Macquarie Infrastructure Holdings, LLC

Thank you and welcome to Macquarie Infrastructure Corporation's earnings conference call, this covering the fourth quarter and full year 2018. Our call today is being webcast and is open to the media.

In addition to discussing our quarterly financial performance on this call, we've published a press release summarizing the results and filed a financial report on Form 10-K with the Securities and Exchange Commission. These materials were released last evening and copies may be downloaded from our website at www.macquarie.com/mic.

Before turning the proceedings over to Macquarie Infrastructure Corporation's Chief Executive Officer, Christopher Frost, let me remind you that this presentation is proprietary and all rights are reserved. Any recording, rebroadcast or other use of this presentation in whole or in part without the prior written consent of Macquarie Infrastructure Corporation is prohibited.

This presentation is based on information generally available to the public and does not contain any material non-public information. The presentation has been prepared solely for information purposes and is not a solicitation of an offer to buy or sell any security or instrument.

This presentation contains forward-looking statements. We may, in some cases, use words that convey uncertainty of future events or outcomes to identify these forward-looking statements.

Forward-looking statements in this presentation are subject to a number of risks and uncertainties. A description of known risks that could cause our actual results to differ appears under the caption Risk Factors in our Form 10-K.

Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware, could also cause our actual results to differ.

The forward-looking events discussed in this presentation may not occur. These forward-looking statements are made as of the date of this presentation.

We undertake no obligation to publicly update or revise any forward-looking statements after the completion of this presentation, whether as a result of new information, future events or otherwise, except as required by law. During today's call, we will at various times make reference to the non-GAAP measures, earnings before interest, taxes, depreciation, and amortization, or EBITDA, and free cash flow as defined by us.

A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in the tables attached to our earnings press release published last evening. In addition to Christopher Frost, participating in today's call is Macquarie Infrastructure Corporation's Chief Financial Officer, Liam Stewart.

At this time, it is my pleasure to introduce Macquarie Infrastructure Corporation's Chief Executive Officer, Christopher Frost.

Thank you, Jay, and good morning to those of you joining our call this morning. I'll begin our call this morning with a few observations on MIC's performance in 2018, a year that was characterized not only by a number of challenges, but also by considerable progress on initiatives designed to address those challenges.

That progress has us entering 2019 in a significantly stronger position than a year ago. We'll take a look at some of the numbers and in particular discuss the impact of the sale of various businesses and the substantial strengthening of our balance sheet over the past year.

And for remainder of our prepared remarks, we will focus on our efforts going forward, our guidance and assumptions for growth in EBITDA in 2019 and the initiatives that will drive our results. At this time, last year, I outlined a strategy to return MIC to sustainable growth and to address a number of challenges including: one, MIC's relatively high leverage of approximately 5 times net debt-to-EBITDA.

Two, a forecast decline in average storage utilization of IMTT from around 90% to around 80% at the end of 2018. And three, the fact that we are entering our ninth consecutive year of economic expansion and facing a heightened potential for a slowdown.

In dealing with these challenges, we have been executing on initiatives centered on three strategic priorities. One, strengthening our balance sheet and increasing our financial flexibility, two investing capital on the infrastructure of our core businesses, and three managing our capital prudently.

I am pleased with the considerable progress that has been made relative to these priorities over the last year. Foremost among our priorities in 2018 is the strengthening of our balance sheet and improving our financial flexibility.

By the end of 2018, we had successfully reduced our leverage from approximately five times to below four times net debt-to-EBITDA, secured funding for the repayment of $350 million of convertible notes that mature in July 2019 and extended the maturities of our remaining debt facilities such that we do not have any maturities prior to 2022. These significant improvements were achieved in part through the sale of smaller and non-core businesses in 2018, including businesses that were a drag on our earnings.

With these sales, we realized just over $900 million of gross proceeds and were able to repay $650 million of primarily revolver balances and deconsolidated $250 million of debt. As previously disclosed, we are selling substantially all of our portfolio of renewable power businesses.

In addition, we have recently commenced the process to sell our joint venture with the developer of solo projects. We expect to realize between $100 million and $200 million from the sale of these assets and to deconsolidate another $300 million of debt.

Proceeds from these sales will be additive to the approximately $600 million of cash on our balance sheet at the start of the year. Given these resources and the free cash flow we expect our business to generate, we are very well positioned to fund our dividend, our planned growth capital projects and the repayment of our convertible notes in 2019.

Following the sale of the renewable businesses, MIC will comprise of three core businesses: IMTT, Atlantic Aviation and Hawaii Gas. In 2019, our focus will be in the growth of these businesses.

We expect to deliver growth in part by continuing to develop quality investment opportunities at each business, particularly at IMTT as well as by successfully executing the projects we have already announced. As most of these projects involve investment in new infrastructure as opposed to acquisitions there will be a lag between deployment of growth capital and the contribution to EBITDA and free cash flow of 12 to 24 months.

Importantly, the additional EBITDA and free cash flow generated by these projects is likely to be of better quality given the significantly longer average tenor of the contracts. For example, the growth capital projects announced at IMTT to date are expected to generate annualized EBITDA of $20 million for an average of 17 years based on the initial term of the contracts.

The lag between the deployment of growth capital into these projects and the generation of EBITDA and free cash flow will cause our reported leverage to increase in the interim as we draw down our cash to fund the projects. Note however, that we do not expect to increase gross debt during 2019 and we believe that our net debt-to-EBITDA will remain within a range of four times to 4.25 times.

IMTT has been the primary focus of our second strategic priority investing in the infrastructure of our businesses. At IMTT that has involved the -- additional capacity and capability.

During 2018, we undertook the repurposing of 1.3 million barrels of capacity that have been servicing heavy residual petroleum products. At year-end all of that capacity have been released to customers storing clean petroleum and chemical products.

Of the 1.3 million barrels all, but 60,000 barrels were in service at the end of January. The last portion will be placed in service in March.

During 2018 we contemplated the repurposing of capacity as part of a proposed sale of an idled refinery located on IMTT's Terminal, St. Rose.

As of now there is no agreement for the sale of that refinery nor does one appear imminent. The 1.6 million barrels of storage capacity of IMTT that support the refinery was off contract as of the middle of December.

However approximately 400,000 barrels of specialized asphalt capacity has been released. We expect the balance 1.2 million barrels to be either repurposed into different service or repositioned to economically serve the needs of customers in the market.

We are currently in the process of evaluating a number of options and are encouraged by the level of interest from potential customers. We’re also managing our capital prudently by investing in capacity and capability of IMTT to improve the quality of earnings from that business.

We announced two additional repositioning projects yesterday. These projects will fundamentally transform two of IMTT's terminals on the Lower Mississippi River as high-quality customers have contracted for new and existing capacity for terms of up to 30 years.

The relatively longer contract duration of these projects and others like them will over time add stability to the performance of the business. Both of these projects are great examples of the kind of projects under evaluation at IMTT.

A year ago, we said we thought storage utilization of IMTT would average in the mid 80% in 2018 given our visibility to contract renewals at that time. This is effectively what happened.

We have again undertaken a detailed review of each of the contracts at IMTT that are scheduled to expire in 2019 and stress-tested the likelihood of their renewal in light of macroeconomic conditions and product-related considerations. Based on this review, we believe that utilization rates at IMTT troughed at the end of 2018, beginning 2019.

We base this belief on the fact that; one, all but 60,000 of the 1.3 million barrels repurposed to date were back in service at the end of January adding just over 2% to annual utilization. Two, contracts due to renew in 2019 are generally with customers that we believe have a fundamental need for IMTT services and who will want to continue to do business with IMTT given its competitive advantages.

Three, contracts with volatility traders comprise a significantly smaller percentage of contracts due to expire in 2019 and in 2018. Four, a number of significant contracts due to expire in 2019 were renewed in 2018.

Certain of those customers took the opportunity to right-size their storage commitments leaving us with a high degree of confidence in their renewal this year. And five, the level of market activity and customer inquiries is increasing.

From the trough at the start of the year, we expect that in 2019 like 2018, we will see utilization average in the mid 80% range at IMTT and that the year-end figure will be in the high-80s percent. At present we expect that the increase will favor the second half of the year as market participants prepare for the implementation of IMO 2020.

In our utilization guidance we have not assumed that the 1.2 million barrels of storage capacity that previously supported the refinery are released. Continued softness in pricing, particularly in gasoline and distillates in the New York Harbor and in heavy and residual oils in the Lower Mississippi River will likely offset some of the recovery in utilization in 2019.

A portion of the anticipated decline in rates in New York Harbor reflect the renewal of older contracts that are currently at above-market rate. We continue to believe that rates should improve as utilization recovers to historically normal levels, but the recovery in pricing will lag the recovery in utilization given the tenure of contracts that must expire before prices can be renegotiated.

Trading at IMTT year-to-date has been consistent with our expectations. Customer interest and utilization rates are improving.

Atlantic Aviation produced financial results for 2018 that were consistent with both our expectations and past performance. A modest increase in general aviation flight activity of approximately 1% year-over-year together with the full year contribution from acquisitions made in the prior year, resulted in better than 7% growth in EBITDA in 2018 compared to 2017.

Atlantic generated increases in hangar rental and ancillary services revenue as well. Some have expressed concern over the apparent decline in the rate of growth in general aviation flight activity.

It is important to note that the growth rate in 2018 is simply low compared with 2017, a year in which growth in flight activity of more than 4% was well above the long-term average. In fact the post-global financial crisis average of right around 2.5% annual growth in general aviation flight activity is intact through to 2018.

Our guidance concerning the performance of Atlantic Aviation in 2019 assumes a continuation of this historic rate of growth. Trading at Atlantic Aviation through the first six weeks of the year has been consistent with this assumption.

The as-reported financial results for MIC Hawaii in 2018 were complicated by the write-down of losses that preceded the sale of the mechanical contracting business. Offsetting these was an increase in the regulated revenue resulting from a settlement of the Hawaii Gas rate case in June.

Excluding the sale, MIC Hawaii was a stable performer during 2018. We expect MIC Hawaii to continue on its path in 2019.

I note that a portion of the expected increase in revenue is likely to be partially offset by the high cost of propane price hedges entered into by the unregulated business. Again, these have been contemplated in our 2019 guidance.

At this point, I'll turn the call over to our Chief Financial Officer, Liam Stewart who will provide additional color on our financial performance, our presentation of discontinued operations, and details of our 2019 guidance.

Thanks, Chris. I'll begin by touching on a few moving parts in our results related to our strategic initiatives.

Because we sold BEC during the process of selling our operating renewables, we are required to treat these collectively as discontinued operations effective with our results for the fourth quarter of 2018. As a consequence the Contracted Power segment has been eliminated.

This has the following ramifications; one, for 2018, the EBITDA and free cash flow contribution from each of BEC and the operating renewables has been recorded as a component of discontinued operations. However, when we discuss EBITDA, free cash flow, net debt to EBITDA, and payout ratio in the context of 2018, we will discuss them as though BEC and renewables were continuing operations for purposes of comparability.

Two, from 2019 onward, EBITDA and free cash flow from continuing operations will comprise of IMTT, Atlantic Aviation, MIC Hawaii and Corporate and Other. The results for our two renewable development platforms are being reported as part of the corporate segment for 2018 and will be for 2019.

Three, we anticipate generating somewhere between three and six months of free cash flow from our operating renewables in 2019, but have excluded any such contribution from our guidance. But the supplemental materials and information in our new interactive analyst center on our website contain additional details regarding these changes.

Against this backdrop of reporting changes, I will first discuss our financial performance in 2018, before turning to our liquidity and funding and then to our guidance for 2019. The first item of note is the substantial decline in net income in both the fourth quarter and full year periods.

The decline is due to the more than $300 million non-cash tax benefit recorded in the fourth quarter of 2017 as a result of the implementation of tax reform that year. As we have said many times, net income is not necessarily indicative of the performance of MIC.

MIC generated adjusted EBITDA of $688 million in 2018, slightly above the midpoint of our guidance. The result reflects the reduced contribution from IMTT and the negative contribution of the mechanical contractor in MIC Hawaii.

These were partially offset by the increased contribution from Atlantic Aviation. MIC's adjusted free cash flow for 2018 of approximately $499 million was marginally below the midpoint of our guidance due to state taxes incurred in connection with the BEC sale and the refinancing of Atlantic Aviation in December that added incremental interest expense to the last few weeks of the year.

Relative to our original guidance, the free cash flow figure also reflects certain maintenance capital expenditures related to repurposing tanks at IMTT. Of the total of $10.8 million of capital deployed in refurbishing tanks in 2018, $6.9 million was characterized as maintenance and the balance as growth.

We deployed a total of approximately $175 million of growth capital across MIC in 2018 and entered 2019 having committed to deploy an additional approximately $440 million over the next several years. Of the $440 million, we anticipate putting approximately $215 million to work in 2019.

Total growth capital spending should be between $275 million and $300 million for the year. Based on the performance of the company in the fourth quarter, the MIC Board of Directors has again authorized a payment of a dividend of $1 per share.

The authorization brings the total of all distributions pertaining to 2018 to $4, also consistent with our guidance. Distributions made during the calendar year totaled approximately 68% of adjusted proportionately combined free cash flow.

We did not fully utilize our net operating loss carry-forward in 2018. Our NOL balance at year-end was approximately $150 million.

That balance together with tax benefits associated with our planned capital deployment means that we do not anticipate having a current federal income tax liability on our operating income in 2019. Turning next to our balance sheet.

Our substantial cash position relatively lower leverage and improved debt maturity profile stem primarily from the sale of BEC as well as the successful refinancing of Atlantic Aviation and the amendment of the debt facilities of IMTT in late 2018. Because the Atlantic refinancing was completed in December, we will pay interest on both the new Atlantic facility and the 2019 convertibles through the July repayment date for the notes.

That will add about $7 million to cash interest expense in 2019. Following the planned repayment of $350 million of convertible notes, we expect the only funded debt at the MIC corporate level at the end of the year will be the convertible notes maturing in 2023.

As Chris mentioned, our net debt to EBITDA is likely to increase over the course of 2019 as we utilize cash on hand to fund a portion of our growth capital projects. Any increase is expected to be partially offset by the proceeds from the sale of our operating renewables business and our interest in our solar power joint venture.

Critically, we anticipate that our net debt to EBITDA will be between four and 4.25 times at year-end. At that level, we expect to have approximately $1.8 billion of liquidity, primarily in the form of undrawn credit facilities as well as cash on hand.

At this point, I encourage you to turn to page 17 of our supplemental materials for additional details concerning our guidance for 2019. We currently expect to generate EBITDA from continuing operations of between $610 million and $635 million, an increase of approximately 3.5% versus 2018 at the midpoint.

Breaking that into segment results, we expect IMTT to generate between $287 million and $297 million of EBITDA for the year, including a contract termination payment of the idled refinery at St. Rose of approximately $39 million.

We assume the recovery in utilization Chris mentioned offset by the absence of revenue from the refinery barrels, a modest reduction in average storage rates and higher expenses. Atlantic Aviation is expected to generate between $275 million and $285 million of EBITDA based on an assumption that general aviation flight activity, the fundamental driver of performance in that business grows at the long-term average rate of 2.5%.

We expect MIC Hawaii to generate between $60 million and $65 million of EBITDA in 2019, included in that result is an assumed increase in the cost of hedging our exposure to propane price movements over the course of the year. Our Corporate and Other segment is forecast to produce negative EBITDA of approximately $12 million in 2019.

This reflects primarily holding company costs, partially offset by any EBITDA generated by our renewable power development platforms. Assuming we are successful in our efforts to sell our joint venture interest in the solar power development platform and knowing that our second renewables development relationship is scheduled to end this year there will be no EBITDA-generative business in the corporate segment in 2020.

We also assume that the amount of professional service fees incurred in 2018 in relation to certain shareholder matters will be lower in 2019. I again call your attention to our supplemental materials, in which we have laid out our guidance in detail including the year-over-year changes in key items.

The conversion of EBITDA to free cash flow in 2019 will be affected by expected increases in maintenance capital expenditures and cash interest compared with 2018. Maintenance capital expenditures are expected to total between $65 million and $70 million for the year, up from the long-term average of approximately $55 million.

The year-over-year increase reflects primarily $12 million of an estimated $30 million of spending on the refurbishment of a pier at IMTT's Bayonne New Jersey location. Depending on the pace of the pier refurbishment, maintenance capital expenditures could remain elevated for two to three years.

Cash interest will be higher for the reason I mentioned previously, having to do with the refinancing of Atlantic Aviation. And as I also mentioned a moment ago, our guidance assumes no current federal income tax liability in 2019.

In sum, we expect MIC to generate free cash flow between $400 million and $445 million in 2019, excluding any free cash flow from discontinued operations. Based on these expected results, we have initiated guidance for a dividend of $1 per share per quarter for the coming year.

At the midpoint of our free cash flow guidance, this infers a payout ratio of approximately 81.6% for the year or a coverage ratio of greater than 1.2 times. Before I hand the call back over to Chris, I would like to comment on our credit rating and where we are in our process with the rating agencies.

Many of you will be aware that S&P has had both MIC and IMTT on negative outlook for approximately 12 months. We anticipate that the next annual review of each of MIC and IMTT will conclude some time in the next month.

We believe that our substantial improvements in liquidity and in balance sheet strength, together with the extension of debt maturities made over the course of 2018, are all points in favor of maintaining our current rating. Offsetting these are strategic initiatives undertaken to build a simpler more focused portfolio that may not be evaluated using the same methodology as has been applied to MIC in the past.

We don't have a sufficient level of visibility into the process to predict the outcome at this point. Regardless of the outcome, however, we have been able to utilize the last 12 months to fundamentally derisk our balance sheet and substantially increase our financial flexibility.

To recap, we delivered financial results in 2018 that were in line with our guidance. While doing so, we substantially reduced our leverage and secured funding for both maturing obligations and our planned growth investing for the next 12 months.

We foresee added financial flexibility arising from the sale of additional businesses in 2019 and we are committed to managing our business to preserve the gains in our balance sheet's strengthen financial flexibility. With that said, I'll turn back to Chris to provide his thoughts on the year ahead.

Thank you, Liam. Before we open the call to your questions, I would like to share with you my perspective on 2019 and on IMTT in particular, given the outlook for each of the MIC businesses that Liam described.

At Atlantic Aviation, we anticipate historically normal growth based on a stable macroeconomic outlook. We are not forecasting an economic slowdown that has the potential to impact the performance of this business.

At the midpoint, we envisage Atlantic growing earnings by about 6% in 2019. The upside in our guidance for Atlantic could include an acquisition or acquisitions of additional FBOs.

Because these are not entirely within our control, we don't guide to a contribution from any acquisition. MIC Hawaii comprise of largely Hawaii Gas whose earnings benefit from a provision of an essential service and provide predictability as a result of the regulated rate regime and a substantial share of the unregulated market.

Growth in 2019 will reflect largely the full year impact of the rate case concluded in 2018 and the absence of losses related to the mechanical contractor. We expect IMTT to continue to capitalize on a premier position it occupies in each of its largest two markets, including through additional growth projects like those announced yesterday.

That strong market position is one of the reasons we are confident in the long-term outlook for the business. In addition, we foresee demand for storage increasing, driven by the implementation of IMO 2020, demand that we expect will emerge to a greater extent in the back half of 2019 as utilization tracks towards historically normal levels in 2020 and the impact of the prudent investment of growth capital in the infrastructure of IMTT, in response to product demand, connectivity needs or changes in trade flows.

Today we have announced $175 million worth of such projects at attractive multiples. Beyond these, IMTT is evaluating an additional $550 million of opportunities.

Some of the infrastructure investments at IMTT will require commensurate investment in the people and platforms of the business. We are evaluating methods to make these sort of investments cost neutral over time.

Like others in the key markets in which IMTT operates, we are seeing pricing softness in certain products and anticipate that this will persist through 2019. However, we are encouraged by positive signals from customers in relation to IMO 2020 in particular.

Our strategic priorities are largely unchanged from 2018. We intend to continue to invest in the infrastructure of our businesses.

We will continue to manage our capital prudently, investing in opportunities that have the potential to generate superior risk-adjusted returns. We are fortunate to have developed a robust pipeline of such opportunities.

And although we've made considerable progress against our third strategic priority of strengthening our balance sheet and increasing our financial flexibility both by debt reduction and refinancing, we will continue to explore options to improve our financial condition. We have come through a challenging year in good shape.

Our businesses are performing well and their prospects remain attractive. Our financial condition is strong and we are energized by the opportunities in front of us.

Thank you once again for your participation in our call today. And with that I'll ask our operator to open the phone lines for your questions.

Good morning. Hi, this is Joe on for Jeremy.

I wanted to start off trying to compare the guidance apples-to-apples and I noticed there was the $39 million terminated contract from the St. Rose refinery.

What would the EBITDA contribution have been if that continued to operate?

Yes. Hi, Joe, it's Liam.

Why don't I just walk through the bridging items on the IMTT guidance just so you can get a sort of understanding as to what it looks like on a like-for-like basis? So $287 million for 2018 really compares at the midpoint, if you strip out the Shell bitumen termination fee to $252 million.

So that step-down is roughly call it $35 million. Of that $23 million is a step-down associated with the cessation of the Shell bitumen termination contract and the other sort of call it $11 million or so was largely cost related.

There are two other items in addition to that which I'll come back to. But in terms of that $11 million in costs, that's a combination of some G&A investment in our sort of commercial team and the way we engage with the market which given the quantity of projects we have at IMTT underway is not surprising; as well as some of the changes in the market.

We've got a tick up in R&M expense and then we've got a typical inflationary tick up on the rest of the cost base here. So that's the sort of two bridging items.

And then you could think about the other items, the impact from the 1.3 million barrels of utilization that was repurposed over the course of 2018 and will come online in 2019 that's roughly $8 million. And then that's offset by the rate weakness that we mentioned in the prepared remarks and that's effectively awash in the sense of contribution from the repurposed barrels in 2019 relative to that rate weakness in certain product segments.

Okay. Thank you.

That's helpful. And then I also wanted to ask again about IMTT whether you're starting to see some benefit from IMO 2020 in commercial discussions or is that's still more expected in the back half of the year.

And then also about the contract tenors and kind of what the lag should be for when rates will recover?

Joe, it's Chris here. I think the short answer with respect to are we seeing early signs of an IMO 2020 impact, the answer is, yes.

As we said in the prepared remarks given the number of customer inquiries and the level of market activity, we are seeing customers preparing to increase their storage. So I think like others have said that we are confident that we will see an uptick in utilization in the back half of 2019 driven by IMO 2020.

And it may be just worth building a bridge from utilization where we started this year and how we see ourselves getting to the high-80s percent. But consistent with guidance, we said that we finished 2018 started this year at around 80% utilization.

As Liam mentioned, we'll pick up around 3% uptick in utilization as all of the 1.3 million repurposed barrels come online. We also referred to the fact that we had 400,000 barrels from specialized asphalt tanks that are currently under contract that came out of the refinery.

And so that gets you to where we are today which is really around the 83%, 84% utilization. And then we're incorporating into our guidance around 4% uptick in utilization as a result of the implementation of IMO 2020.

In terms of the rates, I mean, I think it is just also worth clarifying that our commentary around rates for certain markets is really relative to the historical rates that IMTT has enjoyed. And I think it's worth noting that given IMTT's facilities that it's always enjoyed a premium relative to its competitors given the facilities and the position it enjoys.

Our view is that the market rates are stabilizing. We're not anticipating further degradation in market rates.

And -- but our guidance incorporates around a 4% to 5% reduction in average storage revenue in 2019 which is sort of consistent with the number Liam was referring to in terms of the step-down in EBITDA. As we've also said a lot of that step-down is coming as a result of the longer-term contracts that we enter into in more favorable market conditions rolling off in 2019.

Our expectation is that many of those will be released, but obviously being released into a softer market. In terms of your sort of question about what is the likely lag effect, as we've said on previous calls that once we see utilization recovering to that historical normal level of over 80%, we then see pricing power return to the terminal operators and therefore as the then-current contract rolls off we anticipate a step-up in rates.

Thank you. That's helpful.

That's all for me.

Thanks, Joe.

Hey, good morning, guys.

Good morning Christian.

Hi Christian.

Just curious -- a follow-up on the last question. I mean with the commercial conversations you're having with potential customers, is there an opportunity -- understanding softer price environment, but is there an opportunity to enhance tenure in the portfolio as we kind of all await IMO, particularly, as we all like to see a longer tenure and fewer surprises on non-renewals and contract terminations?

Yes, it's a good question. And just to sort of make the point that with respect to some of the repositioning projects that we have announced, once those projects are online and stabilized as I mentioned in the prepared remarks, they will generate an additional $20 million of EBITDA for an average contract length of 17 years.

With respect to the more traditional storage contracts, you'll appreciate that given the softer market that some of these contracts are rolling off into, there was a little bit of tension between how much tenure we want to put onto those contracts in this environment when we're confident that we will sort of see increasing demand. So, I think there is a bit of a trade-off between locking in tenure on some of these storage contracts in a softer market as opposed to having a bit more short-term duration with the expectation that they will roll off once utilization is back above 90% and we may have more pricing power.

So, it is a balance and it is something that we're looking at all the time.

Helpful. And then just on the mid-80s percent outlook in 2019, does that treat the capacity associated with the contract termination as utilized?

Or is that--?

Yes. Hi, Tristan its Liam.

Why don't I take that in terms of utilization? So, the amount of capacity associated with that contract termination is 1.6 million barrels.

That mid-80s guidance assumes that 400,000 is back in service which it effectively is today. But the remaining third-quarters or 1.2 million barrels remain unrented for the rest of 2019.

Okay, that's helpful. Thanks.

Go ahead sorry. And then just the last one.

With the projects you've announced over the past several quarters with 48 million of capacity today, can you give us just directionally where you see capacity either exiting 2019 or into 2020?

I think it sounds -- if you look at sort of what we've announced in aggregate, it will be a marginal step up from where capacity is entering 2019 with the bulk of that coming sort of from the two transactions that we've announced in the Lower Mississippi. But from an overall IMTT shale capacity perspective, it's minimal in the relative scheme of the aggregate site.

Great. Thank you guys very much.

Great. Thanks.

Good morning. Hi.

I think just first related to the refinery at St. Rose; can you just walk through the assumptions to release the remaining 1.2 million of capacity?

Is it dependent on the refinery being restarted or sold? Is it more likely to be repositioned into asphalt or repurposed to something else and just kind of timing to get that back into service?

Yes sure. Just to sort of recap, so the refinery utilized 1.6 million barrels at St.

Rose. 800,000 of those related to crude tanks which we had always incorporated in our repurposing initiative when we announced the 3 million repurposing.

So we're currently in conversations with a number of customers looking at projects around those crude tanks. The other 400,000 are into refined products and will form part of the usual book of business that we'll look to release over the coming year.

As I said in the prepared remarks, our guidance doesn't assume that those 1.2 will be back into service in 2019. We see that stepping up in 2020.

But to the extent that some of those tanks do get released in 2019 that will be sort of upside to guidance in utilization.

Okay. Are the repurposing costs for that capacity higher than what you've already repurposed for other capacity just as you maybe have to...

No. I mean clearly sort of the repurposing costs are always going to be a function of ultimately what the customer wants to put in there.

But no when we sort of announced the sort of $35 million to $40 million associated with the repurposing of the 3 million that provided for those crude tanks.

Okay makes sense. Moving to the growth CapEx for IMTT this year, I think $180 million to $190 million.

Does that include spending for the project at Geismar? And just what are your current expectations for Methanex to reach FID there?

Yes. The first part of the question the answer is yes.

With respect to Methanex, I can just sort of refer you to their sort of public comments and I think on their sort of most recent they were continuing to express a lot of enthusiasm for that. But as Methanex has said, it is all subject to their FID which we anticipate completing by mid this year.

Okay. Just a question on the dividend, kind of in the context of funding CapEx and debt leverage, is there a debt leverage level that you are comfortable with that would cause you to maybe step back on dividend policy and think about the right mix of payout versus trying to retain more cash to fund some of these projects?

Yes. It's a good question TJ.

I think we think about balance sheet within this context and that is with the existing mix of businesses the sort of 4.5 times is probably the upper tier of net debt-to-EBITDA that we feel comfortable with. So today we're below 4 times.

So there's significant headroom relative to that. If you think about payout ratio for 2019, while it steps up sequentially from 2018 we've got a couple of things going on.

One, the payout ratio doesn't incorporate any earnings generated from the renewables business which we'll have for three to six months of the year. The second one, as Chris mentioned during the prepared remarks, we're in a period where most of our growth capital is focused internally and that takes a substantial amount of time for it to yield.

So we have $275 million going out the door this year. That will start yielding in 2020, but really the sort of full pickup from that won't be until 2021 and 2022.

So I think relative to where we sit today we feel very good about balance sheet liquidity funding and dividend, notwithstanding, the tick up in payout ratio this year. This is much a function of the transition away from the renewables business and the buildup of those projects internally within MIC as it is a function of anything else.

Okay. That makes sense.

Just last one. Would the level of spending at IMTT this year extend your tax shield into 2020 where you would -- yeah, thanks.

I don't anticipate that we'll pay federal income taxes on our operating income in 2019. Clearly we're delisting our renewables business and that's a process that's underway.

So ultimately where we get to on that process will determine whether we do pay federal income taxes on 2019 but that will be from sale proceeds not from operating income. I think the way we think about it is it's at the same level of growth capital for next year assuming that we don't replenish the net operating losses outside of normal course bonus depreciation in the course of 2019.

But at that $275 million to $300 million level, we will probably pay federal income taxes in the vicinity of $20 million or so. So again to go back to your comment on the payout ratio, it's easily accommodated within the parameters of the existing payout ratio.

Okay. Thank you.

Good morning, everyone.

Good morning.

Can you give us an idea of how much above market contracts rolled over were ballpark-wise and how we should be thinking about that? Is that something we should continue to see in the next year or two as other legacy contracts also roll over?

I think it's hard to comment in terms of the percentage premium that IMTT attracts. But it has been consistent during all market conditions that it does attract a premium given the location of its facilities and the quality of service.

In terms of the -- and as we've mentioned before that incorporated in our guidance, we have assumed a step-down in average storage revenue of between 4% and 5%. But as I said before that as we finish 2019 at the high 80s and move through to the low 90s in 2020 and the current contracts that we're entering into roll-off, we then anticipate a reversal of that step-down in revenue.

So the way that we see it is that once we get back to those historical levels of utilization in the low 90s and as the -- then-current contracts roll off that we'll be able to reset those contracts at higher market rates.

Okay. And the 4% to 5% that you just referenced, is that the lower -- is that what the contracts that are expiring being renewed at or the 4% to 5% is a reference to your entire portfolio like that's the blended average?

It's a blended average.

Okay.

And you'll appreciate the commercial reasons we are limited in terms of being too specific about changes in specific contract rates.

Right, okay. And then also there was some language in the K about controlled efficiencies at Atlantic Aviation.

Can you give us some color on what's exactly going on there? And I just want to confirm that the financial statements to date have found no issues and what's being worked on is more propensity.

Yes. Christine, it's Liam.

Like you said, there's no impact to the financial statements, and obviously, we did a substantive review relative to that. We had controlled efficiency at Atlantic Aviation relative to the performance of transaction-level inventory controls.

And you'll appreciate that yes, revenue is largely a pass-through at Atlantic, so it's a very large account on the basis of it being a pass-through. There are really three things that we have done or are doing there.

The first is more in terms of training at the transaction level. The second one is that we've upgraded the team at Atlantic Aviation sort of over the course of early 2019, and have added a new Chief Financial Officer there.

And the third one is that we're evaluating whether -- so what ways we can take the sort of human inventory reconciliation process and make that an automated process. But as you said, no impact to the financial statements and we anticipate re-mediating that over the first nine months of 2019.

Okay. Great.

Thank you.

Thank you for your participation in our conference call today. We will again be on the road meeting with investors and analysts at conferences and in one-on-one meetings.

We look forward to speaking with many of you during that time. And with that, we wish you a good morning.