The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand Fortress
Transportation and Infrastructure Investors LLC (the "Company," "we," "our" or
"us"). Our MD&A should be read in conjunction with our unaudited consolidated
financial statements and the accompanying notes, and with Part II, Item 1A,
"Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We own and acquire high quality infrastructure and related equipment that is
essential for the transportation of goods and people globally. We target assets
that, on a combined basis, generate strong cash flows with potential for
earnings growth and asset appreciation. We believe that there are a large number
of acquisition opportunities in our markets, and that our Manager's expertise
and business and financing relationships, together with our access to capital,
will allow us to take advantage of these opportunities. We are externally
managed by FIG LLC (the "Manager"), an affiliate of Fortress Investment Group
LLC ("Fortress"), which has a dedicated team of experienced professionals
focused on the acquisition of transportation and infrastructure assets since
2002. As of September 30, 2020, we had total consolidated assets of $3.4 billion
and total equity of $1.2 billion.
Impact of COVID-19
Due to the outbreak of COVID-19, we have taken measures to protect the health
and safety of our employees, including having employees work remotely, where
possible. While the outbreak did not have a material impact on operating results
on our Aviation Leasing business during the nine months ended September 30,
2020, and we have not yet seen a meaningful decline in the timing of lease
payments, a number of our lessees continue to experience increased financial
stress due to the significant decline in travel demand, particularly as various
regions experience spikes in COVID-19 cases. A number of these lessees have been
placed on non-accrual status as of September 30, 2020. However, we believe our
overall portfolio exposure is limited by maintenance reserves and security
deposits which are secured against lessee defaults. The value of these deposits
was $190.5 million as of September 30, 2020. The extent of the impact of the
COVID-19 pandemic on our operational and financial performance will depend on
future developments, including the duration, severity and spread of the
pandemic, as well as additional waves of COVID-19 infections and the ultimate
impact of related restrictions imposed by the U.S. and international
governments, all of which remain uncertain. For additional detail, see Liquidity
and Capital Resources and Item IA. Risk Factors-The current outbreak of the
novel coronavirus (COVID-19) has severely disrupted the global economy and may
have, and the emergence of similar crises could have, material adverse effects
on our business, results of operations or financial condition.
Operating Segments
Our operations consist of two primary strategic business units - Infrastructure
and Equipment Leasing. Our Infrastructure Business acquires long-lived assets
that provide mission-critical services or functions to transportation networks
and typically have high barriers to entry. We target or develop operating
businesses with strong margins, stable cash flows and upside from earnings
growth and asset appreciation driven by increased use and inflation. Our
Equipment Leasing Business acquires assets that are designed to carry cargo or
people or provide functionality to transportation infrastructure. Transportation
equipment assets are typically long-lived, moveable and leased by us on either
operating leases or finance leases to companies that provide transportation
services. Our leases generally provide for long-term contractual cash flow with
high cash-on-cash yields and include structural protections to mitigate credit
risk.
Our reportable segments are comprised of interests in different types of
infrastructure and equipment leasing assets. We currently conduct our business
through the following three reportable segments: (i) Aviation Leasing, which is
within the Equipment Leasing Business, and (ii) Jefferson Terminal and (iii)
Ports and Terminals, which together comprise our Infrastructure Business. The
Aviation Leasing segment consists of aircraft and aircraft engines held for
lease and are typically held long-term. The Jefferson Terminal segment consists
of a multi-modal crude and refined products terminal and other related assets
which were acquired in 2014. The Ports and Terminals segment consists of
Repauno, acquired in 2016, a 1,630-acre deep-water port located along the
Delaware River with an underground storage cavern and multiple industrial
development opportunities. Additionally, Ports and Terminals includes an equity
method investment ("Long Ridge"), which is a 1,660-acre multi-modal port located
along the Ohio River with rail, dock, and multiple industrial development
opportunities, including a power plant under construction.
In December 2019, we completed the sale of substantially all of our railroad
business, which was formerly reported as our Railroad segment. Under ASC 205-20,
this disposition met the criteria to be reported as discontinued operations and
the assets, liabilities and results of operations have been presented as
discontinued operations for all periods presented. Additionally, in accordance
with ASC 280, we assessed our reportable segments. We determined that our
retained investment of the railroad business no longer met the requirement as a
reportable segment. Accordingly, we have presented this operating segment, along
with Corporate results, within Corporate and Other effective in 2019. All prior
periods have been restated for historical comparison across segments.
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Corporate and Other primarily consists of debt, unallocated corporate general
and administrative expenses, and management fees. Additionally, Corporate and
Other includes (i) offshore energy related assets which consist of vessels and
equipment that support offshore oil and gas activities and are typically subject
to long-term operating leases, (ii) an investment in an unconsolidated entity
engaged in the leasing of shipping containers and (iii) railroad assets retained
after the December 2019 sale, which consists of equipment that support a railcar
cleaning business.
Aviation Leasing Organizational Restructuring
In early 2020, we completed an organizational restructuring of the Aviation
Leasing segment ("Aviation Restructuring"). Previously, Aviation Leasing's
employees were employed by the Manager and compensation and related costs
associated with these employees were reimbursed to the Manager, per the
Management Agreement. These costs were reported within Corporate and Other.
Effective in the first quarter of 2020, Aviation Leasing's employees are
employed by one of our subsidiaries. Compensation and related costs incurred by
this subsidiary will be reported within the Aviation Leasing segment. Prior
periods have been restated for historical comparison. See Note 16 to the
consolidated financial statements for additional details.
Our reportable segments are comprised of investments in different types of
transportation infrastructure and equipment. Each segment requires different
investment strategies. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies; however,
financial information presented by segment includes the impact of intercompany
eliminations.
Our Manager
On December 27, 2017, SoftBank Group Corp. ("SoftBank") announced that it
completed its previously announced acquisition of Fortress (the "SoftBank
Merger"). In connection with the Softbank Merger, Fortress operates within
SoftBank as an independent business headquartered in New York.
Results of Operations
Adjusted EBITDA (Non-GAAP)
The CODM utilizes Adjusted EBITDA as the key performance measure. This
performance measure provides the CODM with the information necessary to assess
operational performance, as well as make resource and allocation decisions.
Adjusted EBITDA is defined as net income (loss) attributable to shareholders
from continuing operations, adjusted (a) to exclude the impact of provision for
(benefit from) income taxes, equity-based compensation expense, acquisition and
transaction expenses, losses on the modification or extinguishment of debt and
capital lease obligations, changes in fair value of non-hedge derivative
instruments, asset impairment charges, incentive allocations, depreciation and
amortization expense, and interest expense, (b) to include the impact of our
pro-rata share of Adjusted EBITDA from unconsolidated entities, and (c) to
exclude the impact of equity in earnings (losses) of unconsolidated entities and
the non-controlling share of Adjusted EBITDA.
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Comparison of the three and nine months ended September 30, 2020 and 2019
The following table presents our consolidated results of operations:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Revenues
Equipment leasing revenues
Lease income $ 40,440$ 50,835$ (10,395)$ 134,887$ 151,959$ (17,072)
Maintenance revenue 25,609 35,426 (9,817) 84,709 82,572 2,137
Finance lease income 591 496 95 1,433 2,203 (770)
Other revenue 3,159 502 2,657 15,053 2,177 12,876
Total equipment leasing revenues 69,799 87,259 (17,460) 236,082 238,911 (2,829)
Infrastructure revenues
Lease income 368 876 (508) 775 2,625 (1,850)
Terminal services revenues 11,329 11,835 (506) 40,534 27,085 13,449
Crude marketing revenues - 50,405 (50,405) 8,210 140,388 (132,178)
Other revenue 2,213 2,325 (112) 5,257 8,433 (3,176)
Total infrastructure revenues 13,910 65,441 (51,531) 54,776 178,531 (123,755)
Total revenues 83,709 152,700 (68,991) 290,858 417,442 (126,584)
Expenses
Operating expenses 23,128 82,719 (59,591) 81,144 222,812 (141,668)
General and administrative 4,241 5,535 (1,294) 13,292 13,270 22
Acquisition and transaction expenses 2,442 5,343 (2,901) 9,297 9,125 172
Management fees and incentive
allocation to affiliate 4,591 7,378 (2,787) 14,113 16,926 (2,813)
Depreciation and amortization 42,626 43,265 (639) 126,543 124,180 2,363
Asset impairment 3,915 - 3,915 14,391 - 14,391
Interest expense 26,904 25,190 1,714 71,559 71,318 241
Total expenses 107,847 169,430 (61,583) 330,339 457,631 (127,292)
Other (expense) income
Equity in losses of unconsolidated
entities (2,501) (974) (1,527) (5,445) (1,527) (3,918)
(Loss) gain on sale of assets, net (1,114) 37,060 (38,174) (2,165) 61,400 (63,565)
Loss on extinguishment of debt - - - (4,724) - (4,724)
Interest income 58 121 (63) 121 452 (331)
Other income - 1,131 (1,131) 32 3,465 (3,433)
Total other (expense) income (3,557) 37,338 (40,895) (12,181) 63,790 (75,971)
(Loss) income from continuing
operations before income taxes (27,695) 20,608 (48,303) (51,662) 23,601 (75,263)
(Benefit from) provision for income
taxes (2,486) 872 (3,358) (6,334) (1,189) (5,145)
Net (loss) income from continued
operations (25,209) 19,736 (44,945) (45,328) 24,790 (70,118)
Net income from discontinued
operations, net of income taxes - 940 (940) 1,331 1,883 (552)
Net (loss) income (25,209) 20,676 (45,885) (43,997) 26,673 (70,670)
Less: Net (loss) income attributable
to non-controlling interest in
consolidated subsidiaries:
Continuing operations (3,876) (5,111) 1,235 (12,724) (13,051) 327
Discontinued operations - 116 (116) - 101 (101)
Dividends on preferred shares 4,625 - 4,625 13,243 - 13,243
Net (loss) income attributable to
shareholders $ (25,958)$ 25,671$ (51,629)$ (44,516)$ 39,623$ (84,139)
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The following table sets forth a reconciliation of net (loss) income
attributable to shareholders from continuing operations to Adjusted EBITDA:
Nine Months Ended
Three Months Ended September 30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Net (loss) income attributable to
shareholders from continuing operations $ (25,958)$ 24,847
$ (50,805)$ (45,847)$ 37,841$ (83,688)
Add: (Benefit from) provision for income
taxes
(2,486) 872 (3,358) (6,334) (1,189) (5,145)
Add: Equity-based compensation expense 621 405 216 1,323 1,166 157
Add: Acquisition and transaction expenses 2,442 5,343 (2,901) 9,297 9,125 172
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - 4,724 - 4,724
Add: Changes in fair value of non-hedge
derivative instruments - 4,380 (4,380) 181 4,130 (3,949)
Add: Asset impairment charges 3,915 - 3,915 14,391 - 14,391
Add: Incentive allocations - 3,736 (3,736) - 6,109 (6,109)
Add: Depreciation and amortization
expense (1) 52,532 49,985 2,547 149,937 148,188 1,749
Add: Interest expense 26,904 25,190 1,714 71,559 71,318 241
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (2) 120 (801) 921 (167) (895) 728
Less: Equity in losses of unconsolidated
entities 2,501 974 1,527 5,445 1,527 3,918
Less: Non-controlling share of Adjusted
EBITDA (3) (1,955) (2,928) 973 (7,406) (7,866) 460
Adjusted EBITDA (non-GAAP) $ 58,636$ 112,003
$ (53,367)$ 197,103$ 269,454$ (72,351)
________________________________________________________
(1) Includes the following items for the three months ended September 30, 2020
and 2019: (i) depreciation and amortization expense of $42,626 and $43,265, (ii)
lease intangible amortization of $953 and $1,072 and (iii) amortization for
lease incentives of $8,953 and $5,648, respectively. Includes the following
items for the nine months ended September 30, 2020 and 2019: (i) depreciation
and amortization expense of $126,543 and $124,180, (ii) lease intangible
amortization of $3,016 and $5,736 and (iii) amortization for lease incentives of
$20,378 and $18,272, respectively.
(2) Includes the following items for the three months ended September 30, 2020
and 2019: (i) net loss of $(2,590) and $(1,096), (ii) interest expense of $367
and $30, (iii) depreciation and amortization expense of $1,389 and $265, (iv)
acquisition and transaction expenses of $(79) and $0 and (v) changes in fair
value of non-hedge derivatives of $1,033 and $0, respectively. Includes the
following items for the nine months ended September 30, 2020 and 2019: (i) net
loss of $(5,593) and $(1,793), (ii) interest expense of $848 and $101,
(iii) depreciation and amortization expense of $3,797 and $797, (iv) acquisition
and transaction expenses of $533 and $0 and (v) changes in fair value of
non-hedge derivatives of $248 and $0, respectively.
(3) Includes the following items for the three months ended September 30, 2020
and 2019: (i) equity-based compensation of $97 and $57, (ii) provision for
income taxes of $1 and $12, (iii) interest expense of $322 and $813, (iv)
depreciation and amortization expense of $1,535 and $1,261 and (v) changes in
fair value of non-hedge derivative instruments of $0 and $785, respectively.
Includes the following items for the nine months ended September 30, 2020 and
2019: (i) equity based compensation of $196 and $176, (ii) provision for income
taxes of $44 and $38, (iii) interest expense of $1,553 and $2,758, (iv)
depreciation and amortization expense of $4,583 and $3,633, (v) changes in fair
value of non-hedge derivative instruments of $38 and $1,261 and (vi) loss on
extinguishment of debt of $992 and $0, respectively.
Revenues
Comparison of the three months ended September 30, 2020 and 2019
Total revenues decreased $69.0 million primarily due to lower revenues of $48.8
million in the Jefferson Terminal segment and $19.8 million in the Aviation
Leasing segment.
Equipment Leasing
Lease income decreased $10.4 million primarily due to an increase in aircraft
redelivered and a decrease in the number of engines on lease and an increase in
the number of customers placed on non-accrual status, partially offset by an
increase in the number of aircraft placed on lease.
Maintenance revenue decreased $9.8 million primarily due to lower aircraft and
engine utilization as a result of the COVID-19 pandemic, partially offset by the
recognition of maintenance deposits due to the early redelivery of four
aircraft.
Other revenue increased $2.7 million, which primarily reflects (i) an increase
of $1.5 million in the Aviation Leasing segment due to an increase in
end-of-lease redelivery compensation and (ii) an increase of $1.1 million in the
offshore energy business related to victualling income as one of our vessels was
on-hire in 2020 while it was off-hire in 2019.
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Infrastructure
Crude marketing revenue decreased $50.4 million due to Jefferson Terminal
exiting the crude marketing strategy in the fourth quarter of 2019.
Comparison of the nine months ended September 30, 2020 and 2019
Total revenues decreased $126.6 million due to lower revenues of $114.5 million
in the Jefferson Terminal segment, $10.6 million in the Ports and Terminals
segment and $7.0 million in the Aviation Leasing segment, partially offset by
higher revenues of $5.5 million in Corporate and Other.
Equipment Leasing
Lease income decreased $17.1 million primarily due to an increase in aircraft
redelivered and the number of customers placed on non-accrual status, partially
offset by an increase in the number of aircraft placed on lease.
Other revenue increased $12.9 million, which primarily reflects (i) an increase
of $9.9 million in the Aviation Leasing segment due to an increase in
end-of-lease redelivery compensation and settlement of an engine loss and (ii)
an increase of $3.0 million in the offshore energy business related to
victualling income as our vessels were on-hire longer in 2020 compared to 2019.
Maintenance revenue increased $2.1 million primarily due to the recognition of
maintenance deposits due to the early redelivery of eleven aircraft, partially
offset by lower aircraft and engine utilization as a result of the COVID-19
pandemic.
Infrastructure
Crude marketing revenue decreased $132.2 million due to Jefferson Terminal
exiting the crude marketing strategy in the fourth quarter of 2019. Revenues in
2020 include contracts executed in 2019 but delivered in 2020.
Other revenue decreased $3.2 million, which primarily reflects (i) a decrease of
$4.2 million at Long Ridge due to Long Ridge being accounted for as an equity
method investment starting in the fourth quarter of 2019 (the "Long Ridge
Transaction"), partially offset by (ii) an increase of $1.4 million in our
railcar cleaning business due to higher volumes.
Terminal services revenue increased $13.4 million which primarily reflects (i)
an increase of $18.6 million due to increased activity and storage capacity at
Jefferson Terminal, partially offset by (ii) a decrease of $5.2 million due to
the Long Ridge Transaction.
Expenses
Comparison of the three months ended September 30, 2020 and 2019
Total expenses decreased $61.6 million, primarily due to lower (i) operating
expenses, (ii) acquisition and transaction expense, (iii) management fees and
incentive allocation to affiliate and (iv) general and administrative expense,
partially offset by higher (v) asset impairment and (vi) interest expense.
Operating expenses decreased $59.6 million, primarily due to a decrease in cost
of sales of $55.6 million primarily due to Jefferson Terminal exiting the crude
marketing strategy in the fourth quarter of 2019.
Acquisition and transaction expense decreased $2.9 million which primarily
reflects a lower reimbursement to the Manager of $2.5 million due to fewer
acquisitions in 2020 compared to 2019.
Management fees and incentive allocation to affiliate decreased $2.8 million,
which reflects (i) lower incentive fees of $3.7 million due to the decrease in
gains on sale of assets, net, partially offset by (ii) an increase of $0.9
million in the base management fee as our average total equity is higher in 2020
compared to 2019.
General and administrative expenses decreased $1.3 million primarily due to a
lower reimbursement to the Manager.
Asset impairment increased $3.9 million due to an impairment charge in 2020 in
the Aviation Leasing segment.
Interest expense increased $1.7 million, primarily due to:
•an increase of $4.3 million in Corporate and Other which primarily reflects (i)
an increase in our average outstanding debt due to the issuance of the 2027
Notes, partially offset by (ii) a decrease in interest expense related to the
FTAI Pride Credit Agreement, which was repaid in full in March 2020; and
•a decrease of $2.4 million at Jefferson Terminal due to the Jefferson
Refinancing.
Comparison of the nine months ended September 30, 2020 and 2019
Total expenses decreased $127.3 million, primarily due to lower (i) operating
expenses and (ii) management fees and incentive allocation to affiliate,
partially offset by (iii) an asset impairment charge.
Operating expenses decreased $141.7 million, primarily due to decreases in:
•cost of sales of $137.5 million primarily due to Jefferson Terminal exiting the
crude marketing strategy in the fourth quarter of 2019; and
•facility operations of $4.1 million primarily due to the Long Ridge
Transaction.
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Management fees and incentive allocation to affiliate decreased $2.8 million,
which reflects (i) lower incentive fees of $6.1 million due to the decrease in
gains on sale of assets, net, partially offset by (ii) an increase of $3.3
million in the base management fee as our average total equity is higher in 2020
compared to 2019.
The above decreases were partially offset by an asset impairment charge of $14.4
million in 2020 in the Aviation Leasing segment.
Other (expense) income
Total other expense increased $40.9 million during the three months ended
September 30, 2020, which primarily reflects (i) a decrease of $38.2 million in
gain on sale of assets, net as we had more asset sales in 2019 compared to 2020
and (ii) an increase of $1.5 million in equity in losses of unconsolidated
entities.
Total other expense increased $76.0 million during the nine months ended
September 30, 2020, which primarily reflects (i) a decrease of $63.6 million in
gain on sale of assets, net as we had more asset sales in 2019 compared to 2020,
(ii) a loss on extinguishment of debt of $4.7 million due to the Jefferson
Refinancing, (iii) an increase of $3.9 million in equity in losses of
unconsolidated entities and (iv) a decrease in other income of $3.4 million
primarily due to the Long Ridge Transaction.
Net (loss) income from continuing operations
Net income from continuing operations decreased $44.9 million and $70.1 million
during the three and nine months ended September 30, 2020, respectively,
primarily due to the changes noted above.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA decreased $53.4 million and $72.4 million during the three and
nine months ended September 30, 2020, respectively, primarily due to the changes
noted above.
Aviation Leasing Segment
As of September 30, 2020, in our Aviation Leasing segment, we own and manage 272
aviation assets, consisting of 79 commercial aircraft and 193 engines.
As of September 30, 2020, 70 of our commercial aircraft and 110 of our engines
were leased to operators or other third parties. Aviation assets currently off
lease are either undergoing repair and/or maintenance, being prepared to go on
lease or held in short term storage awaiting a future lease. Our aviation
equipment was approximately 71% utilized during the three months ended
September 30, 2020, based on the percent of days on-lease in the quarter
weighted by the monthly average equity value of our aviation leasing equipment,
excluding airframes. Our aircraft currently have a weighted average remaining
lease term of 35 months, and our engines currently on-lease have an average
remaining lease term of 22 months. The table below provides additional
information on the assets in our Aviation Leasing segment:
Aviation Assets Widebody Narrowbody Total
Aircraft
Assets at January 1, 2020 14 60 74
Purchases 1 18 19
Sales - - -
Transfers - (14) (14)
Assets at September 30, 2020 15 64 79
Engines
Assets at January 1, 2020 92 72 164
Purchases 19 3 22
Sales (17) (3) (20)
Transfers (1) 28 27
Assets at September 30, 2020 93 100 193
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The following table presents our results of operations:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Revenues
Equipment leasing revenues
Lease income $ 38,537$ 50,169
$ (11,632)$ 127,983$ 146,203$ (18,220)
Maintenance revenue
25,609 35,426 (9,817) 84,709 82,572 2,137
Finance lease income 591 496 95 1,433 2,203 (770)
Other revenue 1,754 214 1,540 10,617 719 9,898
Total revenues 66,491 86,305 (19,814) 224,742 231,697 (6,955)
Expenses
Operating expenses 4,515 3,222 1,293 13,163 13,315 (152)
Acquisition and transaction expenses 2,060 1,058 1,002 6,845 3,006 3,839
Depreciation and amortization 33,014 33,911 (897) 97,848 97,183 665
Asset impairment 3,915 - 3,915 14,391 - 14,391
Total expenses 43,504 38,191 5,313 132,247 113,504 18,743
Other income (expense)
Equity in losses of unconsolidated 638 (104)
entities (247) (885) (1,432) (1,328)
(Loss) gain on sale of assets, net (1,114) 37,060 (38,174) (2,158) 61,388 (63,546)
Interest income 41 31 10 70 85 (15)
Total other (expense) income (1,320) 36,206 (37,526) (3,520) 60,145 (63,665)
Income before income taxes 21,667 84,320 (62,653) 88,975 178,338 (89,363)
(Benefit from) provision for income (2,689) (3,882)
taxes (1,873) 816 (5,255) (1,373)
Net income 23,540 83,504 (59,964) 94,230 179,711 (85,481)
Less: Net loss attributable to
non-controlling interest in consolidated
subsidiaries - - - - - -
Net income attributable to shareholders $ 23,540$ 83,504
$ (59,964)$ 94,230$ 179,711$ (85,481)
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The following table sets forth a reconciliation of net income attributable to
shareholders to Adjusted EBITDA:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Net income attributable to shareholders $ 23,540$ 83,504
$ (59,964)$ 94,230$ 179,711$ (85,481)
Add: (Benefit from) provision for income
taxes
(1,873) 816 (2,689) (5,255) (1,373) (3,882)
Add: Equity-based compensation expense - - - - - -
Add: Acquisition and transaction expenses 2,060 1,058 1,002 6,845 3,006 3,839
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - - - -
Add: Changes in fair value of non-hedge
derivative instruments - - - - - -
Add: Asset impairment charges 3,915 - 3,915 14,391 - 14,391
Add: Incentive allocations - - - - - -
Add: Depreciation and amortization
expense (1) 42,920 40,631 2,289 121,242 121,191 51
Add: Interest expense - - - - - -
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (2) (247) (885) 638 (1,432) (1,328) (104)
Less: Equity in losses of unconsolidated
entities 247 885 (638) 1,432 1,328 104
Less: Non-controlling share of Adjusted
EBITDA - - - - - -
Adjusted EBITDA (non-GAAP) $ 70,562$ 126,009
$ (55,447)$ 231,453$ 302,535$ (71,082)
________________________________________________________
(1) Includes the following items for the three months ended September 30, 2020
and 2019: (i) depreciation expense of $33,014 and $33,911, (ii) lease intangible
amortization of $953 and $1,072 and (iii) amortization for lease incentives of
$8,953 and $5,648, respectively. Includes the following items for the nine
months ended September 30, 2020 and 2019: (i) depreciation expense of $97,848
and $97,183, (ii) lease intangible amortization of $3,016 and $5,736 and (iii)
amortization for lease incentives of $20,378 and $18,272, respectively.
(2) Includes Aviation Leasing's proportionate share of the unconsolidated
entities' net income adjusted for the excluded and included items detailed in
the table above, for which there were no adjustments.
Revenues
Comparison of the three months ended September 30, 2020 and 2019
Total revenue decreased $19.8 million driven by lower lease income and
maintenance revenue.
•Lease income decreased $11.6 million primarily due to an increase in aircraft
redelivered and a decrease in the number of engines on lease and an increase in
the number of customers placed on non-accrual status, partially offset by an
increase in the number of aircraft placed on lease.
•Maintenance revenue decreased $9.8 million primarily due to lower aircraft and
engine utilization as a result of the COVID-19 pandemic, partially offset the
recognition of maintenance deposits due to the early redelivery of four
aircraft.
•Other revenue increased $1.5 million primarily due to the increase in
end-of-lease redelivery compensation.
Comparison of the nine months ended September 30, 2020 and 2019
Total revenue decreased $7.0 million driven by lower lease income.
•Lease income decreased $18.2 million primarily due to an increase in aircraft
redelivered and the number of customers placed on non-accrual status, partially
offset by an increase in the number of aircraft placed on lease.
•Maintenance revenue increased $2.1 million primarily due to the recognition of
maintenance deposits due to the early redelivery of eleven aircraft, partially
offset by lower aircraft and engine utilization as a result of the COVID-19
pandemic.
•Other revenue increased $9.9 million primarily due to the increase in
end-of-lease redelivery compensation and settlement of an engine loss.
Expenses
Comparison of the three months ended September 30, 2020 and 2019
Total expenses increased $5.3 million primarily due to an increase in asset
impairment, acquisition and transaction expenses and operating expenses
partially offset by a decrease in depreciation and amortization expense.
53
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•Asset impairment increased $3.9 million for the adjustment of the carrying
value of leasing equipment to fair value, net of redelivery compensation.
•Acquisition and transaction expense increased $1.0 million driven by additional
compensation and related costs associated with the acquisition of aviation
leasing equipment.
•Depreciation and amortization expense decreased $0.9 million driven by a
decrease in the number of engines on lease and an increase in the number of
aircraft redelivered and parted out into our engine leasing pool, partially
offset by additional aircraft owned and on lease.
•Operating expenses increased $1.3 million primarily as a result of an increase
in professional fees, shipping and storage fees, partially offset by a decrease
in other operating expenses.
Comparison of the nine months ended September 30, 2020 and 2019
Total expenses increased $18.7 million primarily due to an increase in asset
impairment, depreciation and amortization expense and acquisition and
transaction expenses, partially offset by a decrease in operating expenses.
•Asset impairment increased $14.4 million for the adjustment of the carrying
value of leasing equipment to fair value, net of redelivery compensation.
•Acquisition and transaction expense increased $3.8 million driven by additional
compensation and related costs associated with the acquisition of aviation
leasing equipment.
•Depreciation and amortization expense increased $0.7 million driven by
additional aircraft owned and on lease, partially offset by a decrease in the
number of engines on lease and additional aircraft redelivered and parted out
into our engine leasing pool.
•Operating expenses decreased $0.2 million primarily as a result of a decrease
in bad debt expense and repairs and maintenance expenses, partially offset by an
increase in professional fees, compensation and benefit and other operating
expenses.
Other (expense) income
Total other income decreased $37.5 million during the three months ended
September 30, 2020, primarily due to a decrease of $38.2 million in gain on the
sale of leasing equipment in 2020, partially offset by a decrease of $0.6
million in Aviation Leasing's proportionate share of the unconsolidated
entities' net loss.
Total other income decreased $63.7 million during the nine months ended
September 30, 2020, primarily due to a decrease of $63.5 million in gain on the
sale of leasing equipment in 2020 and an increase of $0.1 million in Aviation
Leasing's proportionate share of the unconsolidated entities' net loss.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA decreased $55.4 million and $71.1 million during the three and
nine months ended September 30, 2020, respectively, primarily due to the changes
noted above.
54
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Jefferson Terminal Segment
The following table presents our results of operations:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Infrastructure revenues
Lease income $ 368$ 627
$ (259)$ 775$ 1,756$ (981)
Terminal services revenues
11,329 9,505 1,824 40,534 21,909 18,625
Crude marketing revenues - 50,405 (50,405) 8,210 140,388 (132,178)
Total revenues 11,697 60,537 (48,840) 49,519 164,053 (114,534)
Expenses
Operating expenses 9,661 69,712 (60,051) 43,894 183,346 (139,452)
Depreciation and amortization 7,250 5,717 1,533 21,636 16,392 5,244
Interest expense 1,487 3,927 (2,440) 7,225 12,375 (5,150)
Total expenses 18,398 79,356 (60,958) 72,755 212,113 (139,358)
Other (expense) income
Equity in losses of unconsolidated entities - (162) 162 - (290) 290
(Loss) gain on sale of assets, net - - - (7) 12 (19)
Loss on extinguishment of debt - - - (4,724) - (4,724)
Interest income - 26 (26) 22 97 (75)
Other income - 772 (772) 32 589 (557)
Total other income (expense) - 636 (636) (4,677) 408 (5,085)
Loss before income taxes (6,701) (18,183) 11,482 (27,913) (47,652) 19,739
Provision for income taxes 3 56 (53) 212 180 32
Net loss (6,704) (18,239) 11,535 (28,125) (47,832) 19,707
Less: Net loss attributable to
non-controlling interest in consolidated
subsidiaries (3,809) (5,031) 1,222 (12,490) (12,885) 395
Net loss attributable to shareholders $ (2,895)$ (13,208)
$ 10,313$ (15,635)$ (34,947)$ 19,312
55
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The following table sets forth a reconciliation of net loss attributable to
shareholders to Adjusted EBITDA:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Net loss attributable to shareholders $ (2,895)$ (13,208)
$ 10,313$ (15,635)$ (34,947)$ 19,312
Add: Provision for income taxes
3 56 (53) 212 180 32
Add: Equity-based compensation expense 428 273 155 857 819 38
Add: Acquisition and transaction expenses - - - - - -
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - 4,724 - 4,724
Add: Changes in fair value of non-hedge
derivative instruments - 3,736 (3,736) 181 6,003 (5,822)
Add: Asset impairment charges - - - - - -
Add: Incentive allocations - - - - - -
Add: Depreciation and amortization expense 7,250 5,717 1,533 21,636 16,392 5,244
Add: Interest expense 1,487 3,927 (2,440) 7,225 12,375 (5,150)
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) - 103 (103) - 434 (434)
Less: Equity in (earnings) losses of
unconsolidated entities - 162 (162) - 290 (290)
Less: Non-controlling share of Adjusted
EBITDA (2) (1,925) (2,878) 953 (7,315) (7,511) 196
Adjusted EBITDA (non-GAAP) $ 4,348$ (2,112)
$ 6,460$ 11,885$ (5,965)$ 17,850
________________________________________________________
(1) Includes the following items for the three and nine months ended September
30, 2019: (i) net loss of $(162) and $(363) and (ii) depreciation and
amortization expense of $265 and $797, respectively.
(2) Includes the following items for the three months ended September 30, 2020
and 2019: (i) equity-based compensation of $90 and $57, (ii) provision for
income taxes of $1 and $12, (iii) interest expense of $312 and $825, (iv)
changes in fair value of non-hedge derivative instruments of $0 and $785 and (v)
depreciation and amortization expense of $1,522 and $1,199, respectively.
Includes the following items for the nine months ended September 30, 2020 and
2019: (i) equity-based compensation of $180 and $172, (ii) provision for income
taxes of $44 and $38, (iii) interest expense of $1,517 and $2,599, (iv) changes
in fair value of non-hedge derivative instruments of $38 and $1,261, (v)
depreciation and amortization expense of $4,544 and $3,441 and (vi) loss on
extinguishment of debt of $992 and $0, respectively.
Revenues
Total revenues decreased $48.8 million during the three months ended
September 30, 2020, primarily due to (i) a decrease in crude marketing revenue
of $50.4 million due to Jefferson Terminal exiting the crude marketing strategy
in the fourth quarter of 2019, partially offset by (ii) an increase in terminal
services of $1.8 million due to increased activity and storage capacity.
Total revenues decreased $114.5 million during the nine months ended
September 30, 2020, primarily due to (i) a decrease in crude marketing revenue
of $132.2 million due to Jefferson Terminal exiting the crude marketing strategy
in the fourth quarter of 2019, partially offset by (ii) an increase in terminal
services of $18.6 million due to increased activity and storage capacity.
Expenses
Total expenses decreased $61.0 million during the three months ended
September 30, 2020, which reflects (i) a decrease in operating expenses of $60.1
million primarily due to Jefferson Terminal exiting the crude marketing strategy
in the fourth quarter of 2019, (ii) a decrease in interest expense of $2.4
million due to the Jefferson Refinancing, partially offset by (iii) an increase
in depreciation and amortization of $1.5 million due to additional assets being
placed into service.
Total expenses decreased $139.4 million during the nine months ended
September 30, 2020, which reflects (i) a decrease in operating expenses of
$139.5 million primarily due to Jefferson Terminal exiting the crude marketing
strategy in the fourth quarter of 2019, (ii) a decrease in interest expense of
$5.2 million due to the Jefferson Refinancing, partially offset by (iii) an
increase in depreciation and amortization of $5.2 million due to additional
assets being placed into service.
Other (expense) income
Total other expense increased $5.1 million during the nine months ended
September 30, 2020, which primarily reflects a loss on extinguishment of debt of
$4.7 million due to the Jefferson Refinancing.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $6.5 million and $17.9 million during the three and
nine months ended September 30, 2020, respectively, primarily due to the changes
noted above.
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Ports and Terminals
The following table presents our results of operations:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Infrastructure revenues
Lease income $ - $ 249$ (249) $ - $ 869$ (869)
Terminal services revenues - 2,330 (2,330) - 5,176 (5,176)
Other revenue 1,242 1,595 (353) 1,556 6,109 (4,553)
Total revenues 1,242 4,174 (2,932) 1,556 12,154 (10,598)
Expenses
Operating expenses 2,704 5,404 (2,700) 6,579 15,063 (8,484)
Acquisition and transaction expenses 20 - 20 821 - 821
Depreciation and amortization 368 1,687 (1,319) 1,122 5,240 (4,118)
Interest expense 298 469 (171) 1,045 1,113 (68)
Total expenses 3,390 7,560 (4,170) 9,567 21,416 (11,849)
Other (expense) income
Equity in losses of unconsolidated
entities (2,285) - (2,285) (3,961) - (3,961)
Interest income - 47 (47) - 241 (241)
Other (expense) income - (644) 644 - 1,873 (1,873)
Total other (expense) income (2,285) (597) (1,688) (3,961) 2,114 (6,075)
Loss before income taxes (4,433) (3,983) (450) (11,972) (7,148) (4,824)
Benefit from income taxes (656) - (656) (1,534) - (1,534)
Net loss (3,777) (3,983) 206 (10,438) (7,148) (3,290)
Less: Net loss attributable to
non-controlling interest in consolidated
subsidiaries (67) (80) 13 (234) (166) (68)
Net loss attributable to shareholders $ (3,710)$ (3,903)
$ 193$ (10,204)$ (6,982)$ (3,222)
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The following table sets forth a reconciliation of net loss attributable to
shareholders to Adjusted EBITDA:
Three Months Ended September Nine Months Ended
30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Net loss attributable to shareholders $ (3,710)$ (3,903)
$ 193$ (10,204)$ (6,982)$ (3,222)
Add: Benefit from income taxes
(656) - (656) (1,534) - (1,534)
Add: Equity-based compensation expense 193 132 61 466 347 119
Add: Acquisition and transaction expenses 20 - 20 821 - 821
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - - - -
Add: Changes in fair value of non-hedge
derivative instruments - 644 (644) - (1,873) 1,873
Add: Asset impairment charges - - - - - -
Add: Incentive allocations - - - - - -
Add: Depreciation and amortization expense 368 1,687 (1,319) 1,122 5,240 (4,118)
Add: Interest expense 298 469 (171) 1,045 1,113 (68)
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) 395 - 395 1,376 - 1,376
Less: Equity in losses of unconsolidated
entities 2,285 - 2,285 3,961 - 3,961
Less: Non-controlling share of Adjusted
EBITDA (2) (30) 44 (74) (91) (87) (4)
Adjusted EBITDA (non-GAAP) $ (837)$ (927)
$ 90$ (3,038)$ (2,242)$ (796)
________________________________________________________
(1) Includes the following items for the three and nine months ended
September 30, 2020: (i) net loss of $(2,285) and $(3,961), (ii) interest expense
of $337 and $759, (iii) depreciation and amortization expense of $1,389 and
$3,797, (iv) acquisition and transaction expenses of $(79) and $533 and (v)
changes in fair value of non-hedge derivative instruments of $1,033 and $248,
respectively.
(2) Includes the following items for the three months ended September 30, 2020
and 2019: (i) equity-based compensation of $7 and $0, (ii) interest expense of
$10 and $(41) and (iii) depreciation and amortization expense of $13 and $(3),
respectively. Includes the following items for the nine months ended
September 30, 2020 and 2019: (i) equity-based compensation of $16 and $4, (ii)
interest expense of $36 and $71 and (iii) depreciation and amortization expense
of $39 and $12, respectively.
Revenues
Total revenue decreased $2.9 million during the three months ended September 30,
2020, primarily due to the Long Ridge Transaction.
Total revenue decreased $10.6 million during the nine months ended September 30,
2020, primarily due to (i) the Long Ridge Transaction and (ii) a decrease of
$0.4 million in butane sales at Repauno.
Expenses
Total expenses decreased $4.2 million during the three months ended
September 30, 2020, which primarily reflects lower operating expenses of $2.7
million and depreciation and amortization of $1.3 million, primarily due to the
Long Ridge Transaction.
Total expenses decreased $11.8 million during the nine months ended
September 30, 2020, which primarily reflects lower operating expenses of $8.5
million and depreciation and amortization of $4.1 million, primarily due to the
Long Ridge Transaction. This was offset by an increase in acquisition and
transaction expenses relating to the Long Ridge joint venture of $0.8 million.
Other (expense) income
Total other income decreased $1.7 million during the three months ended
September 30, 2020, primarily due to equity in losses of $2.3 million from Long
Ridge and $0.6 million in unrealized losses on power swap derivatives in 2019,
which was deconsolidated with the Long Ridge Transaction in 2020.
Total other income decreased $6.1 million during the nine months ended
September 30, 2020, respectively, primarily due to equity in losses of $3.9
million from Long Ridge and $1.9 million in unrealized gains on power swap
derivatives in 2019, which was deconsolidated with the Long Ridge Transaction in
2020.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $0.1 million and decreased $0.8 million during the
three and nine months ended September 30, 2020, respectively, primarily due to
the changes noted above.
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Corporate and Other
The following table presents our results of operations:
Nine Months Ended
Three Months Ended September 30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Revenues
Equipment leasing revenues
Lease income $ 1,903$ 666$ 1,237$ 6,904$ 5,756$ 1,148
Other revenue 1,405 288 1,117 4,436 1,458 2,978
Total equipment leasing revenues 3,308 954 2,354 11,340 7,214 4,126
Infrastructure revenues
Other revenue 971 730 241 3,701 2,324 1,377
Total infrastructure revenues 971 730 241 3,701 2,324 1,377
Total revenues 4,279 1,684 2,595 15,041 9,538 5,503
Expenses
Operating expenses 6,248 4,381 1,867 17,508 11,088 6,420
General and administrative 4,241 5,535 (1,294) 13,292 13,270 22
Acquisition and transaction expenses 362 4,285 (3,923) 1,631 6,119 (4,488)
Management fees and incentive allocation
to affiliate 4,591 7,378 (2,787) 14,113 16,926 (2,813)
Depreciation and amortization 1,994 1,950 44 5,937 5,365 572
Interest expense 25,119 20,794 4,325 63,289 57,830 5,459
Total expenses 42,555 44,323 (1,768) 115,770 110,598 5,172
Other income (expense)
Equity in earnings (losses) of
unconsolidated entities 31 73 (42) (52) 91 (143)
Interest income 17 17 - 29 29 -
Other income - 1,003 (1,003) - 1,003 (1,003)
Total other income (expense) 48 1,093 (1,045) (23) 1,123 (1,146)
Loss before income taxes (38,228) (41,546) 3,318 (100,752) (99,937) (815)
Provision for income taxes 40 - 40 243 4 239
Net loss (38,268) (41,546) 3,278 (100,995) (99,941) (1,054)
Less: Net loss attributable to
non-controlling interest in consolidated
subsidiaries - - - - - -
Dividends on preferred shares 4,625 - 4,625 13,243 - 13,243
Net loss attributable to shareholders $ (42,893)$ (41,546)
$ (1,347)$ (114,238)$ (99,941)$ (14,297)
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The following table sets forth a reconciliation of net loss attributable to
shareholders to Adjusted EBITDA:
Nine Months Ended
Three Months Ended September 30, September 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Net loss attributable to shareholders $ (42,893)$ (41,546)
$ (1,347)$ (114,238)$ (99,941)$ (14,297)
Add: Provision for income taxes
40 - 40 243 4 239
Add: Equity-based compensation expense - - - - - -
Add: Acquisition and transaction expenses 362 4,285 (3,923) 1,631 6,119 (4,488)
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - - - -
Add: Changes in fair value of non-hedge
derivative instruments - - - - - -
Add: Asset impairment charges - - - - - -
Add: Incentive allocations - 3,736 (3,736) - 6,109 (6,109)
Add: Depreciation and amortization expense 1,994 1,950 44 5,937 5,365 572
Add: Interest expense 25,119 20,794 4,325 63,289 57,830 5,459
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) (28) (19) (9) (111) (1) (110)
Less: Equity in losses (earnings) of
unconsolidated entities (31) (73) 42 52 (91) 143
Less: Non-controlling share of Adjusted
EBITDA (2) - (94) 94 - (268) 268
Adjusted EBITDA (non-GAAP) $ (15,437)$ (10,967)$ (4,470)$ (43,197)$ (24,874)$ (18,323)
________________________________________________________
(1) Includes the following items for the three months ended September 30, 2020
and 2019: (i) net loss of $(58) and $(49) and (ii) interest expense of $30 and
$30, respectively. Includes the following items for the nine months ended
September 30, 2020 and 2019: (i) net loss of $(200) and $(102) and (ii) interest
expense of $89 and $101, respectively.
(2) Includes the following items for the three and nine months ended September
30, 2019: (i) interest expense of $29 and $88 and (ii) depreciation and
amortization expense of $65 and $180, respectively.
Revenues
Total revenues increased $2.6 million during the three months ended
September 30, 2020, which primarily reflects an increase of $1.2 million and
$1.1 million in lease income and other revenue, respectively, as one of our
vessels was on-hire in 2020 while it was off-hire in 2019.
Total revenues increased $5.5 million during the nine months ended September 30,
2020, which primarily reflects (i) an increase of $3.0 million in other revenue
related to victualling income in the offshore energy business as our vessels
were on-hire longer in 2020 compared to 2019, (ii) an increase of $1.4 million
in other revenue due to higher volume in our railcar cleaning business and (iii)
an increase of $1.1 million in lease income as our vessels were on-hire longer
in 2020 compared to 2019.
Expenses
Comparison of the three months ended September 30, 2020 and 2019
Total expenses decreased $1.8 million primarily due to lower (i) acquisition and
transaction expense, (ii) management fees and incentive allocation to affiliate
and (iii) general and administrative expenses, partially offset by higher (iv)
interest expense and (v) operating expenses.
Acquisition and transaction expense decreased $3.9 million which primarily
reflects a lower reimbursement to the Manager of $2.5 million and lower
professional fees of $1.2 million due to fewer acquisitions in 2020 compared to
2019.
Management fees and incentive allocation to affiliate decreased $2.8 million due
to (i) a decrease of $3.7 million in incentive fees due to lower gains on sale
in 2020 compared to 2019, partially offset by (ii) an increase of $0.9 million
in base management fees as our average total equity is higher in 2020 compared
to 2019.
General and administrative expense decreased $1.3 million which primarily
reflects a lower reimbursement to the Manager.
Interest expense increased $4.3 million which reflects an increase in our
average outstanding debt of approximately $287.4 million, which primarily
consists of (i) an increase of $400.0 million for the 2027 Notes, (ii) a
decrease of $70.0 million for the Revolving Credit Facility and (iii) a decrease
of $44.1 million for the FTAI Pride Credit Agreement, which was repaid in full
in March 2020.
Operating expenses increased $1.9 million which primarily reflects higher (i)
project costs of $1.0 million in our offshore energy business and (ii) facility
operations and compensation and benefits of $0.6 million in our railcar cleaning
business due to higher volumes.
60
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Comparison of the nine months ended September 30, 2020 and 2019
Total expenses increased $5.2 million primarily due to higher (i) operating
expenses and (ii) interest expense, partially offset by lower (iii) acquisition
and transaction expense and (iii) management fees and incentive allocation to
affiliate.
Operating expenses increased $6.4 million which primarily reflects higher (i)
project costs of $2.5 million in our offshore energy business, (ii) repairs and
maintenance of $1.1 million in our offshore energy business, (iii) compensation
and benefits of $0.7 million in our railcar cleaning business due to higher
volumes and (iv) vessel operating and general and administrative expenses of
$0.7 million.
Interest expense increased $5.5 million which reflects an increase in our
average outstanding debt of approximately $138.4 million, which primarily
consists of (i) an increase of $133.3 million for the 2027 Notes, (ii) an
increase of $66.7 million for the 2025 Notes, (iii) an increase of $17.2 million
for the 2022 Notes, (iv) a decrease of $41.1 million for the Revolving Credit
Facility and (v) a decrease of $37.7 million for the FTAI Pride Credit
Agreement, which was repaid in March 2020.
Acquisition and transaction expense decreased $4.5 million which primarily
reflects a lower reimbursement to the Manager of $3.3 million and lower
professional fees of $1.0 million due to fewer acquisitions in 2020 compared to
2019.
Management fees and incentive allocation to affiliate decreased $2.8 million due
to (i) a decrease of $6.1 million in incentive fees due to lower gains on sale
in 2020 compared to 2019, partially offset by (ii) an increase of $3.3 million
in base management fees as our average total equity is higher in 2020 compared
to 2019.
Other income (expense)
Other income decreased $1.0 million and $1.1 million during the three and nine
months ended September 30, 2020, respectively, primarily due to a gain of
approximately $1.0 million from casualty insurance proceeds received in 2019 on
one of our vessels.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA decreased $4.5 million and $18.3 million during the three and
nine months ended September 30, 2020, respectively, primarily due to the changes
noted above.
Liquidity and Capital Resources
On July 28, 2020, we issued $400 million aggregate principal amount of senior
unsecured notes due 2027 (the "2027 Notes"). We used a portion of the proceeds
to repay $220 million of outstanding borrowings under the Revolving Credit
Facility, and intend to use the remaining proceeds for general corporate
purposes, and the funding of future acquisitions and investments, including
aviation investments. Following the repayment, we have additional borrowing
capacity of $250 million under the Revolving Credit Facility.
Additionally, on June 30, 2020, we entered into an At Market Issuance Sales
Agreement with a third party to sell shares of our Series A Preferred Shares and
Series B Preferred Shares (collectively, the "ATM Shares"), having an aggregate
offering price of up to $100 million, from time to time, through an "at-the
market" equity offering program. During the third quarter of 2020, we sold
1,070,000 ATM Shares for net proceeds of approximately $20.6 million.
We believe we have sufficient liquidity to satisfy our cash needs, however, we
continue to evaluate and take action, as necessary, to preserve adequate
liquidity and ensure that our business can continue to operate during these
uncertain times. This includes limiting discretionary spending across the
organization and re-prioritizing our capital projects amid the COVID-19
pandemic.
Our principal uses of liquidity have been and continue to be (i) acquisitions of
transportation infrastructure and equipment, (ii) dividends to our shareholders
and holders of eligible participating securities, (iii) expenses associated with
our operating activities, and (iv) debt service obligations associated with our
investments.
•Cash used for the purpose of making investments was $470.3 million and $590.7
million during the nine months ended September 30, 2020 and 2019, respectively.
•Dividends to shareholders and holders of eligible participating securities were
$98.4 million and $85.2 million during the nine months ended September 30, 2020
and 2019, respectively.
•Uses of liquidity associated with our operating expenses are captured on a net
basis in our cash flows from operating activities. Uses of liquidity associated
with our debt obligations are captured in our cash flows from financing
activities.
Our principal sources of liquidity to fund these uses have been and continue to
be (i) revenues from our transportation infrastructure and equipment assets
(including finance lease collections and maintenance reserve collections) net of
operating expenses, (ii) proceeds from borrowings or the issuance of securities
and (iii) proceeds from asset sales.
•Cash flows from operating activities, plus the principal collections on finance
leases and maintenance reserve collections were $60.5 million and $155.2 million
during the nine months ended September 30, 2020 and 2019, respectively.
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•During the nine months ended September 30, 2020, additional borrowings were
obtained in connection with the (i) 2027 Notes of $400.0 million, (ii) Series
2020 Bonds of $264.0 million and (iii) Revolving Credit Facility of $220.0
million. We made total principal repayments of $496.0 million relating to the
Revolving Credit Facility, Series 2016 Bonds, Series 2012 Bonds, Jefferson
Revolver and FTAI Pride Credit Agreement. During the nine months ended
September 30, 2019, additional borrowings were obtained in connection with the
(i) 2025 Notes of $148.7 million, (ii) 2022 Notes of $147.8 million, (iii)
Revolving Credit Facility of $105.0 million, (iv) LREG Credit Agreement of
$104.4 million, (v) DRP Revolver of $25.0 million, (vi) Jefferson Revolver of
$23.2 million and (vii) CMQR Credit Agreement of $15.6 million. We made total
principal repayments of $218.9 million, primarily relating to the Revolving
Credit Facility, Jefferson Revolver and CMQR Credit Agreement.
•Proceeds from the sale of assets were $53.7 million and $166.3 million during
the nine months ended September 30, 2020 and 2019, respectively.
•Proceeds from the issuance of preferred shares, net of underwriter's discount
and issuance costs were $20.2 million and $82.9 million during the nine months
ended September 30, 2020 and 2019, respectively.
We are currently evaluating several potential Infrastructure and Equipment
Leasing transactions, which could occur within the next 12 months. However, as
of the date of this filing, none of these pipeline transactions or negotiations
are definitive or included within our planned liquidity needs. We cannot assure
if or when any such transaction will be consummated or the terms of any such
transaction.
Historical Cash Flow
Comparison of the nine months ended September 30, 2020 and 2019
The following table compares the historical cash flow for the nine months ended
September 30, 2020 and 2019:
Nine Months Ended September 30,
(in thousands) 2020 2019
Cash Flow Data:
Net cash provided by operating activities $ 28,393 $ 92,713
Net cash used in investing activities (407,193) (409,853)
Net cash provided by financing activities 299,689 346,887
Net cash provided by operating activities decreased $64.3 million, which
primarily reflects (i) changes in accounts payable and accrued liabilities,
management fees payable, accounts receivable, and other assets and other
liabilities of $60.3 million, primarily due to the timing of payments and (ii) a
decrease in net income of $70.7 million. These decreases were partially offset
by changes in (iii) gain on sale of assets, net of $63.6 million and (iv) asset
impairment of $14.4 million.
Net cash used in investing activities decreased $2.7 million primarily due to
(i) a decrease in purchase deposits for acquisitions of $40.5 million, (ii) a
decrease in acquisitions of property, plant and equipment of $34.0 million and
(iii) a decrease in acquisitions of leasing equipment of $34.6 million,
partially offset by (iv) lower proceeds from the sale of leasing equipment of
$112.6 million.
Net cash provided by financing activities decreased $47.2 million primarily due
to (i) an increase in repayments of debt of $277.1 million, (ii) a decrease in
proceeds from the issuance of preferred shares of $62.7 million and (iii) a
decrease in receipt of maintenance deposits of $24.3 million, partially offset
by (iv) an increase in proceeds from debt of $315.3 million.
We use Funds Available for Distribution ("FAD") in evaluating our ability to
meet our stated dividend policy. FAD is not a financial measure in accordance
with GAAP. The GAAP measure most directly comparable to FAD is net cash provided
by operating activities. We believe FAD is a useful metric for investors and
analysts for similar purposes.
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We define FAD as: net cash provided by operating activities plus principal
collections on finance leases, proceeds from sale of assets, and return of
capital distributions from unconsolidated entities, less required payments on
debt obligations and capital distributions to non-controlling interest, and
excludes changes in working capital. The following table sets forth a
reconciliation of Net Cash Provided by Operating Activities to FAD:
Nine Months Ended September 30,
(in thousands) 2020 2019
Net Cash Provided by Operating Activities $ 28,393 $ 92,713
Add: Principal Collections on Finance Leases 7,001 13,094
Add: Proceeds from Sale of Assets 53,707 166,297
Add: Return of Capital Distributions from Unconsolidated Entities
- 1,424
Less: Required Payments on Debt Obligations (1) - (29,513)
Less: Capital Distributions to Non-Controlling Interest - -
Exclude: Changes in Working Capital 94,101 33,803
Funds Available for Distribution (FAD) $
183,202 $ 277,818
________________________________________________________
(1) Required payments on debt obligations for the nine months ended
September 30, 2020 exclude repayments of $220,000 for the Revolving Credit
Facility, $144,200 for the Series 2016 Bonds, $50,262 for the Jefferson
Revolver, $45,520 for the Series 2012 Bonds and $36,009 for the FTAI Pride
Credit Agreement and for the nine months ended September 30, 2019 exclude
repayments of $175,000 for the Revolving Credit Facility and $14,421 for the
CMQR Credit Agreement.
Limitations
FAD is subject to a number of limitations and assumptions and there can be no
assurance that we will generate FAD sufficient to meet our intended dividends.
FAD has material limitations as a liquidity measure because such measure
excludes items that are required elements of our net cash provided by operating
activities as described below. FAD should not be considered in isolation nor as
a substitute for analysis of our results of operations under GAAP, and it is not
the only metric that should be considered in evaluating our ability to meet our
stated dividend policy. Specifically:
•FAD does not include equity capital called from our existing limited partners,
proceeds from any debt issuance or future equity offering, historical cash and
cash equivalents and expected investments in our operations.
•FAD does not give pro forma effect to prior acquisitions, certain of which
cannot be quantified.
•While FAD reflects the cash inflows from sale of certain assets, FAD does not
reflect the cash outflows to acquire assets as we rely on alternative sources of
liquidity to fund such purchases.
•FAD does not reflect expenditures related to capital expenditures, acquisitions
and other investments as we have multiple sources of liquidity and intends to
fund these expenditures with future incurrences of indebtedness, additional
capital contributions and/or future issuances of equity.
•FAD does not reflect any maintenance capital expenditures necessary to maintain
the same level of cash generation from our capital investments.
•FAD does not reflect changes in working capital balances as management believes
that changes in working capital are primarily driven by short term timing
differences, which are not meaningful to our distribution decisions.
•Management has significant discretion to make distributions, and we are not
bound by any contractual provision that requires us to use cash for
distributions.
If such factors were included in FAD, there can be no assurance that the results
would be consistent with our presentation of FAD.
Debt Obligations
Refer to Note 9 of the Consolidated Financial Statements for additional
information.
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Contractual Obligations
The following table summarizes our future obligations, by period due, as of
September 30, 2020, under our various contractual obligations and commitments.
We had no off-balance sheet arrangements as of September 30, 2020.
Remainder of
(in thousands) 2020 2021 2022 2023 2024 Thereafter Total
Series 2020 Bonds $ - $ - $ - $ - $ - $ 263,980$ 263,980
DRP Revolver - 25,000 - - - - 25,000
Senior Notes due 2022 - - 700,000 - - - 700,000
Senior Notes due 2025 - - - - - 450,000 450,000
Senior Notes due 2027 - - - - - 400,000 400,000
Total principal payments on
loans and bonds payable - 25,000 700,000 - - 1,113,980 1,838,980
Total estimated interest
payments (1) 29,017 127,942 90,034 80,190 80,190 237,884 645,257
Operating lease obligations 1,201 4,759 4,632 4,585 4,354 149,992 169,523
30,218 132,701 94,666 84,775 84,544 387,876 814,780
Total contractual obligations $ 30,218$ 157,701$ 794,666$ 84,775$ 84,544$ 1,501,856$ 2,653,760
________________________________________________________
(1) Estimated interest rates as of September 30, 2020.
We expect to meet our future short-term liquidity requirements through cash on
hand, unused borrowing capacity or future financings and net cash provided by
our current operations. We expect that our operating subsidiaries will generate
sufficient cash flow to cover operating expenses and the payment of principal
and interest on our indebtedness as they become due. We may elect to meet
certain long-term liquidity requirements or to continue to pursue strategic
opportunities through utilizing cash on hand, cash generated from our current
operations and the issuance of securities in the future. Management believes
adequate capital and borrowings are available from various sources to fund our
commitments to the extent required.
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Application of Critical Accounting Policies
Goodwill-Goodwill includes the excess of the purchase price over the fair value
of the net tangible and intangible assets associated with the acquisition of
Jefferson Terminal. The carrying amount of goodwill was approximately $122.7
million and $122.6 million as of September 30, 2020 and December 31, 2019,
respectively.
We review the carrying values of goodwill at least annually to assess impairment
since these assets are not amortized. An annual impairment review is conducted
as of October 1st of each year. Additionally, we review the carrying value of
goodwill whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. The determination of fair value involves
significant management judgment.
For an annual goodwill impairment assessment, an optional qualitative analysis
may be performed. If the option is not elected or if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount, then a
two-step goodwill impairment test is performed to identify potential goodwill
impairment and measure an impairment loss. A qualitative analysis was not
elected for the year ended December 31, 2019.
Beginning in 2020, we adopted new guidance regarding the testing and recognition
of a goodwill impairment which prior to 2020 required two steps. A goodwill
impairment assessment compares the fair value of a respective reporting unit
with its carrying amount, including goodwill. The estimate of fair value of the
respective reporting unit is based on the best information available as of the
date of assessment, which primarily incorporates certain factors including our
assumptions about operating results, business plans, income projections,
anticipated future cash flows and market data. If the estimated fair value of
the reporting unit is less than the carrying amount, a goodwill impairment is
recorded to the extent of any goodwill recorded in the reporting unit.
We estimate the fair value of the reporting units using an income approach,
specifically a discounted cash flow analysis. This analysis requires us to make
significant assumptions and estimates about the extent and timing of future cash
flows (including forecasted revenue growth rates and EBITDA margins), capital
expenditures and discount rates. The estimates and assumptions used consider
historical performance if indicative of future performance, and are consistent
with the assumptions used in determining future profit plans for the reporting
units. We also utilize market valuation models and other financial ratios, which
require us to make certain assumptions and estimates regarding the applicability
of those models to our assets and businesses.
Although we believe the estimates of fair value are reasonable, the
determination of certain valuation inputs is subject to management's judgment.
Changes in these inputs, including as a result of events beyond our control,
could materially affect the results of the impairment review. If the forecasted
cash flows of the Jefferson Terminal and Railroad reporting units or other key
inputs are negatively revised in the future, the estimated fair value of the
Jefferson Terminal and Railroad reporting units could be adversely impacted,
potentially leading to an impairment in the future that could materially affect
our operating results. Specifically, as it relates to the Jefferson Terminal
segment, forecasted revenue is dependent on the ramp up of volumes under current
contracts and the acquisition of additional storage contracts for the heavy and
light crude and refined products during 2020 subject to obtaining rail capacity
for crude, permits for pipeline and movements in future oil spreads. Jefferson
Terminal was designed to reach a storage capacity of 21.7 million barrels, and
4.4 million of storage, or approximately 20.3% of capacity, is currently
operational. If the Company strategy changes from planned capacity downward due
to an inability to source contracts or expand volumes, the fair value of the
reporting units would be negatively affected, which could lead to an impairment.
The expansion of refineries in the Beaumont/Port Arthur area, as well as growing
crude oil production in the U.S. and Canada, are expected to result in increased
demand for storage on the U.S. Gulf Coast. Although we do not have significant
direct exposure to volatility of crude oil prices, changes in crude oil pricing
that effects long term refining planned output could impact Jefferson Terminal
operations. Other assumptions utilized in our annual impairment analysis that
are significant in determination of the fair value of the reporting unit include
the discount rate utilized in our discounted cash flow analysis of 13.5% and our
terminal growth rate of 2%.
Furthermore, development of both inbound and outbound pipelines to and from the
Jefferson Terminal over the next year to two years will affect our forecasted
growth and therefore our estimated fair value. We continue to expect the
Jefferson Terminal segment to generate positive Adjusted EBITDA during 2020.
Although certain of our anticipated contracts or expected volumes from existing
contracts for Jefferson Terminal have been delayed, we continue to believe our
projected revenues are achievable and have not yet modified those projections
based on ongoing negotiations with our customers and discussions with major
pipeline companies. Further delays in executing these contracts or achieving our
projections could adversely affect the fair value of the reporting unit.
However, with a strengthening macroeconomic demand for storage and the
increasing spread between Western Canadian Crude and Western Texas Intermediate,
we remain positive for the outlook of Jefferson Terminal's earnings potential.
For the year ended December 31, 2019, there was no impairment of goodwill.
Recent Accounting Pronouncements
See Note 2 to our Consolidated Financial Statements for recent accounting
pronouncements.
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