx? You had highlighted some additional investments that you guys were making in terms of expanding out the throughput. Should we contemplate that OpEx is going to be kind of rising further in the third quarter even if we are not seeing kind of the topline increase or is kind of Q2 a pretty good run rate at the Jefferson because you are seeing comparable investments in the third quarter?

It is a good question, it is Jon again. So in the second quarter, we had $9.5 million of OpEx at Jefferson and I think that had a couple one-time items in it, probably $1 million-ish of one-time items in that quarter. So I think the run rate that you could use or think about is probably close to the 8.5 for that.

It shouldn't go up in Q3.

Then we should think about that ramping as the contracts potentially come in line for Q4 with those crude by rail opportunities you guys highlighted earlier?

Somewhat but not a lot.

Okay. And with those crude by rail opportunities, is that kind of more of a spot transactional-based business or is this more contractual that we could see kind of more medium-term or earnings stream out of?

We are looking for contracted business. We would like to get a term of 3+ years but we will take spot deals as well.

Okay. Appreciate the time, guys.

(Operator Instructions). Jared Shojaian, Wolfe Research.

Good morning, everybody. Just going back to Jefferson real quick, you talked about some incremental payings and storage facilities and new delivery systems, etc. How should we think about the incremental cash required to get Jefferson up to the level that your customers seemingly are demanding right now? And should we assume that that additional capital is contributed this year?

We are not forecasting much additional capital at all and if we do some of these projects, we are looking at potentially additional debt financing at Jefferson so I don't think -- we are not really thinking about much more equity capital in the near-term.

Okay, great. And then just want to touch again on your infrastructure, your FAD there. So you are saying your equipment leasing FAD is now $95 million a year. Obviously the infrastructure side, the FAD is negative but how should we think about longer-term FAD from your current infrastructure portfolio assuming no incremental capital contributions on the infrastructure side?

Well, I think we had in 2016 -- what was it -- 1.5 trains per day at Jefferson plus the MPRs.

So we had talked about I think in the road show we're thinking about $30 million-ish of contribution from Jefferson at a 50%-ish utilization level and I think we still feel pretty good about that.

And as far as small, it is like $3 million to $4 million, right?

Yes.

Yes.

Okay, so maybe about $35 million or so?

Yes, and none of those numbers account anything from the $450 million that we haven't invested yet.

Right. Okay. And then should we assume that future infrastructure asset acquisitions are initially going to be cash flow negative for a period of time and that equipment leasing assets are going to be cash flow accretive immediately? Is that the way to think about it?

Not all of them. I think we do have some projects that we are looking at in the infrastructure space that would come with cash flow. By God, amazing.

But often it's we like to buy at good value and so oftentimes you get better value when you have to put cash flow in place than when you buy it. But we will see some existing infrastructure investments that do have cash flow and we are not prejudiced against them we just like to buy at good prices.

Okay, so is the $10 million to $15 million contribution that you mentioned on Repauno, is that immediately accretive or is that something where we should expect it to ramp over time?

That would be more immediate, yes. It would kick in when it goes in.

Got it, okay. Are you still targeting a 50-50 longer-term mix on equipment leasing versus infrastructure, is that still the right way to think about it?

Yes.

Okay. And then just my last question, the $150 million of the aviation assets, the 20% returns seem pretty good I mean is there a reason why you wouldn't do more in the aviation space or is it just you don't want to be too concentrated in one specific region right now?

No, we would do more. We are just -- each one of these deals takes time and so it is not a business that I think you want to rush when you are investing. So we are very picky, we are very careful, we look at lots of things and we pick the cream of the crop. So it is really more a pacing on terms of our capability than it is anything else.

Okay, great. Thanks for the time, guys.

Thank you. That does conclude today's Q&A portion of the call. I would like to turn it back over to management for any closing remarks.

Thank you everyone for your participation today. We look forward to updating you again after Q3.

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.