Macquarie Infrastructure Holdings, LLC
Q3 2016 Earnings Call Transcript

Published: 2 Nov 2016

[Operator:]

Good day, and welcome to the Macquarie Infrastructure Corporation third-quarter 2016 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Jay Davis, Managing Director, Investor Relations. Please go ahead, sir.

[Jay Davis:]

Thank you, Kaylee, and welcome, everyone to Macquarie Infrastructure Corporation's earnings conference call, this one covering the third quarter of 2016. Our call today is being webcast, and is open to the media. In addition to discussing our quarterly and year-to-date financial performance on this call, we published a press release summarizing the results, and filed a financial report on Form 10-Q with the Securities and Exchange Commission. These materials were released last evening, and may be downloaded from our website at www.Macquarie.com/MIC. I do note that a number of you reported difficulty accessing in the press release when it was initially published to our website. We apologize for any inconvenience this may have caused, and note that we have taken steps to prevent any recurrence of that sort of event. Before turning the proceedings over to Macquarie Infrastructure Corporation's Chief Executive Officer, James Hooke, 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, and 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 of Risk Factors in our Form 10-K and subsequent filings with the SEC. 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. With that, it is my pleasure to introduce Macquarie Infrastructure Corporation's Chief Executive Officer, James Hooke.

[James Hooke:]

Thank you, Jay, and thank you to those of you participating in our earnings conference call this morning. MIC's results for the third-quarter and nine-month periods were again consistent with our expectations. Our businesses continued to generate attractive growth and free cash flow. Proportionally combined free cash flow was up 17.6% for the third quarter, and 11.4% year to date versus our underlying results in 2015. With the improvement in cash generation, our Board has approved a 14.2% increase in our cash dividend for the third quarter to $1.29 per share, in line with our full-year guidance. Year to date, our dividend is up 13%. Following the quarter end, and in conjunction with an offering of convertible bonds, we announced additional bolt-on acquisitions and growth capital projects. These projects and acquisitions have contributed to us already achieving our previously stated capital deployment objectives for the year, with another two months still left to run in a year. As a result, we now believe growth capital deployment in 2016 will total approximately $300 million. About the only unusual items flowing through our results this quarter is a property insurance settlement, related to damage to docks at IMTT Bayonne and Gretna in prior years. The insurers finally paid us this quarter, and the $13 million in proceeds is recorded in other income net on both the IMTT and MIC statements of operations. The insurance proceeds are offset by corresponding maintenance capital expenditures, made to return the docks to service. As a result, this item has absolutely no net impacts on free cash flow, but it does mean both headline EBITDA, excluding non-cash items, and maintenance CapEx are overstated for the quarter. I've removed the insurance proceeds from the following analysis of EBITDA and maintenance CapEx, so you get a clearer picture of the operating results for the period. With that in mind, let's look at some of the more relevant numbers in more detail. Our key reporting metric, proportionally combined free cash flow, increased to nearly $132 million for the quarter, compared with the underlying results of $112 million for the third quarter of 2015. The underlying result in 2015 excluded a swap break fee related to the refinancing of BEC. The increase in free cash flow reflects improved organic gross profit and EBITDA generation generally. Lower interest expense, lower maintenance CapEx, and contributions from acquisitions completed in both 2015 and 2016. In addition to presentation of our results in accordance with GAAP, we have and expect to continue to focus on free cash flow, a non-GAAP metric defined by us, when measuring and managing our performance. Reconciliations of our non-GAAP metrics to the most comparable GAAP measures are provided in both the materials we filed with the SEC, as well as in attachments to our press release. For the avoidance of any doubt, we do not use free cash flow as a measure of liquidity, but as a measure of performance. Therefore, we believe that dividing the $131.9 million in free cash flow by 81.2 million weighted average shares outstanding and providing you with the resulting $1.62 in free cash flow as a per-share figure is sensible and appropriate. The $1.62 in free cash flow per share is an increase of 14.9% on the third quarter of 2015. Whether you look at our revenue on a constant commodity cost basis, or our gross profit and the cost pass-through capability of our businesses, MIC's top line increased by approximately 4.5% during the quarter. The largest contributors to the increase were good organic volume growth at both IMTT, where utilization was 96.7%, and the 7.1% growth at Atlantic Aviation, predominantly on increased fuel volumes. On the inorganic growth side, we saw an 11.9% growth in gross profit at MIC Hawaii, as a result of the acquisitions being reported in the segment, and adjusting for the non-cash movements in the value of commodity hedges. Reported SG&A increased in the quarter, primarily as a result of the recent acquisitions. We expect that expenses will decline over time, in connection with the implementation of our shared services strategy, as previously outlined. Adjusting for the impact of the insurance proceeds, EBITDA, excluding non-cash items, increased by approximately 6.5% for the quarter. Cash interest expense was down 3.2% year-on-year with lower interest rates flowing from a series of successful refinancing but both lowered rates and extended team. A similar activity continued after the quarter-end. Cash taxes were up roughly $1 million for the quarter driver by higher state taxes. Maintenance CapEx excluding insured dockery construction at IMTT was down $10 million versus the third quarter last year. Atlantic aviations maintenance CapEx reverted to historically normal level, and IMTT’s underlying maintenance CapEx reverted to more normal timing within 2016 than have been the case in 2015. These acts all contributors to MIC 17.6% increase in proportionally combined free cash flow for the quarter and 15.3% increase in free cash flow per share. The MIC team deployed over $78 million of growth CapEx during the quarter, bringing our year-to-date total to more than $201 million. After the quarter-end, we announced two additional acquisitions, a general aviation facility, at Stuart Airport in New York state and a solo facility in Utah that is expected to nearly double the size of our solo PV portfolio. Including the small acquisitions, both of which are expected to close prior to year-end, we have already achieved our objective of putting $250 million to work this year. So, what you do when your team hits the objective early as planned, you raise the target. In this case, we now expect to allocate approximately $300 million to growth projects in the full 2016 year. This is important for a couple of reasons. First, going forward we will of course have the additional contribution from the incremental project. Second, it increases our confidence in our ability to deliver our targeted $350 of growth capital in 2017. In relation to the 2017 target of $350 million, the team has also made progress. We now have a backlog of approved projects with an aggregate value of $340 million. In essence, we are working more than a year ahead on filling the growth projects pipeline. In addition to having achieved our initial target for growth CapEx allocation 2016 and raising the target for the year, we continue to see progress on projects currently underway. Regarding BC-2 we have progressed with a construction of the new facility and the related gas lateral without incidence. We expect the gas lateral to be in operation shortly after this year-end and the near plan to be in operation about 12 months after that. The MIC board has authorized the payment of a dividend of a $1.29 per share in cash for the third quarter, up 14.2% over the dividend for the same period in 2015. Including the dividend for the third quarter, we will have distributed $3.74 per share based on the performance of our businesses in 2016. The $3.74 equates to a payout of approximately 77% of our year-to-date free cash flow and is towards the more conservative end of our 75 to 85% target. Given the performance of our businesses thus far in 2016 and trading to date in the fourth quarter, I am pleased to reaffirm our dividend growth guidance for 2016 and expect an expectation that we will distribute between $5 and $5.10 per share for the year. At the midpoint of our guidance for dividend growth, we will have delivered on our guidance from two years ago, of an average of 14% per-year growth in dividends, in each of 2015 and 2016. Importantly, the increased dividend to date has been supported by a corresponding increase in free cash flow. At our 2016 Investor Day in May, I described several factors that could contribute to continued growth in our free cash flow, in a range of 10% to 15% per year. One of these had to do with capital management, and our belief that we could deliver a 1% increase in free cash flow, by taking advantage of attractive debt markets, in particular. It turns out that we were able to do a bit better than 1%. The combination of the refinancing of the long-term debt at Atlantic Aviation, together with some very attractive pricing on the convertible notes means that we have reduced our interest expense burden by about $11 million annually. That's roughly a 2.2% increase in free cash flow per share, again, based on the midpoint of our guidance. Put another way, with a single capital management initiative in October 2016, we have locked in 2.2 years worth of growth in this item, and we have further capital management initiatives that we are assessing, though none of these are pending. As a result of the successful offering of convertible senior notes early last month, we have improved our financial flexibility, with respect to funding continued growth. And effective deployment of growth capital is another important part of the MIC story. Our undrawn balances on revolving credit facilities total approximately $1.4 billion. With that, I will add just a bit of color on the performance of each of our segments in the quarter. At IMTT, storage prices were stable. Utilization rates remained at the very high end of historically normal levels at 96.7% and expenses including direct expenses, were well controlled. In addition to the insurance payments I mentioned a moment ago, the only other item of note in the IMTT result has to do with OMI. Although the rate of decline in revenue at OMI slowed in the third quarter, OMI was still significantly down year on year, and was a drag on year-on-year EBITDA, rather than a positive contributor. The inclusion of $13 million of insurance proceeds in other income makes it look like IMTT EBITDA increased by more than 19% versus the prior comparable quarter. That's fantastic, but as we all know, insurance proceeds is not a source of earnings. We suggest looking at the result without the $13 million and without OMI in which case the core IMTT EBITDA would have increased by approximately 2% in the quarter, and by about 2.5% through nine months, as a result of modest improvements in gross profit and continued reductions in expenses. Free cash flow increased by 11.5% at IMTT, reflecting primarily the normalization of timing of maintenance CapEx, as expected. In short, the year is playing out as we had anticipated at IMTT from a financial performance perspective. Qualitatively, contracts for storage and services at IMTT continued to renew for longer durations than they had been early in the year. This suggests that producers, refiners, shippers and others probably believe that commodity prices going forward will not be either as low or as volatile as has been the case over the last couple of years. Remember, none of MIC's businesses are exposed directly to the price of crude oil or petroleum products. At Atlantic Aviation, industry-wide general aviation flight activity, the primary driver of Atlantic's results, increased by approximately 1.2% in the third quarter, and 1.4% year to date, based on data reported by the FAA. That's consistent with what we been seeing for some time. International flight activity was down year on year in the quarter, but slightly higher year to date. The changes in international flight activity are dwarfed by improvement in domestic flight activity. Domestic flight activity is by far the largest portion of Atlantic's business. Atlantic Aviation's gross profit rose 7.1% in the quarter, driven by a 5.7% improvement in same-store results. The same-store results noted in our 10-Q is being skewed by our investment in the growth of existing locations. For example, the growing number of hangar projects being undertaken. Because it's impossible to pass the contribution from these projects into what is same-store versus capital deployment related growth, this quarter will probably be the last in which we report same-store figures for Atlantic, although we may break out any substantial acquisition or divestiture at some point, if it's prudent to do so. Atlantic's EBITDA increased by more than 11% on the improvement in operating results, including the contribution from acquisitions and investments concluded in 2015 and 2016. And finally, free cash flow rose by more than 30% versus the third quarter of 2015. The increase in free cash flow reflects primarily the normalization of maintenance CapEx and a reduction in interest expense from lower debt balances. Recall that in 2015, we were aggressively and intentionally increasing maintenance CapEx in the back half of the year, as we created additional financial flexibility for the business for future years. The third quarter result does not reflect any impact from the recently announced refinancing of Atlantic's credit facility. The impact will be visible in the fourth and subsequent quarters. You should expect to see Atlantic on a standalone basis levered at less than two times net debt to EBITDA. At that level, the asset level credit facility is expected to bear an interest rate of LIBOR plus 1.5%. The portion of the debt that has been moved to the holding company, approximately $175 million, is debt in lieu of asset level financing, and therefore has no impact on the calculation of base-management fees. In fact, none of the most recent convertible bond issuance will have any impact on management fees. Importantly, including the increase in the absolute amount of debt associated with the convertible bonds, we expect aggregate interest expense to be lower by approximately $11 million, on an annualized basis. Going forward, we will assess whether we should attribute the interest on the convertible bonds to Atlantic Aviation in our segment reporting, or report such expense at the corporate level. At CP&E, gross profit generated by BEC in the third quarter declined slightly versus the prior comparable period. High utilization or dispatch levels this year were offset by the reduction in capacity rates we discussed with our first and second quarter results. Remember that lower capacity prices can impact revenue generated by BEC, but only the revenue associated with the untold 3/8 of the facility. Renewables remained a bright spot, pun intended, within CP&E, based on improvement in the availability of solar and wind resources, versus the comparable periods in 2015. The improvement represented the majority of a 4.3% increase in segment gross profit for the quarter. Proportionally, combined EBITDA increased by nearly 20%, as a result of the top-line growth in CP&E, including the release of an escrow put in place when we acquired BEC. Excluding the escrow release, EBITDA would have increased by 4.3%, the same as gross profit, given the operational leverage in these businesses. Reported free cash flow growth from CP&E reflects the improvement in operations, and a substantial reduction in interest expense as a result of both the recapitalization of BEC, and the absence of swap-rate costs incurred in 2015. At MIC Hawaii, the growth in gross profit contribution reflects primarily the impact of the businesses we recently acquired in Hawaii. The impact of changes in the value of commodity hedges on gross profit was minimal this quarter. Expenses, SG&A, were higher as a result of these acquisitions. Therefore the reported increase in EBITDA at MIC Hawaii roughly mirrored the gross profit increase. Free cash flow generated by MIC Hawaii declined in both the quarter and year-to-date periods, primarily as a result of an increased provision to income taxes. The majority of the provision, about 80%, was attributable to the federal component, and expected to be offset in consolidation with the application of MIC level net operating loss carry forwards. Including just the state tax component, free cash flow would have been up for the quarter, and flat for the nine-month period at MIC Hawaii. Looking ahead, we continue to believe that in general, shareholders are better served by our investing in opportunities within existing operations, and not by paying up to buy EBITDA in a transformational acquisition. On the plus side, our expectation that we can continue to grow free cash flow at a rate of 10% to 15% per year is not predicated on deployment of anything more than the approximately $350 million per year that we have been discussing. Therefore, when we do find an attractive opportunity to buy EBITDA at reasonable value, it should generate free cash flow at a rate incremental to the projected 10% to 15% per year. Regarding maintenance CapEx, we deployed a total of $24 million in the third quarter. That's up versus the third quarter in 2015, largely as a result of the spending on docks at IMTT, I mentioned earlier. Excluding the dock repairs, maintenance CapEx would have decreased by about 50%. In summary, MIC's results for the third quarter were consistent with our expectations, and reflective of the guidance we provided the market in February about free cash flow growth in 2016, and in May regarding free cash flow growth beyond 2016. MIC's top-line gross profit is expected to grow at a rate of between 2% to 3% per year. Growth in the quarter and nine months was 4.5% and 6.5% respectively. Although the year-to-date figure includes some commodity hedging noise at Hawaii Gas. There were variations in segment performance based on things like the continued softness in OMI's results, but these were more than offset by increased contributions from Atlantic Aviation, good utilization rates at IMTT, and the operations in our CP&E segment. The overall consistency is evidence of the benefit of having a diversified portfolio of businesses. Expense reductions are expected to contribute an additional 2% to 3% per year of free cash flow. Expenses were up in the quarter, as a result of acquisitions, shared services implementation costs, and transaction costs related to both successful and unsuccessful deals, but down year to date. Capital management was forecast to add 1% to free cash flow, and as previously noted, the successful re-financings of Atlantic and related issuance of convertible notes delivered more than twice that in interest expense reductions. And last, deployment of growth capital at historically normal rates of return is expected to add 4% to 6% to aggregate growth in free cash flow. We now expect to deploy approximately 300 million in attractive growth projects and bolt-on acquisitions in 2016, and the combination of the expected deployment of our existing backlog and the work in progress give us confidence that we are on track with respect to this measure as well. On the strength of the quarterly result, and its consistency with our overall expectations, the MIC Board authorized a dividend of $1.29 per share, up 14.2% over that distributed for the third quarter of 2015. Trading across the enterprise through the first few weeks of the fourth quarter continues to be in line with our forecast, and we're in the middle of planning and budgeting for the year ahead. Consistent with past practice, we expect to provide the market with updated guidance, together with our reporting of our full-year results in February 2017. Many of you will have seen our recent announcement concerning changes to our Board of Directors. I'd like to take this opportunity to thank Bill Webb for his services to MIC over the past 12 years. Bill was a member of the MIC Board since the Company's IPO in 2004, and has chosen to take a step back and increase his ratio of retirement work. While we're happy for Bill, and the fact that you'll get to enjoy his grandchildren a bit more, we will miss his advice and wise counsel, so thank you, Bill, but know that your departure left us with some big shoes to fill. On the plus side, we think we have been able to find someone who's up to filling Bill's footwear. We are pleased that Ron Kirk has joined the MIC Board, effective today. Ron is the former US trade representative under President Obama, and the former mayor of Dallas, Texas, among other positions over what is a distinguished career. He is currently Senior of Counsel at Gibson, Dunn & Crutcher, and a member of the Firm's international trade practices group, and a member of the sports law, public policy, crisis management, and private equity groups. So with the addition of Ron, we continue to have a full complement of experienced individuals guiding MIC. With that, I will wrap up the prepared portion of our call, and turn the proceedings over to our operator, who will open the phones for your questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Ian Zaffino with Oppenheimer. Your line is open.

[Ian Zaffino:]

Question would be, as you look at the pipeline of investments you've got with the 350, or you're now getting a backlog, is there a way to give us an idea maybe what the mix of returns might be? Or maybe the blended average of returns you might expect within that backlog? And I have a follow-up.

[James Hooke:]

Yes, the answer I would give to that is that the backlog over time, broadly speaking, I think, will reflect what we have done historically from a backlog perspective. At any one point in time, one of the segments may be a little bit more represented. So at the moment, in that $340 million odd backlog, you've got a large chunk for BEC II. So you may see CP&E is a little more reflective there now. I think what we will achieve on that is a historical rate of -- returns consistent with roughly the historical rate of returns we have achieved. I saw Jay waving his hands maniacally at me, so I presume he wanted to add something and rather than lip read, Jay, why don't I let you?

[Jay Davis:]

Historically normal rates of return have been in that 12% to 13%, maybe 13.5% range. So the blend will have an impact over time, but over a long period, as we have seen over the last eight or nine years, something in that low double-digits range would make sense.

[Ian Zaffino:]

I guess the follow-up would be on IMTT, that Colonial Pipeline explosion. Is there an impact to IMTT there? I know most of this is contractual. I know Oil Mop does a lot of the ocean-based or water-based cleanup. Is there any type of land-based they might do? And maybe walk us through potentially what would happen to IMTT's contracts. And is there any type of maybe ancillary handling or revenues you might get, or is this like any other historical spill, where it doesn't really impact the business? I know this news is just coming out. So I don't know if you have digested it yet. If you have, maybe take a first crack at it.

[James Hooke:]

So I think the answer is, if any issue like this that emerges real-time, projecting what the impact on our business will be is a fraught exercise. And I note that the fire that was involved in the Colonial Pipeline was in Alabama, which is a fair way down the pipeline from us. In terms of Oil Mop, Oil Mop does, as you say, is predominantly a Gulf Coast related oil spill cleanup business. However, it has done pipeline work in the past. Not commenting on this specific one, but it does do oil pipeline spill cleanup, as well as Gulf cleanup. In relation to New York Harbor, New York Harbor is well served by the Colonial Pipeline and by maritime terminals such as ours. Broadly speaking, if extra capacity was required into New York harbor for any reason to do with the disruption on the Colonial Pipeline, it would come via IMTT and other marine terminals. However, I think, as with all of these things, Colonial Pipeline was such a mission critical piece of infrastructure in the U.S., that I would envisage it would be up and running pretty quickly, and efforts will be made to repair it pretty quickly. So to the extent that we are looking for long-term sustainable ways of growing IMTT, I will be honest with you, explosions on the Colonial Pipeline were not part of our business plan. But we will be opportunistic in reacting to it, but I note that there was a tragedy there that at least -- there appears to be at least one fatality, so obviously our thoughts and prayers go out to the family of everyone injured.

[Operator:]

Thank you. Our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open.

[Jeremy Tonet:]

I was wondering if you could expand a little bit more on the power development opportunity, particularly in the Richmond vicinity. Any updated thoughts there, that you could share with us?

[James Hooke:]

Yes. It's a good question. Thank you for it, and as a reminder to others, we in addition to adding the 130 megawatts at IMTT Bayonne for BECAUSE. We are also looking at developing other power on IMTT real estate, where there satisfies two descriptions or three, really, criteria. The two technological or technology issues are, there has to be good proximity to gas pipelines, and there has to be good proximity to the second, is to electric transmission capability, to dispatch the electricity. And obviously the third issue, it has to be an attractive market. As well as looking at a side the west end of IMTT, we are also looking at our Chesapeake facility in Virginia, to add potentially one gigawatt of power down there. That would utilize a pipeline that Dominion had recently added, a gas pipeline, and would also utilize, if it were constructed, electricity transmission that used to be used for an Old Dominion coal plant, that has subsequently been taken off line, and there is an immediately nearby 230 KV substation, which we understand has capacity. We have continued to progress that. It was really previously just desktop work that we were doing, in relation to the development feasibility. We are now spending a small amount of money actually, on that development project, in terms of seeking relevant permits, seeking the permits for construction, substantial negotiation with technology vendors, and also discussions with parties who would be interested in either potentially buying that facility or buying off take from that facility. So I'd say at the moment we have had a good quarter of progress to date. Obviously, from an electricity perspective, it is in Dominion's footprint territory for their electricity utility. And I think at this point, all I can really say is that we are making, I think, pretty good progress, though obviously it's fair to say that the nature of power plant development has a set of uncertainties and vagaries to it. Notwithstanding that, we are sort of pleased to date with the progress we are making. No amount of money for that project is included in our backlog. So to the extent we did anything down there, that would obviously be substantially additive to our backlog. But it's not in there to date. But look like I think the team, in terms of the work that we are doing on the permitting and commercial side of the equation, is making nice progress.

[Jeremy Tonet:]

Great. Thanks for that. With regards to IMTT, it seems like you'd have a tough time fitting any more volumes in there. You are running at such high capacity. I'm just curious, does this give you any leverage or aid your ability in contract renewals to extend tenure or raise rates? Or any thoughts there would be helpful?

[James Hooke:]

Yes, I think it's a good question. I think, you're right, essentially at the levels of utilization we're at now, we are very full, and that's pleasing. I think we said historically, and that continues to be the case, that our first emphasis is adding tenure to customer contracts, and then our emphasis would be adding pricing. And then our emphasis after that would be on adding capacity. So that's, in my mind, the way we think through this is, highest priority tenure, next priority pricing, then incremental capacity. As I noted in my prepared remarks, we continue to make nice progress on adding tenure to the contracts, so I'm sort of pleased with that. We haven't yet really moved down that food chain, in terms of the levers that we're pulling, but yes, you're right, to the extent that the hotel has the no vacancy light on for an extended period of time, they obviously start to think about ways of optimizing their business. But that's where we are at this point.

[Jeremy Tonet:]

Great. Thanks for that. With regard to M&A, I was wondering if you might be able to share some thoughts on the economics of the smaller transactions that you have just completed, is the first part. And then the second part, we've seen the a little bit of consolidation start to tick up in the midstream space. I'm just wondering if you have any updated thoughts, especially giving Buckeye and VTTI coming together, some of your competition there. Any thoughts that you could provide would be great.

[James Hooke:]

Sure, I think, as we've always thought, the reason we primarily focused on small bolt-on acquisitions is because we think the economics of them work better for us. They work better in terms of often sometimes the purchase price, usually the level of synergies, and thirdly because in a portfolio, if you acquire a bigger business, you end up often getting some stuff you don't want. I think the rates of return we had achieved have been nice on the bolt-ons. I think you're seeing on the earnings growth that Atlantic is delivering. I think to be honest, you're seeing in the EBITDA growth that Hawaii delivered in the quarter, with essentially only one month of Critchfield Pacific included in those numbers. I think there, the bolt-ons have worked nicely. In relation to the larger scale M&A, we see a lot of people doing things in the market. I'd say there is more activity than there is value creation. So a lot of people who are doing things aren't necessarily creating value, and that's not singling out any specific transaction. I think in the case of the Buckeye Vitol one, I'd say firstly, Buckeye is a pretty different business to ours. But the only generic comments I would make about the Vitol acquisition, and this is speaking as an outsider looking in, that had a very globally, geographically diversified footprint, which it sounds like that's what Buckeye was seeking. Whilst I wouldn't say MIC would never look at something international, I think we are unlikely to pick up a portfolio of things that have an international footprint. If we took an international footprint, it would be highly selective and focused, rather than a broad portfolio. And second, there, I think that was essentially buying a 50-50 stake in a 50-50 issue. And I think for us, in terms of the way we run our business, again I wouldn't say that's impossible, but that would have added complexity from our perspective. So -- but I do think we continue to do a lot of analysis on a lot of opportunities. I think, at the moment we are gaining more insight from those meetings, in terms of how we could do things better and different, than there are specific transaction opportunities. But I'm not stressed about that, and one of the reasons I'm not is, we can get to that $350 million a year of growth CapEx without doing any substantial swing from the fences transactions. And swinging from the fences, as we are finding out, the Cubs are finding out at the moment, sometimes pays off. But it seems to only pay off in two games out of five.

[Operator:]

Thank you. Our next question comes from the line of Nicholas Chen with Alembic Global Advisors. Your line is open.

[Nicholas Chen:]

Following up on the last set of questions, I was hoping to get a little more color on maybe what the average tenure is right now, on the remaining IMTT contracts?

[James Hooke:]

It's 2.5 years.

[Nicholas Chen:]

Can you just give an idea how that compares to the historical average of what you have had?

[James Hooke:]

I think it has historically been in the sort of, the high twos. Just under three, is where it's at. So I'd say 2.5 is a little under that 2.8, 2.9. But it's not. It's less, but it is not, out of the ZIP code. If you look at the extensions, probably a better way of putting it into context of the question you've asked is, if you look at the extensions we were getting at the end of last year, and the start of this year, they were three, six, sometimes nine month extensions. The extensions are now, we're talking about extensions in the number, greater than one year. And those three and six month extensions have essentially disappeared. And we are now talking number of years on extensions, rather than short months. That's why I'd say we are pleased that there's been that compression down to three to six months has disappeared. We would like it to go, get out to, on the renewal side, the three to five year range would be the target. That varies terminal to terminal, product category to product category, chemicals are a little different than petroleum. But that's the context historically.

[Nicholas Chen:]

Earlier on the call, we discussed some minor reporting changes you made, going forward. I just wanted to know, are you planning to break out OMI at any point, as it continues to be a drag on IMTT's overall results?

[James Hooke:]

We talked about that in the last quarter results, and what we basically said there is, before making any change to reporting, we would meet wait to see. We would only make that probably on a next year 2017 basis, rather than a current year that we're in. I would say with relation to that, and to a degree the one we flagged today, Atlantic Aviation same store, we are probably in a watching brief pattern, and we haven't made a decision. Certainly, it's something we are considering, but we haven't made a decision.

[Nicholas Chen:]

Final question. It's certainly been an uncharacteristically warm fall here in New York City. Looking ahead to Q4, do you think that will have a positive impact on BEC's results?

[James Hooke:]

It's got to help to a degree. To the extent that anyone in New York is not running their air conditioning at the moment, they should be, that's just think about your spouse. Think about your friends. Think about your neighbors. Crank it up. I was very pleased with the warm conditions that we had. I think what I would like to then see is a very sudden plunge to Arctic temperatures after Thanksgiving. But remember, that's the BEC, the reality is that 5/8 of it is toll, so it's not going to have any impact, unless we get excited at the margin around extremes in climate. It's probably too early to say that Q4 is going to pick up a gain from it, but I hope so, and I would urge all shareholders the next time their spouses don't put the air con on, say we own shares in the Company, it's our obligation to put the air con on.

[Operator:]

Thank you. Our next question comes from the line of Noah Lerner with Hartz Capital. Your line is open.

[Noah Lerner:]

Good morning everyone. Just a real quick question for me. Based on some of the earlier scripted comments, and I guess some inferences from some of the earlier questions, is it a fair takeaway that for the moment, you have put your quest for a fifth vertical on the back burner, as you are not looking to make a transformative acquisition?

[James Hooke:]

I would express it slightly differently, which is to say, I don't think there is a fifth vertical immediately pending, but I don't think we put it on the back burner. We are always looking for opportunities, and we are always seeking out and understanding those. I want to say there's nothing that shouts value to us at this point of the year. Now sometimes, when things shout value, they shout it suddenly. So I'm not saying that it won't. But no, I don't think we put it on the back burner. I think what we're saying more is, if you look at where we can get the highest return on our risk-adjusted return for our shareholders, it really is focusing aggressively on this stuff that we are in. We are still looking at other stuff, but there is nothing that's jumping off the page at us at the moment. That would be the guideline I'm saying. The $350 million a year of growth CapEx is what we factored into our 10% to 15% growth numbers that we discussed at our Investor Day. And so we can do that without looking for anything transformational. We still look, it's just that I want to be realistic. I'm not holding my breath on it. But I think the good news for shareholders is I don't think they need to hold their breath either for us to achieve the growth numbers we're looking for.

[Operator:]

Thank you, and our next question comes from the line of T.J. Schultz with RBC Capital Markets. Your line is open.

[T.J. Schultz:]

Great. Thanks. I guess just first on IMTT organic growth, just a couple questions. I believe there is room to expand at Saint Rose. Just looking at potential to further the build out there, and what plans may be included in that $350 million CapEx next year? And then at Bayonne IMTT, I believe you have a ROFR from the adjacent land. Just any new developments on the potential to acquire that tract? I know you may have some thoughts on use for that particular piece of land?

[James Hooke:]

Sure. Let me deal with the Exxon land quickly, which is, as it's called, which is at IMTT Bayonne. That's correct, we do have the right of first refusal over some acreage there. At this point in time, nothing to report, but that would give us, if we acquired it, more land to expand. We could probably on the existing footprint that we have at IMTT, through juggling things better and optimizing the real estate we already have, add incremental capacity. You are seeing us adding incremental capacity at IMTT Bayonne in the form of actually power generation at the moment. 130 MW that we're using is actually on the IMTT-owned land there. There's nothing to report on that incremental acreage, but I would say would we are not dependent on it as our only source of real estate there to expand. In the case of Saint Rose we have a lot of acreage down there that is undeveloped. There's an interesting question as to how much of it is developable land versus would be expensive to develop because it's out the back some of the marsh-like nature. We could add double the capacity, but that's the ballpark figure I keep in my mind as to how much extra capacity we could add at Saint Rose. Again, the focus of adding that on the lower Mississippi is one of customer demand. And then also factors into issues like tenure, pricing and then adding capacity. I think on the lower Mississippi, as well as exploring tankage issues we are also exploring issues around other uses of real estate, probably not in quite of the same way as Bayonne, with power generation but in potentially hosting people who would like to do things on our real estate that we, regardless of off-tank storage. In relation to the 350 million, at the moment, that's in the backlog on the 340 million, that's in the backlog already of projects, we don't break out where that is. I would say a small part of it, but not a significant part of it is in relation to Saint Rose specifically. But we don't really get into breaking that out. But we do have a lot of real estate there to develop, and over time, we will think of smart ways to do that.

[T.J. Schultz:]

Okay. Thanks. Lastly, can you break out or -- sorry if I missed this, the kind of mix of growth CapEx in the backlog or planned for next year just around some potential projects you may have in Hawaii? Just looking for what the organic ramp may be there in the last couple of years?

[James Hooke:]

Yes. I don't think we broke the backlog out by business. And I don't think we will do so. I don't think you'll see a massive change in this skew of the mix that Hawaii, represents relative to its size of MIC overall. It's not like Hawaii is massively overrepresented in that free 40 million. But we're not really breaking out segment by segment.

[T.J. Schultz:]

Okay. Thank you.

[Operator:]

I'm showing no further questions at this time. I'd like to turn the call back to Mr. Hooke for closing remarks.

[James Hooke:]

Thank you very much. We're consistent with our efforts of late to attract additional investment on the part of stable long-term holders. We will be on the road participating in a number of road shows, and one or two conferences over the next couple of months. If there's someone you think we should be introduced to the MIC story, please let Jay or Mike know, and I will add these folks to our outreach. I'd like to welcome those lenders and convertible-bond holders that joined the MIC family with the recent refinancing. Obviously, finance is an important part of what we do, and we welcome those as great suppliers. And I would like to thank those Atlantic lenders who lent to us in the old facility. Finally I'd like to call out those people who worked on our shared services business at the moment. Jared Adams, Tracy Johnson, Amberly Turner, Rob Davis, are all doing a great job, Carol Moore, all doing a great job in terms of the work they do. To some extent its unglamorous work, and its difficult work, but it is making our business much stronger, and so I thank them enormously. With that, I look forward to catching up with you in the months ahead. Cheers.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.