FORS TRAN
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 . Our MD&A should be read in
conjunction with our consolidated financial statements and the accompanying
notes, and with Part I, Item 1A, "Risk Factors" and "Forward-Looking Statements"
included elsewhere in this Annual Report on Form 10-K.
A discussion of our results of operations and cash flows for 2019 compared to
2018 is included in our Annual Report on Form 10-K for the year ended December
31, 2019 , under Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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 is 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 the Manager, an affiliate of Fortress, which has a dedicated team of
experienced professionals focused on the acquisition of transportation and
infrastructure assets since 2002. As of December 31, 2020 , we had total
consolidated assets of $3.4 billion and total equity of $1.1 billion .
While our strategy permits us to acquire a broad array of transportation-related
assets, we are currently active in four sectors where we believe there are
meaningful opportunities to deploy capital to achieve attractive risk adjusted
returns: aviation, energy, intermodal transport and ports and terminals.
•Commercial air travel and air freight activity have historically been long-term
growth sectors and are tied to the underlying demand for passenger and freight
movement. We continue to see long-term demand for aviation related assets.
•Offshore energy service equipment refers to vessels supporting the extraction,
processing and transportation of oil and natural gas from deposits located
beneath the sea floor, as well as the ongoing inspection, repair, maintenance
and ultimate abandonment of subsea wells and associated infrastructure. The
prolonged oil price decline has led to oil and gas companies reducing and
deferring spending decisions, creating an oversupply of offshore energy assets,
and in turn, lower day-rates, utilization and earnings for offshore service
companies. These rates, however, have partially rebounded over the course of the
past three years.
•The intermodal transport market includes the efficient movement of goods
throughout multiple modes of transportation, making it possible to move cargo
from a point of origin to a final destination without repeated unpacking and
repacking. Over the last year, new container prices have increased
significantly.
•Land-based infrastructure refers to facilities that enable the storage,
unloading, loading and movement of crude oil and refined products from producers
to end users, such as refineries. Customers of land-based infrastructure
typically purchase capacity on a take-or-pay basis, and the economics of these
assets directly relate to the volume of throughput.
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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. Market conditions due to the outbreak of COVID-19 resulted in asset impairment charges and a decline in our equipment leasing revenues during the year endedDecember 31, 2020 . 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 ofDecember 31, 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$185.4 million as ofDecember 31, 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 theU.S. and international governments, all of which remain uncertain. For additional detail, see Liquidity and Capital Resources and Item 1A. Risk Factors-"The COVID-19 pandemic 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. The Ports and Terminals segment consists of Repauno, a 1,630 acre deep-water port located along theDelaware 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 theOhio River with rail, dock, and multiple industrial development opportunities, including a power plant under construction. InDecember 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 and 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. 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 theDecember 2019 sale, which consist of equipment that support a railcar cleaning business. 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 Note 2 to the consolidated financial statements; however, financial information presented by segment includes the impact of intercompany eliminations. Aviation Leasing Organizational Restructuring In early 2020, we completed an organizational restructuring of theAviation Leasing segment. 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 are reported within theAviation Leasing segment. Prior periods have been restated for historical comparison. See Note 17 to the consolidated financial statements for additional details. 39
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Results of Operations
Adjusted EBITDA (non-GAAP)
The chief operating decision maker ("CODM") utilizes Adjusted EBITDA as the key
performance measure. Adjusted EBITDA is not a financial measure in accordance
with U.S. generally accepted accounting principles ("GAAP"). This performance
measure provides the CODM with the information necessary to assess operational
performance, as well as making resource and allocation decisions. We believe
Adjusted EBITDA is a useful metric for investors and analysts for similar
purposes of assessing our operational performance.
Adjusted EBITDA is defined as net income 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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The following table presents our consolidated results of operations:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Revenues
Equipment leasing revenues
Lease income $ 177,476 $ 207,101
101,462 134,914 89,870 (33,452) 45,044
Finance lease income 2,260 2,648 3,349 (388) (701)
Other revenue 16,736 4,659 2,630 12,077 2,029
Total equipment leasing revenues 297,934 349,322 253,039 (51,388) 96,283
Infrastructure revenues
Lease income 1,186 3,362 1,734 (2,176) 1,628
Terminal services revenues 50,887 42,965 10,108 7,922 32,857
Crude marketing revenues 8,210 166,134 60,518 (157,924) 105,616
Other revenue 8,279 16,991 16,713 (8,712) 278
Total infrastructure revenues 68,562 229,452 89,073 (160,890) 140,379
Total revenues 366,496 578,774 342,112 (212,278) 236,662
Expenses
Operating expenses 109,512 291,572 138,406 (182,060) 153,166
General and administrative 18,159 16,905 15,290 1,254 1,615
Acquisition and transaction expenses 9,868 17,623 6,968 (7,755) 10,655
Management fees and incentive
allocation to affiliate 18,519 36,059 15,726 (17,540) 20,333
Depreciation and amortization 172,400 169,023 133,908 3,377 35,115
Asset impairment 33,978 4,726 - 29,252 4,726
Interest expense 98,206 95,585 56,845 2,621 38,740
Total expenses 460,642 631,493 367,143 (170,851) 264,350
Other (expense) income
Equity in losses of unconsolidated
entities (5,039) (2,375) (1,008) (2,664) (1,367)
(Loss) gain on sale of assets, net (308) 203,250 3,911 (203,558) 199,339
Loss on extinguishment of debt (11,667) - - (11,667) -
Interest income 162 531 488 (369) 43
Other income 70 3,445 3,983 (3,375) (538)
Total other (expense) income (16,782) 204,851 7,374 (221,633) 197,477
(Loss) income from continuing
operations before income taxes (110,928) 152,132 (17,657) (263,060) 169,789
(Benefit from) provision for income
taxes (5,905) 17,810 2,449 (23,715) 15,361
Net (loss) income from continuing
operations (105,023) 134,322 (20,106) (239,345) 154,428
Net income from discontinued
operations, net of income taxes 1,331 73,462 4,402 (72,131) 69,060
Net (loss) income (103,692) 207,784 (15,704) (311,476) 223,488
Less: Net (loss) income attributable
to non-controlling interest in
consolidated subsidiaries:
Continuing operations (16,522) (17,571) (21,925) 1,049 4,354
Discontinued operations - 247 339 (247) (92)
Less: Dividends on preferred shares 17,869 1,838 - 16,031 1,838
Net (loss) income attributable to
shareholders $ (105,039) $ 223,270 $ 5,882 $ (328,309) $ 217,388
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The following table sets forth a reconciliation of net (loss) income attributable to shareholders from continuing operations to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Net (loss) income attributable to
shareholders from continuing operations $ (106,370) $ 150,055
(5,905) 17,810 2,449 (23,715) 15,361
Add: Equity-based compensation expense 2,325 1,509 717 816 792
Add: Acquisition and transaction expenses 9,868 17,623 6,968 (7,755) 10,655
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations 11,667 - - 11,667 -
Add: Changes in fair value of non-hedge
derivative instruments 181 4,555 (5,523) (4,374) 10,078
Add: Asset impairment charges 33,978 4,726 - 29,252 4,726
Add: Incentive allocations - 21,231 407 (21,231) 20,824
Add: Depreciation & amortization expense
(1) 202,746 199,185 160,567 3,561 38,618
Add: Interest expense 98,206 95,585 56,845 2,621 38,740
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (2) 1,208 (1,387) 359 2,595 (1,746)
Less: Equity in losses of unconsolidated
entities 5,039 2,375 1,008 2,664 1,367
Less: Non-controlling share of Adjusted
EBITDA (3) (9,637) (9,859) (9,744) 222 (115)
Adjusted EBITDA (non-GAAP) $ 243,306 $ 503,408 __________________________________________________
(1) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) depreciation and amortization expense of$172,400 ,$169,023 and$133,908 , (ii) lease intangible amortization of$3,747 ,$7,181 and$8,588 and (iii) amortization for lease incentives of$26,599 ,$22,981 and$18,071 , respectively. (2) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) net loss of$(5,435) ,$(2,563) and$(1,196) , (ii) interest expense of$1,138 ,$131 and$477 , (iii) depreciation and amortization expense of$5,513 ,$1,045 and$1,078 , (iv) acquisition and transaction expense of$581 ,$0 and$0 and (v) changes in fair value of non-hedge derivative instruments of$(589) ,$0 and$0 , respectively. (3) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) equity based compensation of$374 ,$230 and$113 , (ii) provision for income taxes of$59 ,$60 and$57 , (iii) interest expense of$2,025 ,$3,400 and$4,624 , (iv) depreciation and amortization expense of$6,149 ,$4,833 and$6,049 , (v) changes in fair value of non-hedge derivative instruments of$38 ,$1,336 and$(1,099) and (vi) loss on extinguishment of debt of$992 ,$0 and$0 , respectively. Comparison of the years endedDecember 31, 2020 and 2019 Revenues Total revenues decreased$212.3 million primarily due to lower revenues in theJefferson Terminal ,Aviation Leasing and Ports and Terminals segments.Equipment Leasing •Maintenance revenue decreased by$33.5 million primarily due to lower aircraft and engine utilization as a result of the COVID-19 pandemic and lower end-of-lease maintenance compensation, partially offset by the recognition of maintenance deposits due to the early redelivery of eleven aircraft. •Lease income decreased$29.6 million primarily due to an increase in aircraft redelivered, 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. •Other revenue increased by$12.1 million , which primarily reflects (i) an increase of$9.4 million in theAviation Leasing segment due to an increase in end-of-lease redelivery compensation and settlement of an engine loss and (ii) an increase of$2.6 million in the offshore energy business related to victualling income as our vessels were on-hire longer in 2020 compared to 2019. Infrastructure •Crude marketing revenues decreased$157.9 million primarily due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019. Revenues in 2020 include contracts executed in 2019 but delivered in 2020. 42
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•Other revenue decreased$8.7 million which primarily reflects (i) a decrease of$6.3 million atLong Ridge due toLong Ridge being accounted for as an equity method investment starting in the fourth quarter of 2019 (the "Long Ridge Transaction"), (ii) a decrease of$3.9 million at Repauno due to lower sales of butane, partially offset by (iii) an increase of$1.5 million in our railcar cleaning business due to higher volumes. •Terminal services revenue increased$7.9 million which primarily reflects (i) an increase of$15.0 million due to increased activity and storage capacity atJefferson Terminal , partially offset by (ii) a decrease of$7.1 million due to the Long Ridge Transaction. Expenses Total expenses decreased$170.9 million primarily due to decreases in (i) operating expenses, (ii) management fees and incentive allocation to affiliate and (iii) acquisition and transaction expenses, partially offset by an increase in (iv) asset impairment, (v) depreciation and amortization and (vi) interest expense. Operating expenses decreased$182.1 million primarily due to decreases in: •cost of sales of$167.2 million primarily due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019 and •facility operations of$8.7 million which primarily reflects (i) a decrease of$4.9 million atJefferson Terminal due to lower railcar expenses associated with the crude marketing strategy and (ii) a decrease of$4.1 million due to the Long Ridge Transaction. Management fees and incentive allocation to affiliate decreased$17.5 million which reflects (i) lower incentive fees of$21.2 million due to the decrease in gains on sale of assets, net, partially offset by (ii) an increase of$3.7 million in the base management fee as our average total equity was higher in 2020 compared to 2019. Acquisition and transaction expenses decreased$7.8 million which primarily reflects lower professional fees and other acquisition-related costs due to fewer transactions in 2020 compared to 2019. Asset impairment increased$29.3 million primarily due to asset impairment charges in 2020 in theAviation Leasing segment. See Note 4 to the consolidated financial statements for additional information. Depreciation and amortization increased$3.4 million which primarily reflects (i) an increase of$6.2 million due to assets placed into service atJefferson Terminal , (ii) an increase of$4.9 million in theAviation Leasing segment primarily due to a change in the estimated useful lives and residual values of certain aircraft engines and additional assets owned and on lease, partially offset by (iii) a decrease of$8.4 million due to the Long Ridge Transaction. Interest expense increased$2.6 million primarily due to: •an increase of$9.8 million in Corporate and Other primarily due to (i) the issuance of$400 million of senior notes due 2027 ("2027 Notes"), (ii) an increase in the average outstanding debt of$83.6 million for the senior notes due 2025 ("2025 Notes"), partially offset by (iii) a decrease in interest expense related to the FTAI Pride Credit Agreement which was repaid in full inMarch 2020 ; and •a decrease of$6.8 million atJefferson Terminal due to the issuance of the Series 2020 Bonds ("Jefferson Refinancing"), which reduced its weighted average interest rate. See Note 9 to the consolidated financial statements for additional information. Other income Total other income decreased$221.6 million which primarily reflects: •a decrease of$203.6 million in gains on sale of assets, net due to the Long Ridge Transaction and asset sales in theAviation Leasing segment in 2019; •a loss on extinguishment of debt of$11.7 million due to (i) the early repayment of$300 million of senior unsecured notes due 2022 ("2022 Notes") inDecember 2020 and (ii) the Jefferson Refinancing. See Note 9 to the consolidated financial statements for additional information; •a decrease in other income of$3.4 million due to the Long Ridge Transaction; and •an increase of$2.7 million in equity in losses of unconsolidated entities. Provision for income taxes The provision for income taxes decreased$23.7 million which primarily reflects deferred tax expense in 2019 due to the gain on sale for theLong Ridge Transaction. Net income from continuing operations Net income from continuing operations decreased$239.3 million primarily due to the changes discussed above. 43
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Net income from discontinued operations, net of income taxes Net income from discontinued operations, net of income taxes decreased$72.1 million due to the sale of our railroad business inDecember 2019 . Adjusted EBITDA (non-GAAP) Adjusted EBITDA decreased$260.1 million primarily due to the changes noted above. Aviation Leasing Segment As ofDecember 31, 2020 , in ourAviation Leasing segment, we own and manage 264 aviation assets, consisting of 78 commercial aircraft and 186 engines. As ofDecember 31, 2020 , 70 of our commercial aircraft and 111 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 73% utilized during the three months endedDecember 31, 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 39 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 ourAviation Leasing segment: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2020 15 59 74 Purchases 1 19 20 Sales - - - Transfers (1) (15) (16) Assets at December 31, 2020 15 63 78 Engines Assets at January 1, 2020 84 80 164 Purchases 23 14 37 Sales (20) (5) (25) Transfers 1 9 10 Assets at December 31, 2020 88 98 186 44
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The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Equipment leasing revenues
Lease income $ 166,331 $ 197,305 $ 151,531 $ (30,974) $ 45,774
Maintenance revenue 101,462 134,914 89,870 (33,452) 45,044
Finance lease income 2,260 2,648 1,895 (388) 753
Other revenue 11,158 1,808 974 9,350 834
Total revenues 281,211 336,675 244,270 (55,464) 92,405
Expenses
Operating expenses 20,667 17,668 10,985 2,999 6,683
Acquisition and transaction expenses 6,687 8,641 4,030 (1,954) 4,611
Depreciation and amortization 133,904 128,990 102,419 4,914 26,571
Asset impairment 33,978 - - 33,978 -
Total expenses 195,236 155,299 117,434 39,937 37,865
Other (expense) income
Equity in losses of unconsolidated (103) (1,086)
entities (1,932) (1,829) (743)
(Loss) gain on sale of assets, net (300) 81,954 3,911 (82,254) 78,043 Interest income 94 104 202 (10) (98) Total other (expense) income (2,138) 80,229 3,370 (82,367) 76,859 Income before income taxes 83,837 261,605 130,206 (177,768) 131,399 (Benefit from) provision for income (7,638) 546 taxes (4,812) 2,826 2,280 Net income 88,649 258,779 127,926 (170,130) 130,853 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries - - (24) - 24
Net income attributable to shareholders
$ 127,950 $ (170,130) $ 130,829 45
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The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Net income attributable to shareholders
(4,812) 2,826 2,280 (7,638) 546
Add: Equity-based compensation expense - - - - -
Add: Acquisition and transaction expenses 6,687 8,641 4,030 (1,954) 4,611
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 33,978 - - 33,978 -
Add: Incentive allocations - - - - -
Add: Depreciation and amortization
expense (1) 164,250 159,152 129,078 5,098 30,074
Add: Interest expense - - - - -
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (2) (1,932) (1,829) (743) (103) (1,086)
Less: Equity in losses of unconsolidated
entities 1,932 1,829 743 103 1,086
Less: Non-controlling share of Adjusted
EBITDA (3) - - (172) - 172
Adjusted EBITDA (non-GAAP) $ 288,752 $ 429,398 __________________________________________________
(1) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) depreciation expense of$133,904 ,$128,990 and$102,419 , (ii) lease intangible amortization of$3,747 ,$7,181 and$8,588 and (iii) amortization for lease incentives of$26,599 ,$22,981 and$18,071 , respectively. (2) Includes the proportionate share of the unconsolidated entities' net income adjusted for the excluded and included items detailed in the table, for which there were no adjustments. (3) Includes depreciation and amortization expense of$172 for the year endedDecember 31, 2018 . Comparison of the years endedDecember 31, 2020 and 2019 Revenues Total revenues decreased$55.5 million driven by lower lease income and maintenance revenue partially offset by higher other revenue. •Maintenance revenue decreased$33.5 million primarily due to lower aircraft and engine utilization as a result of the COVID-19 pandemic and lower end-of-lease maintenance compensation, partially offset by the recognition of maintenance deposits due to the early redelivery of eleven aircraft. •Lease income decreased$31.0 million primarily due to an increase in aircraft redelivered, 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. •Other revenue increased$9.4 million primarily due to the increase in end-of lease redelivery compensation and settlement of an engine loss. 46
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Expenses
Total expenses increased$39.9 million primarily due to an increase in asset impairment, depreciation and amortization expense and operating expenses, partially offset by a decrease in acquisition and transaction expense. •Asset impairment increased$34.0 million for the adjustment of the carrying value of leasing equipment to fair value, net of redelivery compensation. See Note 4 to the consolidated financial statements for additional information. •Depreciation and amortization expense increased$4.9 million driven by a change in the estimated useful lives and residual values of certain aircraft engines and additional assets owned and on lease, partially offset by additional aircraft redelivered and parted out into our engine leasing pool. •Operating expenses increased$3.0 million primarily as a result of an increase in shipping and storage fees, compensation and benefit expense and professional fees, partially offset by a decrease in repairs and maintenance expenses and other operating expenses. •Acquisition and transaction expense decreased$2.0 million driven by lower compensation and related costs associated with the acquisition of aviation leasing equipment. Other income Total other income decreased$82.4 million primarily due to a decrease of$82.3 million in gain on the sale of leasing equipment in 2020. Adjusted EBITDA (non-GAAP) Adjusted EBITDA decreased$140.6 million primarily due to the changes noted above. Jefferson Terminal Segment The following table presents our results of operations: Year Ended December 31, Change (in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18 Infrastructure revenues Lease income$ 1,186 $ 2,306 $ 272 $ (1,120) $ 2,034 Terminal services revenues 50,887 35,908 10,108 14,979 25,800 Crude marketing revenues 8,210 166,134 60,518 (157,924) 105,616 Other revenue - - 87 - (87) Total revenues 60,283 204,348 70,985 (144,065) 133,363 Expenses Operating expenses 53,072 231,506 94,622 (178,434) 136,884 Depreciation and amortization 29,034 22,873 19,745 6,161 3,128 Interest expense 9,426 16,189 15,513 (6,763) 676 Total expenses 91,532 270,568 129,880 (179,036) 140,688 Other (expense) income Equity in losses of unconsolidated entities - (292) (574) 292 282 (Loss) gain on sale of assets, net (8) 4,636 - (4,644) 4,636 Loss on extinguishment of debt (4,724) - - (4,724) - Interest income 22 118 270 (96) (152) Other income 70 634 3,983 (564) (3,349) Total other (expense) income (4,640) 5,096 3,679 (9,736) 1,417 Loss before income taxes (35,889) (61,124) (55,216) 25,235 (5,908) Provision for income taxes 278 284 261 (6) 23 Net loss (36,167) (61,408) (55,477) 25,241 (5,931) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (16,483) (17,356) (21,801) 873 4,445
Net loss attributable to shareholders
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The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Net loss attributable to shareholders
278 284 261 (6) 23
Add: Equity-based compensation expense 1,676 1,054 359 622 695
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 181 6,364 (5,523) (6,183) 11,887
Add: Asset impairment charges - - - - -
Add: Incentive allocations - - - - -
Add: Depreciation and amortization expense 29,034 22,873 19,745 6,161 3,128
Add: Interest expense 9,426 16,189 15,513 (6,763) 676
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) - 656 478 (656) 178
Less: Equity in losses of unconsolidated
entities - 292 574 (292) (282)
Less: Non-controlling share of Adjusted
EBITDA (2) (9,517) (9,820) (9,376) 303 (444)
Adjusted EBITDA (non-GAAP) $ 16,118 $ (6,160) $ (11,645) $ 22,278 $ 5,485 __________________________________________________
(1) Includes the following items for the years endedDecember 31, 2019 and 2018: (i) net loss of$(349) and$(574) and (ii) depreciation and amortization expense of$1,005 and$1,052 , respectively. (2) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) equity-based compensation of$352 ,$221 and$106 , (ii) provision for income taxes of$59 ,$60 and$57 , (iii) interest expense of$1,979 ,$3,400 and$4,465 , (iv) changes in fair value of non-hedge derivative instruments of$38 ,$1,336 and$(1,099) , (v) depreciation and amortization expense of$6,097 ,$4,803 and$5,847 and (vi) loss on extinguishment of debt of$992 ,$0 and$0 , respectively. Comparison of the years endedDecember 31, 2020 and 2019 Revenues Total revenues decreased$144.1 million which primarily reflects (i) a decrease in crude marketing revenue of$157.9 million due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, partially offset by (ii) an increase in terminal services of$15.0 million due to increased activity and storage capacity. Expenses Total expenses decreased$179.0 million which reflects (i) a decrease in operating expenses of$178.4 million primarily due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019, (ii) a decrease in interest expense of$6.8 million due to the Jefferson Refinancing, partially offset by (iii) an increase in depreciation and amortization of$6.2 million due to additional assets placed into service. Other (expense) income Total other income decreased$9.7 million which primarily reflects (i) a loss on extinguishment of debt of$4.7 million due to the Jefferson Refinancing and (ii) a decrease in gains on sale of assets, net due to a$4.6 million gain recognized in 2019. Adjusted EBITDA (non-GAAP) Adjusted EBITDA increased$22.3 million primarily due to the changes in net loss attributable to shareholders noted above. 48
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Ports and Terminals
The following table presents our results of operations:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Infrastructure revenues
Lease income $ - $ 1,056 Terminal services revenues - 7,057 - (7,057) 7,057 Other revenue 3,855 14,074 15,982 (10,219) (1,908) Total revenues 3,855 22,187 17,444 (18,332) 4,743 Expenses Operating expenses 10,327 24,854 18,312 (14,527) 6,542 Acquisition and transaction expenses 907 5,008 - (4,101) 5,008 Depreciation and amortization 1,497 9,849 5,139 (8,352) 4,710 Asset impairment - 4,726 - (4,726) 4,726 Interest expense 1,335 1,712 649 (377) 1,063 Total expenses 14,066 46,149 24,100 (32,083) 22,049 Other (expense) income Equity in losses of unconsolidated entities (3,222) (192) - (3,030) (192) Gain on sale of assets, net - 116,660 - (116,660) 116,660 Interest income - 289 - (289) 289 Other income - 1,809 - (1,809) 1,809 Total other (expense) income (3,222) 118,566 - (121,788) 118,566 (Loss) income before income taxes (13,433) 94,604 (6,656) (108,037) 101,260 (Benefit from) provision for income taxes (1,791) 14,700 1 (16,491) 14,699 Net (loss) income (11,642) 79,904 (6,657) (91,546) 86,561 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (39) (215) (100) 176 (115) Net (loss) income attributable to shareholders$ (11,603) $ 80,119 $ (6,557) $ (91,722) $ 86,676 49
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The following table sets forth a reconciliation of net (loss) income attributable to shareholders to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Net (loss) income attributable to
shareholders $ (11,603) $ 80,119
(1,791) 14,700 1 (16,491) 14,699
Add: Equity-based compensation expense 649 455 349 194 106
Add: Acquisition and transaction expenses 907 5,008 - (4,101) 5,008
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations - - - - -
Add: Changes in fair value of non-hedge
derivative instruments - (1,809) - 1,809 (1,809)
Add: Asset impairment charges - 4,726 - (4,726) 4,726
Add: Incentive allocations - - - - -
Add: Depreciation and amortization
expense 1,497 9,849 5,139 (8,352) 4,710
Add: Interest expense 1,335 1,712 649 (377) 1,063
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) 3,304 (153) - 3,457 (153)
Less: Equity in losses of unconsolidated
entities 3,222 192 - 3,030 192
Less: Non-controlling share of Adjusted
EBITDA (2) (120) (39) (196) (81) 157
Adjusted EBITDA (non-GAAP) $ (2,600) $ 114,760 __________________________________________________
(1) Includes the following items for the years endedDecember 31, 2020 and 2019: (i) net loss of$(3,222) and$(193) , (ii) depreciation expense of$5,513 and$40 , (iii) interest expense of$1,021 and$0 , (iv) acquisition and transaction expense of$581 and$0 and (v) changes in fair value of non-hedge derivative instruments of$(589) and$0 , respectively. (2) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) equity-based compensation of$22 ,$9 and$7 , (ii) interest expense of$46 ,$0 and$159 and (iii) depreciation expense of$52 ,$30 and$30 , respectively. Comparison of the years endedDecember 31, 2020 and 2019 Revenues Total revenues decreased$18.3 million , primarily due to (i) theLong Ridge Transaction and (ii) a decrease of$3.9 million in butane sales at Repauno. Expenses Total expenses decreased$32.1 million primarily due to decreases in (i) operating expenses of$14.5 million (ii) depreciation expense of$8.4 million related to the Long Ridge Transaction (iii) asset impairment of$4.7 million in 2019 atLong Ridge due to the expiration of unproved gas leases and (iv) acquisition and transaction expense of$4.1 million . The decrease in operating expenses was primarily driven by lower: •operating expenses of$12.7 million primarily due to theLong Ridge Transaction; and •cost of sales of$2.6 million related to the sale of butane at Repauno. The decrease in operating expenses was offset by an increase in compensation and benefits of$1.1 million due to increased headcount. Acquisition and transaction expense decreased due to transaction costs associated with the Long Ridge Transaction during 2019. Other income Total other income decreased$121.8 million primarily due to decreases in (i) gain on sale of$116.7 million from the Long Ridge Transaction in 2019 (ii) equity method income of$3.0 million fromLong Ridge in 2020 and (iii) other income of$1.8 million due to unrealized gains on power swap derivatives, which was deconsolidated with the Long Ridge Transaction. Provision for income taxes The provision for income taxes decreased$16.5 million which primarily reflects a deferred tax benefit due to pre-tax losses in 2020 compared to a gain in 2019 from the Long Ridge Transaction. 50
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Adjusted EBITDA (non-GAAP) Adjusted EBITDA decreased$117.4 million primarily due to the changes in net income (loss) attributable to shareholders noted above. Corporate and Other The following table presents our results of operations: Year Ended December 31, Change (in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Equipment leasing revenues Lease income$ 11,145 $ 9,796 $ 5,659 $ 1,349 $ 4,137 Finance lease income - - 1,454 - (1,454) Other revenue 5,578 2,851 1,656 2,727 1,195 Total equipment leasing revenues 16,723 12,647 8,769 4,076 3,878 Infrastructure revenues Other revenue 4,424 2,917 644 1,507 2,273 Total infrastructure revenues 4,424 2,917 644 1,507 2,273 Total revenues 21,147 15,564 9,413 5,583 6,151 Expenses Operating expenses 25,446 17,544 14,487 7,902 3,057 General and administrative 18,159 16,905 15,290 1,254 1,615 Acquisition and transaction expenses 2,274 3,974 2,938 (1,700) 1,036 Management fees and incentive allocation to affiliate 18,519 36,059 15,726 (17,540) 20,333 Depreciation and amortization 7,965 7,311 6,605 654 706 Interest expense 87,445 77,684 40,683 9,761 37,001 Total expenses 159,808 159,477 95,729 331 63,748 Other (expense) income Equity in earnings (losses) of unconsolidated entities 115 (62) 309 177 (371) Loss on extinguishment of debt (6,943) - - (6,943) - Interest income 46 20 16 26 4 Other income - 1,002 - (1,002) 1,002 Total other (expense) income (6,782) 960 325 (7,742) 635 Loss before income taxes (145,443) (142,953) (85,991) (2,490) (56,962) Provision for (benefit from) income taxes 420 - (93) 420 93 Net loss (145,863) (142,953) (85,898) (2,910) (57,055) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries - - - - - Less: Dividends on preferred shares 17,869 1,838 - 16,031 1,838
Net loss attributable to shareholders
51
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The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:
Year Ended December 31, Change
(in thousands) 2020 2019 2018 '20 vs '19 '19 vs '18
Net loss attributable to shareholders
420 - (93) 420 93
Add: Equity-based compensation expense - - 9 - (9)
Add: Acquisition and transaction expenses 2,274 3,974 2,938 (1,700) 1,036
Add: Losses on the modification or
extinguishment of debt and capital lease
obligations 6,943 - - 6,943 -
Add: Changes in fair value of non-hedge
derivative instruments - - - - -
Add: Asset impairment charges - - - - -
Add: Incentive allocations - 21,231 407 (21,231) 20,824
Add: Depreciation and amortization
expense 7,965 7,311 6,605 654 706
Add: Interest expense 87,445 77,684 40,683 9,761 37,001
Add: Pro-rata share of Adjusted EBITDA
from unconsolidated entities (1) (164) (61) 624 (103) (685)
Less: Equity in (earnings) losses of
unconsolidated entities (115) 62 (309) (177) 371
Less: Non-controlling share of Adjusted
EBITDA - - - - -
Adjusted EBITDA (non-GAAP) $ (58,964) $ (34,590) $ (35,034) $ (24,374) $ 444 __________________________________________________
(1) Includes the following items for the years endedDecember 31, 2020 , 2019 and 2018: (i) net (loss) income of$(281) ,$(192) and$121 , (ii) interest expense of$117 ,$131 and$477 and (iii) depreciation expense of$0 ,$0 and$26 , respectively. Comparison of the years endedDecember 31, 2020 and 2019 Revenues Equipment leasing revenues increased$4.1 million primarily due to higher victualling income and lease income as our vessels were on-hire for longer in 2020 compared to 2019. Infrastructure revenues increased$1.5 million due to higher volume in our railcar cleaning business. Expenses Total expenses increased slightly due to higher (i) interest expense and (ii) operating expenses, partially offset by lower (iii) management fees and incentive allocation to affiliate and (iv) acquisition and transaction expenses. Interest expense increased$9.8 million which reflects an increase in the average outstanding debt of approximately$190.1 million , which primarily consists of increases in (i) the 2027 Notes of$200.0 million and (ii) the 2025 Notes of$83.6 million , partially offset by decreases in (iii) the Revolving Credit Facility of$43.8 million , (iv) the FTAI Pride Credit Agreement of$38.4 million , which was repaid in full inMarch 2020 and (v) the 2022 Notes of$11.3 million . Operating expenses increased$7.9 million which primarily reflects higher (i) charter costs of$4.2 million in our offshore energy business, (ii) repairs and maintenance of$1.6 million in our offshore energy business and (iii) compensation and benefits of$1.1 million in our railcar cleaning business due to higher volumes. Management fees and incentive allocation to affiliate decreased$17.5 million which reflects (i) lower incentive fees of$21.2 million due to the decrease in gains on sale of assets, net, partially offset by (ii) an increase of$3.7 million in the base management fee as our average total equity was higher in 2020 compared to 2019. Acquisition and transaction expenses decreased$1.7 million primarily due to a higher volume of transactions in 2019. Other (expense) income Other income decreased$7.7 million primarily due to a loss on extinguishment of debt of$6.9 million due to the early repayment of$300 million of the 2022 Notes inDecember 2020 . Adjusted EBITDA (non-GAAP) Adjusted EBITDA decreased$24.4 million primarily due to the changes noted above. 52
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Transactions with Affiliates and Affiliated Entities We are managed by the Manager, an affiliate of Fortress, pursuant to the Management Agreement which provides for us to bear obligations for management fees and expense reimbursements payable to the Manager. Our Management Agreement requires our Manager to manage our business affairs in conformity with a broad asset acquisition strategy adopted and monitored by our board of directors. From time to time, we may engage (subject to our strategy) in material transactions with our Manager or another entity managed by our Manager or one of its affiliates or other affiliates of Fortress, which may include, but are not limited to, certain financing arrangements, acquisition of assets, acquisition of debt obligations, debt, co-investments, and other assets that present an actual, potential or perceived conflict of interest. Please see Note 16 to our consolidated financial statements included elsewhere in this filing for more information. Geographic Information Please refer to Note 17 of our consolidated financial statements included in Item 8 in this Annual Report on Form 10-K for a report, by geographic area for each segment, of revenues from our external customers, for the years endedDecember 31, 2020 , 2019 and 2018, as well as a report, by geographic area for each segment, of our total property, plant and equipment and equipment held for lease as ofDecember 31, 2020 and 2019. Liquidity and Capital Resources OnJuly 28, 2020 , we issued$400 million aggregate principal amount of 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. OnJune 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 . OnDecember 23, 2020 , we issued an additional$400 million aggregate principal amount of 2025 Notes. We used a portion of the proceeds to repay$300 million of outstanding 2022 Notes through the Tender Offer and$50 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. 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 or expansion of transportation infrastructure and equipment, (ii) distributions to our shareholders, (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$597.5 million ,$942.5 million , and$751.5 million during the years endedDecember 31, 2020 , 2019, and 2018, respectively. •Distributions to shareholders, including cash dividends, were$131.4 million ,$115.4 million and$110.6 million during the years endedDecember 31, 2020 , 2019 and 2018, 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$110.3 million ,$229.7 million and$189.3 million during the years endedDecember 31, 2020 , 2019, and 2018, respectively. •During the year endedDecember 31, 2020 , additional borrowings were obtained in connection with the (i) 2025 Notes of$407.0 million , (ii) 2027 Notes of$400.0 million , (iii) Revolving Credit Facility of$270.0 million and (iv) Series 2020 Bonds (as defined in Note 9) of$264.0 million . We made principal payments of$852.2 million related to the 2022 Notes, Revolving Credit Facility, Series 2016 Bonds, Jefferson Revolver, Series 2012 Bonds and FTAI Pride Credit Agreement. During the year endedDecember 31, 2019 , additional borrowings were obtained in connection with (i) the Revolving Credit Facility of$250.0 million , (ii) LREG Credit Agreement of$173.5 million , (iii) the 2025 Notes of$148.7 million , (iv) the 2022 Notes of$147.8 million , (v) the DRP Revolver of$25.0 million , (vi) the Jefferson Revolver of$23.2 million and (vii) CMQR Credit Agreement of$20.9 million . We made principal payments of$405.1 million primarily related to the Revolving Credit Facility, Jefferson Revolver and CMQR Credit Agreement. 53
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During the year endedDecember 31, 2018 , additional borrowings were obtained in connection with (i) the 2025 Notes of$291.0 million , (ii) the Revolving Credit Facility of$275.0 million , (iii) the 2022 Notes of$100.0 million , (iv) the Jefferson Revolver of$49.5 million and (v) the CMQR Credit Agreement of$35.5 million . We made principal payments of$218.8 million primarily related to the Revolving Credit Facility and the CMQR Credit Agreement. •Proceeds from the sale of subsidiaries and assets were$72.2 million ,$432.3 million and$44.1 million during the years endedDecember 31, 2020 , 2019, and 2018, respectively. •Proceeds from the issuance of common shares were$148.3 million , net of issuance costs of$0.8 million , during the year endedDecember 31, 2018 . There were no issuances of common shares in 2020 or 2019. •Proceeds from the issuance of preferred shares, net of underwriters discount and issuance costs, were$19.7 million and$194.0 million during the years endedDecember 31, 2020 and 2019, respectively. Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. Our board of directors takes this and other factors into account as part of any decision to pay a dividend, and the timing and amount of any future dividend is subject to change at the discretion of our board of directors. We are currently evaluating several potentialInfrastructure and Equipment Leasing transactions, which could occur within the next 12 months. However, as of the date of this filing, none of these transactions or negotiations are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction. Historical Cash Flow The following table presents our historical cash flow: Year Ended December 31, (in thousands) 2020 2019 2018 Cash flow data: Net cash provided by operating activities$ 63,106 $ 151,043 $ 133,697 Net cash used in investing activities (509,123) (495,236) (703,533) Net cash provided by financing activities 364,918 465,873
597,867
Comparison of the years endedDecember 31, 2020 and 2019 Net cash provided by operating activities decreased$87.9 million , which primarily reflects (i) a decrease in net income of$311.5 million and (ii) changes in management fees payable to affiliate, accounts receivable, accounts payable and accrued liabilities, other assets and other liabilities of$83.6 million , partially offset by (iii) a change in gain on sale of subsidiaries and assets of$279.7 million and (iv) a change in security deposits and maintenance claims included in earnings of$14.0 million Net cash used in investing activities increased$13.9 million primarily due to (i) a decrease in proceeds from the sale of subsidiaries of$183.8 million and (ii) a decrease in proceeds from the sale of leasing equipment of$176.3 million , partially offset by (iii) an decrease in acquisitions of leasing equipment of$247.0 million , (iv) a decrease in acquisitions of property, plant and equipment of$66.3 million and (v) a decrease in the acquisition of the remaining interest in a JV investment of$28.8 million . Net cash provided by financing activities decreased$101.0 million primarily due to (i) an increase in repayments of debt of$447.1 million , (ii) a decrease in proceeds from the issuance of preferred shares, net of$174.3 million and (iii) a decrease in receipt of maintenance deposits of$31.9 million , partially offset by (iv) an increase in proceeds from debt of$552.2 million . Funds Available for Distribution (non-GAAP) We use Funds Available for Distribution ("FAD") in evaluating our ability to meet our stated dividend policy. We believe FAD is a useful metric for investors and analysts for similar purposes. 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. 54
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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 excluding changes in working capital. The following table sets forth a reconciliation of net cash provided by operating activities to FAD:
Year Ended December 31,
(in thousands) 2020 2019 2018
Net cash provided by operating activities $ 63,106 $ 151,043 $ 133,697
Add: Principal collections on finance leases 13,823 13,398 1,981
Add: Proceeds from sale of assets 72,175 432,273 44,085
Add: Return of capital distributions from
unconsolidated entities - 1,555 2,085
Less: Required payments on debt obligations (1) - (36,559) (7,793)
Less: Capital distributions to non-controlling
interest - - -
Exclude: Changes in working capital 88,314 4,726 7,610
Funds Available for Distribution (FAD) $ 237,418 $
566,436
_____________________________________________________
(1) Required payments on debt obligations for the year endedDecember 31, 2020 exclude repayments of$306,206 for the 2022 Notes,$270,000 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 year endedDecember 31, 2019 exclude repayments of$350,000 for the Revolving Credit Facility and$18,572 for the CMQR Credit Agreement, and for the year endedDecember 31, 2018 exclude repayments of$175,000 for the Revolving Credit Facility and$36,026 for the CMQR Credit Agreement, all of which were voluntary refinancings as repayments of these amounts were not required at such time. 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 intend 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 See Note 9 to the consolidated financial statements for information related to our debt obligations. 55
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Contractual Obligations The following table summarizes our future obligations, by period due, as ofDecember 31, 2020 , under our various contractual obligations and commitments. We had no off-balance sheet arrangements as ofDecember 31, 2020 . Payments Due by Period (in thousands) Total 2021 2022 2023 2024 2025 Thereafter DRP Revolver$ 25,000 $ 25,000 $ - $ - $ - $ - $ - Revolving Credit Facility - - - - - - - Series 2020 Bonds 263,980 - - - - 79,060 184,920 Senior Notes due 2022 400,000 - 400,000 - - - - Senior Notes due 2025 850,000 - - - - 850,000 - Senior Notes due 2027 400,000 - - - - - 400,000 Total principal payments on loans and bonds payable 1,938,980 25,000 400,000 - - 929,060 584,920 Total estimated interest payments (1) 717,439 133,693 111,815 106,190 106,190 91,279 168,272 Operating lease obligations 168,323 4,759 4,632 4,585 4,354 4,224 145,769 885,762 138,452 116,447 110,775 110,544 95,503 314,041
Total contractual obligations
______________________________________________________________________________________
(1) Estimated interest payments based on rates as of
We expect to meet our future short-term liquidity requirements through cash on
hand 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.
Application of Critical Accounting Policies
Operating Leases-We lease equipment pursuant to net operating leases. Operating
leases with fixed rentals and step rentals are recognized on a straight-line
basis over the term of the lease, assuming no renewals. Revenue is not
recognized when collection is not reasonably assured. When collectability is not
reasonably assured, the customer is placed on non-accrual status and revenue is
recognized when cash payments are received.
Generally, under our aircraft lease and engine agreements, the lessee is
required to make periodic maintenance payments calculated based on the lessee's
utilization of the leased asset or at the end of the lease. Typically, under our
aircraft lease agreements, the lessee is responsible for maintenance, repairs
and other operating expenses throughout the term of the lease. These periodic
maintenance payments accumulate over the term of the lease to fund major
maintenance events, and we are contractually obligated to return maintenance
payments to the lessee up to the amount paid by the lessee. In the event the
total cost of maintenance events over the term of a lease is less than the
cumulative maintenance payments, we are not required to return any unused or
excess maintenance payments to the lessee.
Maintenance payments received for which we expect to repay to the lessee are
presented as Maintenance Deposits in our Consolidated Balance Sheets. All excess
maintenance payments received that we do not expect to repay to the lessee are
recorded as Maintenance revenues. Estimates in recognizing revenue include mean
time between removal, projected costs for engine maintenance and forecasted
utilization of aircraft which are affected by historical usage patterns and
overall industry, market and economic conditions. Significant changes to these
estimates could have a material effect on the amount of revenue recognized in
the period.
For purchase and lease back transactions, we account for the transaction as a
single arrangement. We allocate the consideration paid based on the fair value
of the aircraft and lease. The fair value of the lease may include a lease
premium or discount.
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Finance Leases-From time to time we enter into finance lease arrangements that
include a lessee obligation to purchase the leased equipment at the end of the
lease term, a bargain purchase option, or provides for minimum lease payments
with a present value that equals or exceeds substantially all of the fair value
of the leased equipment at the date of lease inception. Net investment in
finance lease represents the minimum lease payments due from lessee, net of
unearned income. The lease payments are segregated into principal and interest
components similar to a loan. Unearned income is recognized on an effective
interest method over the lease term and is recorded as finance lease income. The
principal component of the lease payment is reflected as a reduction to the net
investment in finance leases. Revenue is not recognized when collection is not
reasonably assured. When collectability is not reasonably assured, the customer
is placed on non-accrual status and revenue is recognized when cash payments are
received.
Variable Interest Entities-The assessment of whether an entity is a VIE and the
determination of whether to consolidate a VIE requires judgment. VIEs are
defined as entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. A VIE is required to be consolidated by its primary
beneficiary, and only by its primary beneficiary, which is defined as the party
who has the power to direct the activities of a VIE that most significantly
impact its economic performance and who has the obligation to absorb losses or
the right to receive benefits from the VIE that could potentially be significant
to the VIE.
Maintenance Payments-Typically, under an operating lease of aircraft, the lessee
is responsible for performing all maintenance and is generally required to make
maintenance payments to us for heavy maintenance, overhaul or replacement of
certain high-value components of the aircraft or engine. These maintenance
payments are based on hours or cycles of utilization or on calendar time,
depending on the component, and are generally required to be made monthly in
arrears. If a lessee is making monthly maintenance payments, we would typically
be obligated to reimburse the lessee for costs they incur for heavy maintenance,
overhaul or replacement of certain high-value components to the extent of
maintenance payments received in respect of the specific maintenance event,
usually shortly following the completion of the relevant work.
We record the portion of maintenance payments paid by the lessee that are
expected to be reimbursed as maintenance deposit liabilities in the Consolidated
Balance Sheets. Reimbursements made to the lessee upon the receipt of evidence
of qualifying maintenance work are recorded against the maintenance deposit
liability.
In certain acquired leases, we or the lessee may be obligated to make a payment
to the other party at lease termination based on redelivery conditions
stipulated at the inception of the lease. When the lessee is required to return
the aircraft in an improved maintenance condition, we record a maintenance right
asset, as a component of other assets, for the estimated value of the
end-of-life maintenance payment at acquisition. We recognize payments received
as end-of-lease compensation adjustments, within lease revenue or as a reduction
to the maintenance right asset, when payment is received or collectability is
assured. In the event we are required to make payments at the end of the lease
for redelivery conditions, amounts are accrued as additional maintenance
liability and expensed when we are obligated and can reasonably estimate such
payment.
Property, Plant and Equipment, Leasing Equipment and Depreciation-Property,
plant and equipment and leasing equipment are stated at cost (inclusive of
capitalized acquisition costs, where applicable) and depreciated using the
straight-line method, over estimated useful lives, to estimated residual values
which are summarized as follows:
Range of Estimated Useful
Asset Lives Residual Value Estimates
Aircraft 25 years from date of Generally not to exceed 15% of
manufacture manufacturer's list price when
new
Aircraft engines 2 - 6 years, based on Sum of engine core salvage value
maintenance adjusted service plus the estimated fair value of
life life limited parts
Offshore energy vessels 25 years from date of 10% of new build cost
manufacture
Railcars 40 - 50 years from date of Scrap value at end of useful life
manufacture
Track and track related assets 15 - 50 years from date of Scrap value at end of useful life
manufacture
Buildings and site improvements 20 - 30 years Scrap value at end of useful life
Railroad equipment 3 - 15 years from date of Scrap value at end of useful life
manufacture
Terminal machinery and equipment 15 - 25 years from date of Scrap value at end of useful life
manufacture
Vehicles 5 - 7 years from date of Scrap value at end of useful life
manufacture
Furniture and fixtures 3 - 6 years from date of None
purchase
Computer hardware and software 3 - 5 years from date of None
purchase
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Impairment of Long-Lived Assets-We perform a recoverability assessment of each of our long-lived assets whenever events or changes in circumstances, or indicators, indicate that the carrying amount or net book value of an asset may not be recoverable. Indicators may include, but are not limited to, a significant lease restructuring or early lease termination; significant traffic decline; or the introduction of newer technology aircraft, vessels, engines or railcars. When performing a recoverability assessment, we measure whether the estimated future undiscounted net cash flows expected to be generated by the asset exceeds its net book value. The undiscounted cash flows consist of cash flows from currently contracted leases and terminal services contracts, future projected leases, terminal service and freight rail rates, transition costs, estimated down time and estimated residual or scrap values. In the event that an asset does not meet the recoverability test, the carrying value of the asset will be adjusted to fair value resulting in an impairment charge. Management develops the assumptions used in the recoverability analysis based on its knowledge of active contracts, current and future expectations of the global demand for a particular asset and historical experience in the leasing markets, as well as information received from third party industry sources. The factors considered in estimating the undiscounted cash flows are impacted by changes in future periods due to changes in contracted lease rates, terminal service, and freight rail rates, residual values, economic conditions, technology, demand for a particular asset type and other factors. With respect to our offshore energy business, although we expect current market conditions to improve, if such conditions persist for an extended period of time, this could result in the impairment of some of our offshore vessels. Goodwill-Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisition ofJefferson Terminal . The carrying amount of goodwill was approximately$122.7 million and$122.6 million as ofDecember 31, 2020 and 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 ofOctober 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 years endedDecember 31, 2020 or 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. 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 theJefferson Terminal reporting unit or other key inputs are negatively revised in the future, the estimated fair value of theJefferson Terminal reporting unit could be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results.The Jefferson Terminal segment forecasted revenue is dependent on the ramp up of volumes under current and expected future contracts for storage of heavy and light crude and refined products during 2021 and beyond subject to obtaining rail capacity for crude, expansion of refined product distribution toMexico 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 theU.S. andCanada , are expected to result in increased demand for storage on theU.S. Gulf Coast . Although we do not have significant direct exposure to volatility of crude oil prices, changes in crude oil pricing that effect long term refining planned output could impactJefferson 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%. 58
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Furthermore, both inbound and outbound pipelines projects are becoming fully operational early in 2021 to and from theJefferson Terminal and will affect our forecasted growth and therefore our estimated fair value. We expect theJefferson Terminal segment to continue to generate positive Adjusted EBITDA during 2021. Although certain of our anticipated contracts or expected volumes from existing contracts forJefferson Terminal have been delayed, we continue to believe our projected revenues are achievable. Further delays in executing these contracts or achieving our projections could adversely affect the fair value of the reporting unit. The impact of the COVID-19 global pandemic during 2020 certainly negatively affected refining volumes and thereforeJefferson Terminal crude throughput but we anticipate the impact to normalize over 2021 and ramp back to normal levels by 2022. Furthermore, we anticipate strengthening macroeconomic demand for storage and the increasing spread between Western Canadian Crude and Western Texas Intermediate as Canadian crude pipeline apportionment increases and our pipeline connections become fully operational during 2021, we remain positive for the outlook ofJefferson Terminal's earnings potential. There were no impairments of goodwill for the years endedDecember 31, 2020 , 2019, and 2018. Income Taxes-A portion of our income earned by our corporate subsidiaries is subject toU.S. federal and state income taxation, taxed at prevailing rates. The remainder of our income is allocated directly to our partners and is not subject to a corporate level of taxation. Certain subsidiaries of ours are subject to income tax in the foreign countries in which they conduct business. We account for these taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management believes it is more likely than not that a deferred tax asset will not be realized. Recent Accounting Pronouncements Please see Note 2 to our consolidated financial statements included elsewhere in this filing for recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below. Interest Rate Risk Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including theU.S. government's monetary and tax policies, global economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposure relates to our term loan arrangements. Our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our finance leases. We may elect to manage our exposure to interest rate movements through the use of interest rate derivatives (interest rate swaps and caps). The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of theSEC , it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates. As ofDecember 31, 2020 , assuming we do not hedge our exposure to interest rate fluctuations related to our outstanding floating rate debt, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an increase of approximately$0.2 million or a decrease of approximately$0.1 million in interest expense over the next 12 months. 59
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