Q4 2019 Earnings Call
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I would now like to turn the call over to Mr. Alan Andreani. Please go ahead Sir.
Thank you operator, I would like to welcome you all to the purchase transportation infrastructure fourth quarter and year end 2019, hurting school joining me here today or Joe Adams, Our Chief Executive Officer, It's got Christopher or Chief Financial Officer.
We have posted an investor presentation in our press release on our website, which we encourage you to download if you if not already done. So also please note that this call is open to the public in listen only mode.
The webcast.
Additionally, we will be discussing some non-GAAP financial measures during the call today, including said the reconciliation 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 didn't investor presentation regarding non.
GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the FTC.
Now I'd like to turn the call lubricant Joe [noise].
Thank you Alan.
I just started to call I'm pleased to announce our nine change dividend as a public company and our 34th consecutive dividend since inception.
The dividend of 33 cents per share will be paid on March 24th based on a shareholder record date of March 13th.
The key metrics, Ross or adjusted EBITDA, and fad or funds available for distribution.
Adjusted EBITDA for Q4, 2019 was 234 million compared to Q3 2019 of 112 million and Q4 of 2018 of 61.8 million.
Note that these figures exclude adjusted EBITDA contribution from the C.M. QR rail assets.
They were sold in Q4 of 29 chain and are now classified as discontinued operations.
Its contribution from discontinued operations had been included adjusted EBITDA for Q4, 29 chain would have been 314.7 million compared to 114.1 million in Q3, 29 chain and 63.1 million in Q4 of 2018.
Fad was 288.6 million in Q4, 2019 versus 120.7 million in Q3, 2019, and 57.7 million in Q4 of 2018.
During the fourth quarter, the 288.6 million Fad number was comprised of 174.2 million from our aviation leasing portfolio 167.2 million from our infrastructure business and negative 52.8 million from corporate and other.
Infrastructure business Fad included 94.1 million from discontinued operations, resulting from the sale of CMQR, our rail assets during the quarter.
Also the Fad number includes 70 67.6 million of proceeds from the sale of aviation assets 150 million of proceeds from the sale of 50% interest in long Ridge and 100.8 million proceeds from the sale of CMQR, our assets net of debt and transit.
Transaction costs.
Now lets turn d'aviation.
For the fourth quarter 2019 annualized adjusted EBITDA, excluding asset sale gains was 431.
Million up from 359 million in Q3, 2019, and 291 million in Q4 of 2018.
Including gains from asset sales of 21 million in Q4 2019.
37 million in Q3 of 2019, and a loss of a million in Q4 of 2018 adjusted EBITDA from Aviation was 128 million in Q4 2019 compared to 127 million in Q3 of 2019 and 72 million in Q4 of 2018.
In other words, even with lower gains from asset sales in Q4 2019 versus Q3 2019.
EBITDA was flat due to a larger portfolio and additional income from lease return compensation and additional maintenance reserves collections. So aviation had a fabulous quarter to cap off a terrific year.
We achieved everything we set out to accomplish in 2019 and then some.
Recurring EBITDA and net income for Q4, 2019 of 108 million and 65 million reais, respectively, or an EBITDA yield on equity invested and return on equity, a 32% and 20% respectively came in well above our targets of 25% and 15%.
Asset sale gains of 21 million in Q4, and 82 million for 2019 on book value of assets sold of 170 million also exceeded our expectations and new investments of over 250 million in Q4 brought the one year total to over 500 million.
Pretty good and especially especially in light of the returns than we've posted.
Finally, our strategic goal of becoming the leading provider of aftermarket tower for the Cfmfifty six engine market by developing proprietary products and practices made great strides that will enable us to pass major commercial milestones in 2020.
Looking ahead to 2020, we see the continuation of strong financial performance and great investment opportunities, but obviously corona viruses on everyone's mind.
In prior similar similar epidemics like Sars long haul wide body markets were affected most severely and experienced the longest recovery periods.
Therefore, we feel that appetite is as defensively invested as possible having focused on lower priced 737, Ngs and Athree hundred Twentys Seo aircraft engines, the largest most liquid and most profitable aircraft in markets expected to rebound first.
Some airlines are being negatively affected by the Corona virus situation, maybe all airlines and we'll need financial assistance.
One investment opportunity. We're now seeing as a result is airlines looking to sell aircraft to raise cash.
A little over a year ago, we started on a program to lower leverage and increase leverage increased liquidity.
Such that if and when markets change, we would be in a strong position to capitalize.
Bull markets always and and having access to capital when others don't can be extremely valuable.
So we executed the plan our leverage is now under 50%, which may be the lowest of any major aviation less or and have ample liquidity and access to multiple capital markets. So here we go.
Turning to Jefferson if we look exclusively at the core terminal business, we had positive EBITDA in Q4.
Excluding results from the Canadian crude marketing program and onetime charges Jefferson had adjusted EBITDA of 1.6 million.
The onetime charges relate to our final shutdown costs from our Canadian crude marketing program.
While we netted approximately 5 million from the program over the 15 months. We operated all of the profits were generated in Q4, 2018, and Q1 of 2019 before the Alberta government imposed export restrictions.
The program is now inactive and we will operate it going forward only on an opportunistic basis.
In Q4, we signed a multiyear agreement with one of the largest producers in Canada for over 900000 bear barrels of storage with a minimum volume commitment.
We also closed the acquisition of our interest from our joint venture ethanol partner and have completed the transition of that systems from ethanol to crude.
As a result, we will make more money going forward with that system.
We will improve our rail capacity.
Importantly, Jefferson refinanced all existing long term debt of approximately 250 million in Q1 2020 shoot to achieve significant reduction of interest expense and positioning the company to access attractive long term debt to fund future expansion projects.
Average interest rate on the retire debt was 7.5% as compared to the new debt average rate of 4.5% New debt included 15 year and 30 year tax exempt bonds priced at three and I have three point.
Three and 5% interest and 4%, respectively, both of which were substantially oversubscribed and have traded up since.
Let me conclude the Jefferson discussion with some comments on volume throughput numbers at Jefferson were up smartly in Q4.
Throughput in Q3 was 9.9 million barrels, while Q4 was up to 12.8 million barrels or a 29% increase and those numbers continue to increase in the current quarter.
With the last of the drag from the crude marketing program and from continued increase in throughput volumes. We are experiencing this quarter. We're now projecting that Devon Jefferson will have positive EBITDA in Q1.
With the ramp in volumes were seeing and with all three of our pipeline projects on track to be operational in the second half of 2020, we feel good about exiting 2020 with an EBITDA run rate of approximately $100 million per annum.
For sure Jefferson is taking longer to ramp up and we hope but the good news is we're now there and we expect this business, which has been an EBITDA drag for four years is now poised to not only be a positive EBITDA contributor, but an asset from which we will see material EBITDA growth.
Let's now turn to Repauno Repauno finished the year strongly with 5.4 million gallons of butane sales, which generated 2.3 million of EBITDA for Q4.
We completed construction of dock, one and we are completing phase one construction of our natural gas liquids export operations, which is our rail to ship offering.
We're close to signing deals with both European NGL off takers and domestic producers from the Marcellus and expect that program to the operational in Q3 of 2020 as planned.
Once that program has final commitments, we will start the process of putting in place necessary contracts to commence phase two construction of the 3 million barrel underground storage cavern, which we expect to be operational in 2023.
On long rich the Frac sand business finished the year strongly handling 900000 tons on a run rate basis.
In January 2028 was a record month with over 100000 tons loaded.
In December we sold a 50% interest in long rates for a 150 million plus an earn out which we believe will generate an additional 25 to 50 million for us.
The power plant construction is on time, and we expect that to be operational no later than November of 2021. So in short long ridge is moving along nicely.
In conclusion.
Jason has achieved a lot which was showcase through the 2000 2019 results, but as we've been saying the best is still to come.
Five years ago, we started dreaming about building, a leading aftermarket power provider for the largest commercial engine market in the world and that dream will become reality over the next 12 to 24 months.
After four years of hard work infrastructure is about to go positive EBITDA and soon the strong cash flow and EBITDA from aviation will be joined by the ramp of increasing cash flow from infrastructure.
At 1.8 times dividend coverage, we are the closest we have then to two to one coverage and all indications are that we will exceed that metric in Q1 or Q2 of 2020.
So we've come a long way since we started F F tie and a long way since we went public a lot of very talented and hard working people who were at that they're at the beginning are still with us today.
On a terrific job of bringing F. tied to this point and I want to thank everyone. All of them for their hard work and dedication, it's a very exciting time for us and our shareholders.
With that I will turn the call back to Alan.
Thanks, Joe Operator, you May now open the call to Q1 day.
At this time I would like to remind everyone. If you would like to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes on line obsessed along with Stephens.
Thanks, Good morning, and congrats on the quarter.
So maybe that start with a question on aviation and it wasn't as strong performance for your business I look at Gtx. They also put out by a really strong fourth quarter and their engine leasing JV with Rolls Royce can you just talk about the sustainability of this strength as we.
Looking to 2020, I just want to get a better sense for what you view as a normalized.
Performance for that business as we look into the first quarter of this year and beyond.
Yes, Thanks Justin.
Sure.
Seasonally the third and fourth quarters are always the strongest of the year. So I think thats one point to keep in mind and obviously a lot of good things happened in the industry for us being that we didnt have the Max you had a lot of demand for flying and lot of hours flown.
And the parts market is very strong so everything was.
It was a very very good quarter for us and for others as well.
So but going into 2020 I feel very good about the overall profitability, but since there were some special some tailwinds in the fourth quarter I wouldn't extrapolate that that's going to continue for the whole into Q1 and Q2 on a percentage basis, but.
Upwardly, we're adding to the portfolio were still growing and.
On the macro for the Cfmfifty six engine is still great. So all those things are very positive, but but it was a it wasn't exceptionally good quarter.
Okay. That's helpful and then maybe to follow up on 10% in some of the commentary there it sounds like by the end of this year, you're expecting to be at that 100 million dollar EBITDA run rate is there any way you could break down the different components of that number as you think about storage crude.
Refine products et cetera, and then as a follow up to that on your last point about dividend coverage. It seems like you'll be at that two times level here pretty soon so I wanted to get your thoughts around raising the dividend.
Yes on Jefferson.
You know mode I would say the the two.
Categories for for the EBITDA revenues can be crude and refined products. We've now gotten rid of ethanol and I think crude is going to be the biggest part of that probably two thirds of that number and a third and refine products. However, we're we're sort of agnostically or indifferent as to how we grow that going forward and I think theres opportunities.
We look at today that are for both of those.
Categories to grow.
It's.
Right now I think you for the near term, it's going to be more crude and refined products.
The.
And then the dividend coverage I think you're right I mean, the big swing. If you go from zero to 100 on Jefferson, obviously that will put us well over two to one so.
It's really just a question of when when that happens in.
Feels it feels like pretty soon.
Okay, Great I'll leave it at that thanks to the time.
Yes.
Your next question comes from the line of Chris Wetherbee with Citi.
Hey, Thanks, good morning, guys.
Wanted to touch a little bit on.
Proven for aftermarket can you give us a sense.
Timing, a little bit there and then and then maybe more important to that than what does that mean in terms of unlocking potential revenue streams or business streams. What are you prepared to be able to offer to the market at that point and ultimately maybe you can talk about what that means from a financial perspective for the business.
Yes so.
Good question I mean as I've been.
Saying I think 2020 is a very big year for us.
To grow our market and have commercial commercially available products, where did the cfmfifty six this year.
Break it into segments as you know release, we made our initial investment in three years ago.
$15 million and there's two different products and we hope.
And expected based on what we know that those will both be commercially available. This year one of them that we're expecting towards the end of the second quarter and one by the end of the year.
So there could be some revenue from that.
Potentially in the later part of this year, but I would expect most of that to be to show up in.
2021, and ramping that can be pretty quick as I've mentioned.
Well run through the numbers and then we have phase two which we started in second quarter of last year, So that will not be in the market until 2022.
[music].
When you put both of those together.
And use you say were what could that mean to us if you take a 5% to 10% penetration of the aftermarket shop visits.
And our 25% ownership in that JV.
I would produce based on 3000 shop visits year, approximately 50 to 100 million of EBITDA for us.
Per annum, so on a $30 million estimate that's a pretty good return in of itself.
If we achieve that and that would be fully ramped I think by 2022.
The second part of that which which is not.
Does that necessarily clear, how we're going to monetize it but but if we take.
Fleet I'd say, we own 300 engines by 2022, which I don't think as.
Much of a stretch.
I would represent about 60 shop visits a year and our discount on those products.
Would save us about $2 million per shop visit so a 120 million of savings.
Per annum on top of that which we might find we could find a way to.
Turning that into EBITDA or we might just end up with higher or are we but either way, it's it's quite real.
Okay. Okay. That's really helpful to put those numbers around I appreciate that and then I guess, maybe taking a step back and thinking about this conceptually around the infrastructure side of the business.
Feels like you've been a net seller over the course of the last six to 12 months on that side can you give us a sense looking into the crystal ball about 23 of which I'm sure is very clear given the circumstances that we're in right now, but can you give us the dental what maybe you think the market looks like in 2020 in terms of being better to buyer so on the infrastructure side.
It's as you pointed out it's pretty hard to tell right now.
Surprisingly, we've seen some actually pretty interesting investment opportunities.
That have started to hit the market and I don't know if thats because people returning to get out before it ends or what.
But there are some sort of a recent influx of new deals that were looking at which I would say, we haven't seen for two or three years.
So there might be some interesting new investment opportunities and I would say as opposed to a net seller I would I would characterize this as a recycler.
The business model, we're trying to execute on is to build.
Build businesses at three to five times EBITDA.
Hopefully when they trade in the public markets that would they would trade attend to 12 times EBITDA on if theres a strong did from from private buyers you could sell them at 15 to 20 times EBITDA. So that that's what we that's where we tried to do.
So I think and I do think that the infrastructure buyers have raised a tremendous amount of capital. So the private market bids for infrastructure I expect to stay.
Quite strong I don't see that diminishing so.
So net net.
Pretty good right now that.
Really both sides of that the ability to monetize once weve built and maybe the opportunity to that might some things might shake loose here in the next few months.
Once it could be interesting.
Okay, and if you let me just one quick question just just in terms of the D.R. you opportunity is that going to be at Jefferson volume opportunity.
End of 22000, 2021, but we will that be at Jefferson story for you guys.
We hope so I mean, I think it's very positive for crude by rail from Canada, because it creates a permanent flow of product.
That's that's better better economics, and then pipeline so thats what it achieved so people that are looking at building VR use and there's there's at least two that are pretty advanced and there's another two that are on the.
That could happen as well are looking.
To get tenure or 15 year commitments from from both from out from the participants.
And obviously.
We're not going to plan necessarily in origination terminal side.
But the product is most likely going to end up into and refiners in the Gulf and so thats, where we would.
Expect and hope that some of that volume and it doesn't take a lot.
We'll we'll come to us so we'd have a heated system, we have pipeline connectivity we have.
Water access so and we have tremendous rail obviously, but.
So we're we're very keenly focused on that and hope to get some of that volume.
Okay perfect. Thanks, very much proton appreciate it yes.
Your next question comes from the line of Devin Ryan with JMP Securities.
Great. Good morning, Joe how are you.
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Good. So first question here, just coming back the aviation and I guess, one specifically on the Corona virus I mean, it seems a market.
Your knee jerk reacted and is kind of lumping all aviation business models, together, where we've seen a lot of pressure over the past couple of weeks, just given concerns around travel, but I'm, assuming that there could actually be some opportunities for business models.
Like yours and especially.
Now that you you have quite a bit less levered to than some of your peers and and potentially.
Not going to be stressed unlike some others and so I'm curious kind of how you guys are thinking about what's going on kind of globally right now with the virus, how the business model position than any opportunities actually are starting to come about as result of it.
Yes sure.
There are I mentioned in the in the script that we are seeing.
Airplanes being that may be previously wouldn't have been available that are being offered.
Because airlines.
Airlines, obviously of the frontline and they take the biggest hit on this and when they are stress.
Airlines look to raise cash from every available needs and then it will come from potentially government assistance.
It will come from them asking lessors to not not pay rent for a few months.
Or they'll sell assets or or businesses. So.
So I think that that the selling of older airplanes. If if we can buy cfmfifty six engines by buying older 77, Athree Twentys. We are very very interested in that and I think the pricing I will be quite attractive so.
So that is really a question of how long does this persisted as long as airlines don't liquidate are going to business generally less orders will be fine. So I think.
If you believe that people are going to continue to travel and ultimately this will.
People will get back on airplanes after.
Taking some time and staying in their homes for months the bill.
The industry has always rebounded so I think it it could present some.
Some very attractive investment opportunities for us, but we're obviously, hoping it doesn't last.
Too long.
Got it okay. Thanks, and then.
My follow up on.
<unk> leverage in the system. So you guys have.
Obviously de Levered and fortuitous timing here.
And it sounds like there may be some new opportunities to put incremental capital work and we'll see where markets go here, but to the extent, we see more dislocation I could see.
They are being even more opportunities that don't even exist today. So how are you guys thinking about kind of leverage profile. The firm now that you brought leverage down would you be opportunistic and take leverage backup for a moment door or just more broadly you. How are you thinking about it now that you're kind of within the realm of your initial targets of about 50%.
Serious on that.
I think where we'd like to 50% and I think one of our objectives.
In that was to get to double B rating. So we wanted to be double D. Because that will be as I think a lot of positive attributes of lower the probably the lowest rates.
Without sacrificing operational and business flexibility. So we got double b from Moody's and Fitch and.
S&P will we hope we'll get there as well so so I think it will be we'd like to maintain the double b and.
I would say, 50% debt to total cap feels good at the moment.
Okay, Great all right. Thanks, Joe appreciate it.
Yes.
Your next question comes from the line of Giuliano bin Laden with BP I too.
Good morning, and congratulations on another great quarter.
Thanks.
It's kind of dig in a little more on the aviation side of the business.
So you're targeting the Cfmfifty six engine market and I think based on some of the commentary from.
Previous calls you were at call. It roughly 200 engines is there any sense of.
Where you are now.
Central deals that could be in the pipeline and then what you think you could ultimately be grow your portfolio Cfmfifty six engines to overtime.
Yes, we.
When we started the business five years ago, We said you wouldn't be Greg I forgot to 100 engines now we're now or 300 engines, and we're saying we're going to be greater forgot. The 500 engines and then pretty soon we might say wouldn't it be brady forgot to a thousand.
So I do think with.
22000, Cfmfifty six engines flying around the world that it wouldn't be crazy for us.
Expect this that we could own as many as a thousand of those.
We have no segment.
Average.
$6 million.
In 2022, and we can do that for under 3 million.
Why wouldn't we want to do that so it and why and we should be able to do that because we have a.
Competitive advantage that no one else can can copy.
I do think the.
Aspirations have grown.
We always our return constrained so we're not just going to go engines at any price so.
We never budget.
Capex.
Side and.
Function of.
How attractive the market is and whether we think we can continue to earn 20% Unlevered returns.
That makes a lot a sense.
I guess just in thinking about thats come from back into perspective.
5 million an engine 500 would be to an ethylene of capital and thousands we close to 5 billion of capital which is.
Multiples of where you are now and if you do you have the advance and repair JV off the ground you should be able to probably generate yes north of 30%.
Adjusted EBITDA margins with the benefits of the JV is that reasonable way of thinking about the overall end market overtime.
Yes.
That's great.
I really appreciate it and I'll jump back in the queue. Thank you. Thanks.
Your next question comes from the line of Rob Salmon with Wolfe Research.
Hey, good morning, guys and thanks for taking the question.
Just a quick follow up in terms of the outlook for the aviation.
Returns profile will your return threshold be increasing as the assay aftermarket CFM business start to really scale up here.
Yes, I mean, I think we should capture as in other words, if we can save $2 million.
For a shop visit that other people can save and we're earning 20% now.
Then we're not going to give away the $2 million for nothing.
Going to try to keep as much of it as we can.
And.
But on the other thing and it's not unreasonable to assume that we can share that with some airlines and capture.
Airline customers on a programmatic basis Thats what were.
Really what we're aiming for over the next two years is to pickup.
Airline partners on a programmatic basis.
Then potentially generate income in EBITDA, that's not based on how many assets you own so.
Thats it worse.
That's something we've we've turned our attention to now we'll have commercially available products in a real competitive advantage.
Really sort of Medicaid from that and.
It's going to happen over the next two years I'm pretty convinced.
Yes, so we're kind of configuring expectations setting expectations properly.
From a market product standpoint of the total opportunity like how big is kind of the first product that's coming on in call. It the first half versus the second half of 2020.
They're probably.
I would say one third two thirds one third in the first first product in two thirds in the second product.
That's helpful. And then just kind of more on a kind of the fourth quarter results. We saw aviation utilization rates within the engine component of the business dropped pretty meaningfully sequentially third Q to fourth quarter, but I didn't see meaningful change in the remaining lease term. So could you give us an update in terms of.
How that played out what impact if anything we should be thinking about the corona on the the aviation utilization rates within your your engine segment.
Yes. Good question that so when we report that utilization we report a single data do you ended the quarter.
Which is actually in this instance is probably the first time, it's not really representative of what the utilization was through the quarter on a weighted average basis. It was much higher obviously as you can tell from that from the numbers. We reported so we took a number of engines. The of young fleet came in and a lot of those engines were not put on lease. So that's why the number.
With 60% was at the end of year on a specific date. So we're going to change that going forward, we're going to start doing weighted average.
Over the next going forward from here. So the next quarter, we'll have a weighted average number but I would not that 60% number was not representative in the business on the average terms have not changed the average.
Rates are actually a little bit higher so I think it's all it's all good it's just not not a good number to.
Two for us So we'll change that.
In any way for us to kind of frame up.
Potential impact from krona across your assets, maybe how much how how many customers you have that are domiciled in China or flight hours of your engines that are originating there if you get that sort of granularity from your airline customers.
I think were zero in China.
Yeah, So thats, an easy number to report.
Yes.
Yes.
We have nothing biggest concentration geographically is Europe, which is in the sort of the fortys 40% of Eve.
Fleet or.
America and.
Asia are in the Twentys each so that's that's about 80% of our portfolio and Asia is.
No China No Japan.
It would be southeast Asia, and Korea think.
Mostly.
But I think you can assume it feels like this is going to spread is not going to be isolated to China. So.
But it is it'll probably be better.
Managed and better contained but.
I think geographically it seems like most people think its.
It's spreading.
Yeah, well have to watch and then see the impact appreciate the time guys.
Your next question comes on line Ari Rosa with Bank of America.
Hey.
Good morning, Joe So.
Good for random question, but I wanted to ask about the offshore I saw it took a bit of a step up in the quarter. Maybe you could just talk about what's going on there and and plans or expectations for maybe divesting that.
That asset eventually given kind of some of the activity that you guys have taken on recently.
Yes, thanks for asking it's actually a positive we were hiding in from you. So we didnt kept the good news for me.
Your next we found it we found it.
It actually has been pretty good the rate utilization on the pride was in the high eightys for the quarter and rates are moving up.
So the demand side is.
Feels like the first time, we've seen some meaningful improvement in that market for awhile. So so that the pride and the pioneer.
Continue to operate and.
In the same way through 2020 in it as I said utilization rates have actually been trending up and then on the pride were.
The tower that will enable the vessel to move into the well intervention market is under construction.
So that should be completed by the end of this year and in 2021, we're going to be going after well intervention business, which is materially higher rates.
There's also I think a positive macro in that.
Well one of the uses the pride could.
Target is the plug and abandonment market, which is capping in.
Closing off old wells of which there are thousands of them out in the ocean.
Oil and gas companies are really good postponing those.
Events because of cost money to do that so I think governments have finally run out of patience and there's there's a pretty positive macro and in the private would be ideally suited to pick up some of that business. So so even if there's no new drilling there is going to be there's going to be closing of old drilling so.
So.
So it feels pretty good for that and.
It's just not main focus of our new initiatives, but it is doing well.
Sure. That's it that's great. That's helpful to understand and then just turning to Jefferson I wanted to understand a little better.
There was this big step up in storage capacity in the quarter. So congratulations on that.
Maybe you could give us a little bit of color on what's the utilization rate.
For that storage right now and kind of how much of that is actually contracted versus how much of what still needs to go out under contract and then asking.
The early question earlier question about $100 million of EBITDA.
On a run rate basis, hi, slightly differently.
How much of that is kind of coming from.
Storage versus.
Trans loading.
Transloading fees, essentially or other sources of activity at Jefferson.
So so the storage utilization is very high it's in the Ninetys is almost all contracted.
Typically it's three to five year deal so.
So that.
Storage is spoken for.
It's hard to separate storage from.
Trans loading because it's all tied together when somebody brings in.
Product, they're going to using bringing in by rail you get paid a rail fees storage fee and then it generally a fee for going across the dock loading a shift so it's kind of a whole each.
Each.
Customer sort of has a TNL more and more than the storage tank itself. So I would say and one of the reasons why the business is ramping as is the volumes and we cited that volumes have grown.
And are continuing to grow and so it's all tied to the movement in the movement out.
And then further when we will have we have three pipeline projects under way under construction, it's not underway there actually being constructed one is.
Connecting with six pipelines to Exxon, which is our neighbor right across the river. One is an outbound crude pipeline to motiva into hotel and into the Zydeco pipeline and one is in down pipeline from Cushing and so when those all three of those are under construction when those come online our throughput volumes will go up because obviously you can.
Move a lot more product and you're not constrained by rail and dock. So you get a lot more volume and Thats one of the reasons and so once you cover your fixed costs and you.
Have moved into positive then incremental volumes are extremely.
Contribute a lot.
Okay terrific. That's great color and then just last question for me, maybe your thoughts on the extent to which.
Let me kind of macro risk or.
Corona virus global recession risk, Mike disrupt or delay that.
The development of that 100 million dollar target at Jefferson or do not see that isn't material risk at this time.
I don't see that today.
Recently had been meeting with the refineries.
Pretty regularly and.
Their expansion plans exxon's expansion plans are underway and I don't I don't see any current events.
I don't see anything that would change that they look at these investments.
Over a 30 year time horizon, so they're not they're not typically you know impacted by changes in sentiment on on a month to month or week to week basis. It's it's it takes years to get the stuff in motion and then once it's happening its happens.
So I don't see any of that.
And.
So they will be producing exxon will be to be producing 625000 barrels a day in 2022.
And that's and then that product has to go somewhere so so all of those decisions and infrastructure around that.
Has to be plan and committed for.
In the years in advance.
Okay. That's that's terrific thats encouraging here.
Thanks for the time.
Thanks.
Your next question comes from the line of Frank Good luck with Stifel.
Yeah.
Hi, Thanks.
Wanted to ask about Repauno.
LPG prices still.
Pretty.
Big disparity in the U.S. and the rest of world. So that kind of thesis is still intact right. The.
You asked needs to be exporting lpgs I, just wanted to kind of ask about.
Any progress at the terminal from a contracting perspective I know these these contracts take time, but has there been any change.
Or progress made on that front.
Progress, yes, I mean weve.
So we're putting in place the system and we've got multiple counterparties that we're negotiating with in the macro is still very very positive in that.
Production in the U.S. continues to grow and consumption in demand in the US is virtually flat so that product has to get exported and so.
So we see that and we have multiple counterparties as just.
Sorta tying it all together.
As you point out does take time.
And figuring out all the system requirements is what we're working on but but it's going to happen were we said we will be operational in Q3 and.
And loading ships so.
So that's all good and I think the ultimate the longer term goal of being able to load Vlgcs, which is the most efficient ship.
The market is also is still very very valuable.
And if you can get an operation going in operating out of the east coast the United States.
That is very valuable because nine today, 90% of product goes out of the Gulf of Mexico, but everybody. We talk to you once diversification of of.
Supply chain. So so just getting that done will be a huge.
Extremely valuable asset.
Great. That's helpful. Then account for my second question I wanted to ask about remaining Capex. So I know aviation side to can be variable right there's opportunities come up.
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That's a place you guys want and I'll look to.
Deploy capital, but on the Jefferson and Repauno side, how much Capex is left to get those pipelines installed and the storage built up and then to get Repauno up and running.
So Jefferson is an expansion mode and this year I think remaining Capex is 200 million yet.
And that will all be financed with nonrecourse debt at the Jefferson.
Entity and so thats part of the refinancing we did in the first quarter was to provide that capital for the year. So all the projects I mentioned the pipelines. The dock everything is is basically.
I will be funded from Jefferson borrowing capital not from F. tie capital.
Repauno, we also look to do long term debt financing, but from a timing perspective I think.
We're assuming that 60 million of capitals, what's needed to develop and finish phase one.
And once it's finished we'll look to do nonrecourse financing, but we'll probably finance.
Some reports a good portion of that from F. tie in the interim.
Alright, great. That's helpful. Thanks, Joe Thanks.
Your next question comes from the line Brandon Oglenski with Barclays.
Good morning. This is David will offer Brandon Thanks for taking my question.
Just a question is on the.
Along with Henry few terminal.
Equity investment can you maybe talk about why PCM is a good partner for that investment and how the are now destruction.
Yes so.
And as a.
An infrastructure fund that is.
Affiliated with with GCM Grosvenor out of Chicago, and this particular fund is.
Comprised of.
Taft Hartley money. So it's it's union pension fund money.
And so one of the one of the attractive parts to the terminal is that this week. We has a lot of I think we'll have at the peak like 400 Union jobs building. The power plants. So that was something that it was important in an interesting to them, but they're also in the market for.
Additional investments in infrastructure. So when we look at new investments at long ridge potentially we could be partnering with them and they have a network that's different than our network. So we can see.
Opportunities in deals.
Together.
Sort of collectively.
What was the second.
A little color on how the earn out in structured and maybe what you think the catalyst will be for.
Maximizing that are now.
Yes, so the earn out is based upon.
We've talked a lot about adding.
Onsite tenants to two by power so if we bring.
Today, we have sold electricity.
Two.
Long term under contracts that little under 33 cents of kilowatt hour and so when we're marketing onsite.
Locations to people.
Such as data centers or other potential users to buy power, we're marketing that at four and a half cents per kilowatt hour. So 50% higher so we get a portion of any income incremental revenue that we get from that from those tenants if we bring those in.
To to purchase power, so thats, how the the earn out of the structure and we've said, we estimate that it could be worth $25 million to $50 million additional to us.
Hi, Thanks.
Yes.
Once again I would like to remind everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes on the line of Robert Path with Raymond James.
Hi, guys on the the debt to capital could you give us.
My dog, how much of that.
Today is kind of non recall.
The 50, obviously, you just we find that the bonds, which.
And on the cost at Jefferson and then on when it comes to to keeping that that will be from a Moody's and Fitch perspective.
Do they give.
Any waiting to the non recourse Jefferson and potentially of upon the all or is it just about.
The recourse debt.
They would look at it I think they'll run the numbers both ways as we do and I think we are we sort of report.
With if you don't count nonrecourse debt I think our leverage pro forma is 46% and if you do candidates.
Yes, 50 50.
One little over 50, so it's it's not a huge difference not something you could look at and say well that's going to move the needle in a way to think about it. So it's they're both they're pretty close today.
But it is.
Refinancing Jefferson to be nonrecourse, we had limited recourse.
In the prior debt.
It is important to them.
It was important to us too. So it's I think there was a big step and I think part of the reason for the upgrade.
Got it got I appreciate that and then one more if I caught on on the that come out of us and in your prepared comments Chairman you talked about we can only see airlines can get stress lead cash sometimes if they need cash they needed in a highly how how fast can that cycle move in terms of.
An airline needing money.
And being willing to enter into a transaction I mean is that materially quicker than the normal.
Kind of process that you go through for acquiring either engine. So.
Okay.
Aircraft.
Yes that is materially quicker and it can be very fast.
People when they are distressed people change their rules.
They they do things much faster, so I think it could be.
There there are discussions now that are ongoing and happening so.
They too.
Okay I appreciate it thank you.
And at this time there are no further questions.
Thank you all for participating in today's call. We look forward updating you after Q1.
This concludes today's conference you may now disconnect.
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