Good morning, and thank you all for joining us for our next Midwest Ideas Conference Presentation. Presenting next is FTAI Infrastructure, listed on the NASDAQ under the symbol FIP. Representing the company today is their Head of Investor Relations, Alan Andreini. Alan?
Thank you. Thank you for coming. I noticed that a lot of the people here own both FTAI Aviation and FTAI Infrastructure. For those of you who aren't aware of the history here, about 2.5 years ago, these two entities were one company: FTAI, Fortress Transportation and Infrastructure. The problem with that was that these are two areas that we knew extremely well. The problem was, one, there was a K-1, terribly tax-efficient, but K-1s, and everybody hates K-1s, and nobody wants to, you know, so we knocked out 40% of the market. It was too complex a story. You had aerospace guys who said, "I know aerospace, but I don't know infrastructure, and I don't want to learn infrastructure." You had infrastructure guys who said, "I don't want to learn aerospace." About 2.5 years ago, we split the companies.
We spun out this entity, which was the orphan that took a lot of the debt, and aerospace was on its own. At that time, the stocks were trading at, the combined companies were trading at $17. Today, the combined companies are trading at $155. It'd be safe to say that that worked out pretty well. This is the orphan. People have said to me, you know, you're now responsible for FTAI Aviation and FTAI Infrastructure, you know, which one do you like better? You love all your children, but you have to make decisions about that. What I would tell you is that I think FTAI Aviation is on cruise control. That stock's at $1.50. I think by the end of the year, that stock is $1.70, $1.80, maybe a little bit higher. Things are going great there. This company is at an inflection point.
This company is at a place where this company could double by the end of the year. If percentages are what you care about, and if you understand infrastructure, this is something that is worth looking at. Let's go back to the beginning of the year for this company, FIP. At the beginning of the year, Ken Nicholson, the CEO, said there were four things he wanted to accomplish this year. One was we wanted to recapitalize the Long Ridge facility. We did that. About $1 billion, just a little over $1 billion worth of debt, refinanced that. That's done. The second thing we wanted to do was to do the financing for the phase two construction at the Repauno facility in Philadelphia, the natural gas liquid port. We wanted to get the municipal financing done, which is $300 million - $100 million of taxable debt. That's all done.
The third thing you wanted to do was to do a refinancing of the holdco debt, which is about $1.2 billion. There were some very ugly errors preferred in there, 16% coupon, 18% PIK, and $600 million worth of 10.5% capital. That was done. That was completely done about a week ago. That basically was 14% money. We just took that out with, currently, this is bridge money, 8.25%. We saved, so our interest expense went from $130 million- $100 million at the holdco level. The fourth thing you wanted to do this year was to do a major acquisition in the short line railroad space, which we did. We just announced about 10 days ago the acquisition of Wheeling, West Virginia. Paid $1.5 billion for that entity. You put all that into a blender.
It's been a very, it's a very, very impactful, very important first six months of the year. Now, let me make your jobs more difficult. The next 18- 24 months, this company isn't going to look anything the way it looks today. Currently, there are four main assets. There's Transtar, and now the Wheeling, West Virginia, which is the short line railroad business. That'll be doing by the end of next year, $200 million in EBITDA if we do nothing to it. There is the Long Ridge facility, which is a 485 MW, about to go to 505 MW power plant in Hannibal, Ohio. It's about an hour and a half down the Ohio River from Pittsburgh. That will probably be sold sometime in the next 6-9 months.
That deal, if it goes at current rates, we'll probably sell that for $1.5 billion, $1.6 billion, take out $500 million in equity, get rid of all the debt. The Repauno facility, which is a natural gas liquid port that we're building, and it just began to build out near the Philadelphia airport, there's something very important that's about to happen there. What's very important that's about to happen there is that we're going to get a permit from the New Jersey Department, New Jersey DEP, the Department of Environmental Protection, to build underground caverns at that facility. This was dumb luck here. When we bought this, we knew that there was an underground cavern in granite down there, but subsequently, we found out that we had the ability to put in six million barrels of underground storage. Why is that important?
If you build a million barrels of above-ground storage for natural gas liquids, those tanks, they're huge. They have to be pressurized and insulated. For a million barrels of above-ground storage for natural gas liquids, you're going to spend between $350 million- $400 million to build a million barrels of above-ground storage. It generates around $60 million in EBITDA, which is fine. That's a good investment. Not crazy, not crazy good, but a good investment. If, on the other hand, you're sitting on one of the largest, purest granite formations in the world, you can go down 800 ft, carve it out and put in underground storage. You can build where it is naturally pressurized, naturally insulated. You can build it for 1/6 the price of above-ground storage and still make your $60 million in EBITDA.
You build it for $120 million, and you get $60 million in EBITDA. Now, why is that important? It's important just because of the math, but it's also important because our neighbors across the street, across the river, and Marcus Hook are full. Those are the guys that are owned, Marcus Hook is owned by Energy Transfer. It could be interesting. It could be an interesting situation. They're full. They have no more capacity over there. We're growing and becoming a big competitor of theirs. We get the New Jersey DEP approval for underground caverns in September. It could be an interesting situation. I think one way or the other, that asset is going to be gone. Long Ridge is going to be gone.
Jefferson, the third asset, which is the facility in Beaumont, Texas, which is about a three-wood away from Exxon and 10 mi away from Saudi Aramco, Motiva. That's the perfect location for down there because, one, you're across the river, and we have six pipeline connections to the largest refinery in the United States, and we're 10 mi away and pipeline connected to the second largest refinery in the United States. You could not ask for a better position in the hydrocarbon business.
What I think is going to happen, and Ken Nicholson, the CEO, has been pretty clear about this, our goal over the next 18- 24 months is to sell those three assets, get rid of all the debt on the balance sheet, take out $1 billion- $1.2 billion, buy more short line railroads, such that two years from now, you're going to be doing $400 million- $500 million in EBITDA, trading at a 15-multiple with very little debt. That's where this is going. Now, here's the caveat. Let me show you a couple pages here. This is the acquisition that we just did, the Wheeling in West Virginia. You can see the diversification that we're getting. When we bought Transtar, we were 95% U.S. deal. It's now 85% U.S. deal, and with this acquisition, we're going to go down into the 30s with U.S. deal. Highly creative acquisition.
As I said, these two combined entities will be doing $200 million in EBITDA by the end of the year. This is a recap of the balance sheet. You can read that. There are decks in the back. Here's the page. Here's the page that makes all the difference. I remember one time we were doing a presentation. We'd worked on a very large, like a 30-page presentation for Pete Briger, who was running the private credit side of Fortress. We started the presentation, and Pete said, "Go to page 17. The rest of this stuff is BS." We went to page 17. This is the equivalent of Pete. This is the page that you want to focus on. This company is currently doing $184 million in EBITDA annualized, based upon the Q2 numbers.
If you look at the builds here, when you look at what's happened from the Wheeling, Long Ridge deals that are, these deals, by the way, Long Ridge, Jefferson Energy, Repauno, these are locked in. These aren't, you know, if things go well in the future, or if we get new business, we're going to have these assets. These are locked in. These are contracts. Construction is almost completed in these things. These things are locked in. What you're going to see 20 months or two years from now is you're going to see this company, and you're going to see those three assets are going to be gone that we talked about, and you're going to have $400 million- $500 million in EBITDA coming from the short line railroad business trading at a 15-multiple. That's the way it's going.
Now, the caveat that I've said when I've spoken at this conference before is going to be the same one I'm going to give you right now, and that is this: don't put in money that's got a one-quarter or six-month duration to it. These are development projects. This isn't Spotify. This isn't how many new Spotify customers did you get this quarter. This is not that business. These are development projects, which means you're two steps forward, one step back, two steps forward, one step back. If we get done what we say we're going to get done, as I said, this thing is a double, triple, quadruple, but we've got to execute. You want patient money in here. The other things that I think are interesting is that we did this bridge financing.
When we announced the Jefferson, when we announced the Wheeling deal, we announced the acquisition of the Wheeling at $1.5 billion, and we announced the refi of the balance sheet. As I said, going from around a 14% cost of capital to around 8.25%. Our interest expense went from, at the holdco level, $130 million a year to $100 million a year. A big drop. It is a dynamic situation. I think it's important to note that Ken is doing exactly what he said he was going to do in terms of things that he wanted to accomplish this year. The speculation is that these three assets where we'll take out $1 billion- $1.2 billion in equity, delever further, and put it all into the short line railroad space is something that's going to happen. Probably worth mentioning Ken's background in the short line business.
He's been doing short line acquisitions for probably 20 years. There are three major players in the short line business. One is Genesee & Wyoming, which is owned by Brookfield. One is Watco, which is a private company, and us. Ken is, you know, I think his worst acquisition in the short line railroad space was a triple on our money, and the best was a 10 to 1. We bought the Central Maine & Quebec Railroad out of bankruptcy for $14.5 million, sold it four years later to Canadian Pacific for $140 million. Ken and Joe Adams, who's the Chairman, he's the Chairman of both companies. He's the Chairman and CEO of FTAI Aviation, which a lot of you know, and he is also the Chairman of FTAI Infrastructure. Those guys have been the best buyers of short line railroads in the world.
They know what they're doing, and they know how to grow them. The other thing that I think is important to note about this company is that John Giles, who was the guy that helped us build Rail America, which we eventually sold to Genesee & Wyoming, is the guy who's going to be in charge. He's the Chairman of the combined rail entities. That is going to be, we've got the right person in that position. As I said, it's an evolving situation. It's one that you're going to see develop over the next 18- 24 months. Let me see if there's anything else here that's worth your time. This is just a breakdown, a background of the four major assets. As I said, the surviving asset is going to be the Transtar, Wheeling combination. You'll see these bottom three gone. You can see these in the decks.
This is just a recap of the four segments. That's the page you want to focus on. That's the direction that we're going. I think that the approach that we're going to be taking going forward from a street standpoint is that we're going to, you know, we will under-promise and over-deliver. The game plan will be that every research report starts with, they beat our numbers and they beat the street numbers. As an orphan, when we were spun out, the stock was at $2. Orphans, everybody hated it, and then they, you know, they took, they sold their, a lot of guys sold their FIP, kept their FTAI. That obviously worked out extremely well. As I said, on a percentage basis, I think this is going to be, as between the two, is going to be the outperformer vis-à-vis FTAI Aviation.
Let me open the Q&A, if I may. Yes?
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Spent now going through a plain railroad for 20 years now.
Yeah.
I don't know enough about the railroad industry that I'm speculating that there aren't a lot of new short line railroads being created each year. At what point does their consolidation end up that a 20-year strategy starts to get?
Here's something that, yeah, it's a great question. Here's something that blew my mind. There are, this number blew me away. There are 500 short line railroads in this country. 500. Most of them are family-owned. Okay? Wheeling was kind of a one-off. It was one of the largest, and we were able to buy it. Now, if you have a short line railroad that is large and as diversified as the Wheeling is, you'll have 12 guys show up for that. Literally, 12 guys show up to try to buy it, including us, Watco, and Genesee & Wyoming. If, on the other hand, you've got a short line railroad that's doing $10 million- $15 million in annual EBITDA, and it only does agriculture, or it only does coal, or it only does aggregates, you may have two people show up for that because it's too dangerous.
It's too dangerous to have that kind of concentration in one business. It's perfect for us because when we bought Transtar, it was 95% U.S. deal, now 85% U.S. deal. As you can see from in here, it's going to be like a third U.S. deal now. We can take something that is doing only ag, let's say, and it's a diversifier for us. What you're going to see, you're going to see more of the consolidation take place in the majors, the tier ones, like the Union Pacific, Norfolk Southern. We did exactly that with RailAmerica. RailAmerica was a roll-up of short line railroads, then we sold it to Genesee & Wyoming. One could speculate that once we effectuate these roll-ups that we're going to do, and we're a pure play doing $400 million- $500 million, would we be on the radar screen for Genesee & Wyoming and Brookfield?
Absolutely. Absolutely. It's an interesting business. The reason why it trades at 15x is it's a monopoly. Monopolies are, you know, they're good things. Monopolists do what monopolists do every year, what monopolists can do, which is raise prices. For those of you that, yes, those of you that own FTAI Aviation, you understand that concept because you've seen GE raise the prices on the aerospace side consistently on parts, 6% -8% every year. They do it. Why? Because they can. Your option is pay GE what they charge or keep your plane parked. Bad option. Yes, sir?
Do you hope [to bridge] to get that?
Yeah, it's doing $67 million right now at the moment. Okay, but it's a family-owned business. And just like every other family-owned business in America, it is dripping with expenses. You know, they're, you know, the 18-year-old grandson who's on the, you know, payroll for $1 million a year, and he plays golf, you know, never shows up at the office. There are five of those guys. They're, you know, multiple private jets and all the other things that you would expect to find in a private company. Now, we own the company as of Monday in a trust. That's the way you effectuate, you know, acquisitions in this business. We can't touch any of that for probably another two or three months until the Transportation Board approves the deal. It just takes time because it's, you know, it's got to go through a federal agency.
Federal agencies, like all federal agencies, are, you know, populated by C students who want to be out of there at 5:01 P.M. every day. That's what, you know, we're dealing with. We'll get that done. Once we get it done, then we can go in and make the cuts. One of the huge advantages that we had here was that we knew that the Wheeling was going to get, we think there's $20 million in cuts. That's one. Okay? The other thing that we knew that the seller didn't know was that Repauno, there's a deal you'll see in here that Repauno is going to make an incremental $80 million in EBITDA starting the fourth quarter of next year. Repauno is our natural gas liquids facility. We've got firm contracts that will generate that.
All that natural gas liquid is going to be coming from Hopewell, a facility out in Ohio. All the guys who are going to ship that natural gas liquid to Repauno have to ship it on the Wheeling because the Wheeling is the railroad that services Hopewell. That's $20 million that has to come through the Wheeling . The guys who we did the contract with have indicated that they're going to be doing the business with Wheeling . We knew that. The Wheeling didn't know that. You put those two together, it's $40 million on the $67 million. That's how you get to the $107.
The preferred stock that Iris took, what?
10% dividend. It's all pick, okay? They're getting a warrant position in just the rail business, the combined rail business. It'll work out, they'll end up with around 10% or 12% of, because these aren't penny warrants. They have to pay for them. They have to pay for them at our price. They'll end up with like 10% or 12% of the combined rail business. Naturally, what we hope is that they make a fortune on that because we own 90%. They'll own the, let's say, 10%.
I'm not 100% clear. When you buy the rail, do you actually have to operate or you're basically just buying it?
No, we're going to operate it. We will operate it.
You have to take care of getting locomotives?
Yeah, we operate it just the way we operate Transtar. The CEO of Transtar, Ken Nicholson, is going to be the CEO of the combined companies. He'll effectuate all the cost savings. The guy who built Rail America for us, who tripled the EBITDA at Rail America, Joe Adams, is going to be the Chairman of that entity.
Is that line going to be exclusive, or do they have like the CSI?
We hand off to them. They don't run on our lines. We hand off to them. That's the way the short line business works. It's a cool business. Most people don't even know that it exists, these little, you know, 5 mi, 10 mi, 20 mi railroads that are owned by families. They're just cash cows. They're not cool. They're not sexy. They're not things that would attract the average stock buyer. Yes?
Looking at your most recent flat line gas structure, it's the 27 bonds with a day out.
Yes.
32 bonds.
They're at the parent. Now, we took out all the 10.5s. Those are gone. The Erie preferred, the very ugly Erie preferred, is gone too. Erie loves the asset. That's the reason why they wanted to, you know, so they're out of the holdco position. They're now down at the rail company level. You're going to see this thing deliver very, very quickly. Don't get too careful with your bonds. You're going to lose them. Yes?
What are the tax consequences of these various sales?
Yeah, we think there's going to be very little tax leakage just because of the fact we've had a lot of, you know, we've done a lot of construction and we've got a lot of NOLs. We don't see any tax leakage of any consequence. It's a good question. I think it's a good question because I asked it about a week ago to my finance guys.
A question of ignorance to the one who doesn't know this industry. Why do the major railroads not...
Short lines? I don't know. They are sellers of them. I think, I don't know if it's the operational nuances. I don't know the answer to that. I don't have a good, crisp answer to that. What I would love you to do is just email me and let me ask the question of Ken and the other guys to find out why these guys have stayed away from that business. They want the long-haul business. They don't want the last five miles or 20 mi or 50 mi. They don't want that business. They just want to take stuff that we deliver to them and run it across the country and then drop it off to another short line that might deliver it locally. It's a good question. I don't know. Yes, sir?
How many buyers showed up for the Wheeling?
It's a great story. Great story. Normally, if you have a short line railroad that is very, very diversified, like Wheeling was, you'll have 10 guys show up for that. If you have something that is not diversified, you may have two guys show up for that. It's your first day in business school. It's, you know, economics 101, supply and demand. The other's too heavy a concentration, it's too risky. There was no investment banker. There was no beauty contest. Larry Parsons, the guy who sold it, built this business for 50 years. He wanted to turn it over. Now, look, if it's one public company to another public company, you'll sell to a guy if you think he's a serial killer. Okay? Not in this business. You care. Larry cared about who the owner was. He knew Ken.
These negotiations took over a year, and he wanted to make certain that he was turning his company over, even though he was 90 and very infirmed. He knew that the kids were going to come off the, you know, the kids were coming off the payroll no matter what. Okay? He wanted to turn over to somebody he knew, liked, and trusted. He knows, likes, and trusted Ken. As I said, there were no bankers and there was nobody else. It was a one-year negotiation. It was a fair fight, you know, and he got a fair price. It wasn't, you know, we weren't in there competing with Watco and with Genesee & Wyoming.
Probably worth noting that the day that the deal was announced, and I'm not going to tell you who, but two major players went to Wheeling and said, "We would like to top the bid." Wheeling said, "Deal's done." As it turns out, we had gotten tied them up 80 ways from Sunday so that they couldn't do that because we knew that that was a possibility. They were immediately, you know, people wanted to pay more for the Wheeling . It's a great railroad. The beauty for us is that we touch it in five different places. The synergies, look, we bid on a short line railroad in Panama, the country of Panama, because it was a special situation and had to do with the canal and all that good stuff. We bid on railroads in the state of Washington.
You look at those differently than you look at a short line railroad that is literally, you touch five different places. You hand off to each other. That's where you can get the real big savings. This particular deal, there was no other competition. Believe me, we didn't, you know, it wasn't a gift. Larry's not in the gift-giving business, but it wasn't a situation where we had, you know, 10 other guys to compete with.
You talked about selling all the other assets. What if you don't get the price? Let's look at the scenario where one of these assets stays. I mean, can you still make it?
Yeah, we can. I mean, we'll just develop them and, you know, get them further along in the development stage. We would have this company that looks like the, you know, the one on the right here, the $461 million in EBITDA. Again, I think when you have a company like that, is that going to trade at 15 x? Probably not, because some of those assets, when they're fully developed, trade 10x, 11x . Okay? We would be burdened with that. What we're hoping is that we're going to be able to effectuate these sales. As I said, we've already gotten some interesting reverse inquiry on two of these three assets. Yes?
On that, I mean, someone like Repauno where it seems like the one logical buyer across the railroad, what's the center today?
Yeah, I mean, that is one obvious acquisition candidate. We would send it to, we would show it to Stone peak. We would show it to Kinder Morgan. We would show it to Enterprise. I mean, we would retain a banker and we would have the classic beauty contest and let them all fall over themselves to outbid each other. We would make certain that we had an investment banker in there who would lie to all of them in the same respectful way. What about, which is, you know, that's the game that's played. Yes, sir?
I understand this is not about FTAI Infrastructure and this being an investment. I noted there was an opposite math to this in the short.
Yeah, right.
I'm asking you to talk through the overall strategy.
It's interesting. The short reports, the way these short reports work today is kind of like the reverse of pump and dump, you know, in the 1980s. It's just going the other direction. I had dinner last night with a guy who runs a multi-billion dollar fund here in Chicago and who happens to be building a position in FIP. He said, "We love the short reports. We love these guys." I said, "Help me here. Help me understand that." He said, "They're wrong 95% of the time. They state right on the front page, 'We're short the stock and we want the stock to go down.'" Okay, and we know that 95% of the time what they put in there is BS. What we do is, the minute there's a short report, we buy the stock.
Then we figure out later what the company does because 95% of the time the stock is, you know, FTAI Aviation. If those of you who own it, you know, when the Muddy Waters report came out, the stock traded at $78. It's currently at $150 four months later. I mean, that's what, you know, that's the, now listen, you talk to the SEC and you say, "Guys, why are you doing this? Why are you permitting this to go on?" Because they make $25 million. They then pay Sullivan & Cromwell $3 million to defend them. That's pretty good business. Okay, why do you let it go on? He says, "Because 5% of the time they're right." I said, "But 95% of the time, the people that get hurt are not the Capitals, the Wellingtons, the TROs.
Those guys come in and buy the stocks with both hands when these short reports come out because they know that 95% of the time it's BS." The guys who get hurt are the small family offices, the individuals, people that have leverage, who don't know the game, who this is one of five stocks that they own. The SEC takes a different view. We've heard that guys like Hindenburg who've left the business and some of the other short guys are backing away from the business to quote, "spend more time with the family." You buy that one. I think they're seeing the writing on the wall. Trump or what's his name, Musk, for example, said these guys are all crooks and he's going to do what he can. Trump or Musk is now moving away from government. We'll see. It's an interesting business.
These guys have got nannies to pay, and they've got summer schools to pay for and colleges to pay for. They're doing what makes them money. I just think it's a curious way to live, to write stuff that you know. I mean, FTAI Infrastructure, for example, we spent four months, spent $3.5 million. There were 10 allegations in there. Every one was disproven. Every one. Those guys made a fortune. As I said, it's an interesting way to live your life.
At this point, is there any connection we can enter in?
No, the only connection is that Joe Adams is the Chairman of both companies. Ken and Joe, and IR for both companies. Ken and Joe have worked together for 25 years. Ken is the CEO of FTAI Infrastructure. Joe is the CEO of FTAI Aviation. Joe is the Chairman of both. FTAI Aviation is completely out of the Fortress family. We bought them out for $300 million, $150 million in cash and $150 million in stock, which we told them. We said, "Don't sell it." I mean, the things that are coming in aviation are going to be amazing. They sold it at $82. They sold it at $82. As I was telling one of the other guys in one of our meetings, my two favorite bets in life are gravity and human nature. I've never lost with either one of those bets.
The guys who made the decision to sell the stock, their incentive plan incented them to make the sale. What did they do? Shockingly, they made the sale. As I said, it was a bad decision on their part. Thank you all for coming. I'm getting the high sign here.