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 (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 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
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
March 31, 2021 , we had total consolidated assets of $3.6 billion and total
equity of $1.1 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. Market conditions due to the outbreak of COVID-19 resulted in asset
impairment charges and a decline in our equipment leasing revenues during the
three months ended March 31, 2021 . 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 March 31,
2021 ; 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 $175.6 million as of March 31, 2021 .
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 Part II, 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
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.
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 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.
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.
36
--------------------------------------------------------------------------------
Our Manager
On December 27, 2017 , SoftBank Group Corp. ("SoftBank") completed its
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 chief operating decision maker ("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. 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 (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.
37
--------------------------------------------------------------------------------
Comparison of the three months ended
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Revenues
Equipment leasing revenues
Lease income $ 40,227 $ 49,813 $ (9,586)
Maintenance revenue 15,508 31,995 (16,487)
Finance lease income 403 429 (26)
Other revenue 469 4,212 (3,743)
Total equipment leasing revenues 56,607 86,449 (29,842)
Infrastructure revenues
Lease income 430 120 310
Terminal services revenues 10,421 16,411 (5,990)
Crude marketing revenues - 8,210 (8,210)
Other revenue 9,691 1,650 8,041
Total infrastructure revenues 20,542 26,391 (5,849)
Total revenues 77,149 112,840 (35,691)
Expenses
Operating expenses 24,997 33,444 (8,447)
General and administrative 4,252 4,663 (411)
Acquisition and transaction expenses 1,643 3,194 (1,551)
Management fees and incentive allocation to affiliate 3,990 4,766 (776)
Depreciation and amortization 44,535 42,197 2,338
Asset impairment 2,100 - 2,100
Interest expense 32,990 22,861 10,129
Total expenses 114,507 111,125 3,382
Other (expense) income
Equity in earnings of unconsolidated entities 1,374 265 1,109
Gain (loss) on sale of assets, net 811 (1,819) 2,630
Loss on extinguishment of debt - (4,724) 4,724
Interest income 285 41 244
Other income 181 33 148
Total other income (expense) 2,651 (6,204) 8,855
Loss from continuing operations before income taxes (34,707) (4,489) (30,218)
Provision for (benefit from) income taxes 169 (98) 267
Net loss from continued operations (34,876) (4,391) (30,485)
Net income from discontinued operations, net of income taxes - 1,331 (1,331)
Net loss (34,876) (3,060) (31,816)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
(4,961) (4,736) (225)
Less: Dividends on preferred shares 4,625 4,539 86
Net loss attributable to shareholders $ (34,540) $ (2,863) $ (31,677)
38
--------------------------------------------------------------------------------
The following table sets forth a reconciliation of net loss attributable to shareholders from continuing operations to Adjusted EBITDA:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Net loss attributable to shareholders from continuing operations
$ (34,540) $ (4,194) $ (30,346) Add: Provision for (benefit from) income taxes 169 (98) 267 Add: Equity-based compensation expense 1,114 291 823 Add: Acquisition and transaction expenses 1,643 3,194 (1,551)
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 (7,964)
181 (8,145)
Add: Asset impairment charges 2,100 - 2,100
Add: Incentive allocations - - -
Add: Depreciation and amortization expense (1) 52,643 49,064 3,579
Add: Interest expense 32,990 22,861 10,129
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2)
2,402 (413) 2,815
Less: Equity in earnings of unconsolidated entities (1,374) (265) (1,109)
Less: Non-controlling share of Adjusted EBITDA (3) (2,029) (3,350) 1,321
Adjusted EBITDA (non-GAAP) $ 47,154 ________________________________________________________
(1) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) depreciation and amortization expense of$44,535 and$42,197 , (ii) lease intangible amortization of$752 and$1,132 and (iii) amortization for lease incentives of$7,356 and$5,735 , respectively. (2) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) net income of$1,180 and$223 , (ii) interest expense of$187 and$35 , (iii) depreciation and amortization expense of$1,912 and$962 , (iv) acquisition and transaction expenses of$0 and$81 and (v) changes in fair value of non-hedge derivatives of$(877) and$(1,714) , respectively. (3) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) equity-based compensation of$198 and$47 , (ii) provision for income taxes of$13 and$28 , (iii) interest expense of$281 and$720 , (iv) depreciation and amortization expense of$1,811 and$1,524 , (v) changes in fair value of non-hedge derivative instruments of$(274) and$38 and (vi) loss on extinguishment of debt of$0 and$993 respectively. Revenues Total revenues decreased$35.7 million primarily due to lower revenues of$26.9 million in theAviation Leasing segment and$14.0 million in theJefferson Terminal segment, partially offset by higher revenues of$7.8 million in the Ports and Terminals segment.Equipment Leasing Lease income decreased$9.6 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$16.5 million , primarily due to the reasons mentioned above and lower aircraft and engine utilization as a result of the COVID-19 pandemic. Other revenue decreased$3.7 million , primarily due to the settlement of an engine loss during the three months endedMarch 31, 2020 . Infrastructure Crude marketing revenues decreased$8.2 million due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019. Terminal services revenues decreased$6.0 million which primarily reflects lower volumes atJefferson Terminal due to lower global oil demand related to COVID-19. Other revenue increased$8.0 million , primarily due to an unrealized gain of$7.9 million recorded on butane forward purchase and sale contracts at Repauno. Expenses Total expenses increased$3.4 million , primarily due to higher (i) interest expense, (ii) depreciation and amortization and (iii) asset impairment charges, partially offset by lower (iv) operating expenses, (v) acquisition and transaction expense and (vi) management fees and incentive allocation to affiliate. 39 -------------------------------------------------------------------------------- Interest expense increased$10.1 million , primarily due to: •an increase of$12.5 million in Corporate and Other which reflects an increase in the average outstanding debt of approximately$521.5 million due to increases in (i) the Senior Notes due 2025 of$407.5 million , (ii) the Senior Notes due 2027 of$400.0 million , (iii) the Revolving Credit Facility (as defined below in Liquidity and Capital Resources) of$36.7 million , partially offset by decreases in (iv) the Senior Notes due 2022 of$296.5 million and (v) the FTAI Pride Credit Agreement of$24.0 million , which was repaid in full inMarch 2020 ; and •a decrease of$2.2 million atJefferson Terminal due a debt refinancing in the first quarter of 2020 which lowered their average interest rate. Depreciation and amortization increased$2.3 million primarily due to assets placed into service at Repauno andJefferson Terminal . Asset impairment increased$2.1 million due to an impairment charge in 2021 in theAviation Leasing segment. Operating expenses decreased$8.4 million which primarily reflects decreases in (i) cost of sales of$8.4 million primarily due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019 and (ii) facility operations of$1.6 million primarily due to lower volumes atJefferson Terminal . Acquisition and transaction expense decreased$1.6 million which primarily reflects lower compensation and related costs associated with the acquisition of aviation leasing equipment. Management fees and incentive allocation to affiliate decreased$0.8 million , which reflects a decrease in the base management fee as our average total equity is lower in 2021 compared to 2020. Other income (expense) Total other income increased$8.9 million during the three months endedMarch 31, 2021 , which primarily reflects (i) a loss on extinguishment of debt of$4.7 million in 2020 and (ii) an increase of$2.6 million in gain on sale of assets, net in theAviation Leasing segment. Net (loss) income from continuing operations Net income from continuing operations decreased$30.5 million during the three months endedMarch 31, 2021 , primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased$24.8 million during the three months endedMarch 31, 2021 , primarily due to the changes noted above. Aviation Leasing Segment As ofMarch 31, 2021 , in ourAviation Leasing segment, we own and manage 279 aviation assets, consisting of 80 commercial aircraft and 199 engines. As ofMarch 31, 2021 , 67 of our commercial aircraft and 114 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 endedMarch 31, 2021 , 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 38 months, and our engines currently on-lease have an average remaining lease term of 20 months. The table below provides additional information on the assets in ourAviation Leasing segment: 40 --------------------------------------------------------------------------------
Aviation Assets Widebody Narrowbody Total
Aircraft
Assets at January 1, 2021 15 63 78
Purchases - 6 6
Sales - - -
Transfers - (4) (4)
Assets at March 31, 2021 15 65 80
Engines
Assets at January 1, 2021 88 98 186
Purchases 5 18 23
Sales (8) (8) (16)
Transfers - 6 6
Assets at March 31, 2021 85 114 199
The following table presents our results of operations:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Revenues
Equipment leasing revenues
Lease income $ 39,789 $ 46,941 $ (7,152)
Maintenance revenue 15,508 31,995 (16,487)
Finance lease income 403 429 (26)
Other revenue 401 3,627 (3,226)
Total revenues 56,101 82,992 (26,891)
Expenses
Operating expenses 4,250 4,071 179
Acquisition and transaction expenses 1,196 2,724 (1,528)
Depreciation and amortization 32,563 32,631 (68)
Asset impairment 2,100 - 2,100
Total expenses 40,109 39,426 683
Other income (expense)
Equity in losses of unconsolidated entities (340) (591) 251
Gain (loss) on sale of assets, net 811 (1,819) 2,630
Interest income 267 12 255
Total other income (expense) 738 (2,398) 3,136
Income before income taxes 16,730 41,168 (24,438)
(Benefit from) provision for income taxes (42) 45 (87)
Net income 16,772 41,123 (24,351)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
- - -
Net income attributable to shareholders $ 16,772 $ 41,123 $ (24,351)
41
--------------------------------------------------------------------------------
The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Net income attributable to shareholders $ 16,772 $ 41,123 $ (24,351)
Add: (Benefit from) provision for income taxes (42) 45 (87)
Add: Equity-based compensation expense - - -
Add: Acquisition and transaction expenses 1,196 2,724 (1,528)
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 2,100 - 2,100
Add: Incentive allocations - - -
Add: Depreciation and amortization expense (1) 40,671 39,498 1,173
Add: Interest expense - - -
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2)
(308) (591) 283
Less: Equity in losses of unconsolidated entities 340 591 (251)
Less: Non-controlling share of Adjusted EBITDA - - -
Adjusted EBITDA (non-GAAP) $ 60,729 ________________________________________________________
(1) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) depreciation expense of$32,563 and$32,631 , (ii) lease intangible amortization of$752 and$1,132 and (iii) amortization for lease incentives of$7,356 and$5,735 , respectively. (2) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) net loss of$(340) and$(591) and (ii) depreciation and amortization of$32 and$0 , respectively. Revenues Total revenue decreased$26.9 million driven by lower lease income and maintenance revenue. •Lease income decreased$7.2 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$16.5 million primarily due to the reasons mentioned above and lower aircraft and engine utilization as a result of the COVID-19 pandemic. •Other revenue decreased$3.2 million primarily due to the settlement of an engine loss during the three months endedMarch 31, 2020 . Expenses Total expenses increased$0.7 million , primarily due to an increase in asset impairment and operating expenses, partially offset by a decrease in acquisition and transaction expenses. •Asset impairment increased$2.1 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. •Operating expenses increased$0.2 million primarily as a result of an increase in shipping and storage fees, professional fees and other operating expenses, partially offset by a decrease in bad debt expense. •Acquisition and transaction expense decreased$1.5 million driven by lower compensation and related costs associated with the acquisition of aviation leasing equipment. Other income (expense) Total other income increased$3.1 million primarily due to an increase of$2.6 million in gain on the sale of leasing equipment in 2021, an increase of$0.3 million in interest income and a decrease of$0.3 million inAviation Leasing's proportionate share of the unconsolidated entities' net loss. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased$22.7 million primarily due to the changes noted above. 42 -------------------------------------------------------------------------------- Jefferson Terminal Segment The following table presents our results of operations: Three Months Ended March 31, (in thousands) 2021 2020 Change Infrastructure revenues Lease income$ 430 $ 120 $ 310 Terminal services revenues 10,289 16,411 (6,122) Crude marketing revenues - 8,210 (8,210) Total revenues 10,719 24,741 (14,022) Expenses Operating expenses 11,721 21,943 (10,222) Depreciation and amortization 7,718 7,226 492 Interest expense 1,203 3,428 (2,225) Total expenses 20,642 32,597 (11,955) Other (expense) income Loss on extinguishment of debt - (4,724) 4,724 Interest income - 22 (22) Other income 181 33 148 Total other income (expense) 181 (4,669) 4,850 Loss before income taxes (9,742) (12,525) 2,783 Provision for income taxes 57 135 (78) Net loss (9,799) (12,660) 2,861
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
(5,016) (4,661) (355)
Net loss attributable to shareholders $ (4,783) $ (7,999) $ 3,216
43
--------------------------------------------------------------------------------
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Net loss attributable to shareholders $ (4,783) $ (7,999) $ 3,216
Add: Provision for income taxes 57 135 (78)
Add: Equity-based compensation expense 841 215 626
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 (181)
Add: Asset impairment charges - - -
Add: Incentive allocations - - -
Add: Depreciation and amortization expense 7,718 7,226 492
Add: Interest expense 1,203 3,428 (2,225)
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities
- - -
Less: Equity in earnings of unconsolidated entities - - -
Less: Non-controlling share of Adjusted EBITDA (1) (2,208) (3,341) 1,133
Adjusted EBITDA (non-GAAP) $ 2,828 ________________________________________________________
(1) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) equity-based compensation of$189 and$45 , (ii) provision for income taxes of$13 and$28 , (iii) interest expense of$271 and$720 , (iv) changes in fair value of non-hedge derivative instruments of$0 and$38 , (v) depreciation and amortization expense of$1,735 and$1,517 and (vi) loss on extinguishment of debt of$0 and$993 , respectively. Revenues Total revenues decreased$14.0 million primarily due to decreases in (i) crude marketing revenues of$8.2 million due toJefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019 and (ii) terminal services revenue of$6.1 million which primarily reflects lower volumes due to lower global oil demand related to COVID-19. Expenses Total expenses decreased$12.0 million which reflects: •a decrease in operating expenses of$10.2 million , primarily due to (i)Jefferson Terminal exiting the crude marketing strategy in the fourth quarter of 2019 and (ii) a decrease in facility operations expense due to lower volumes; •a decrease in interest expense of$2.2 million due to a debt refinancing in the first quarter of 2020 which lowered the average interest rate; and •an increase in depreciation and amortization of$0.5 million due to additional assets being placed into service. Other income (expense) Total other income increased$4.9 million which primarily reflects a loss on extinguishment of debt of$4.7 million in 2020. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased$1.7 million primarily due to the changes noted above. 44 -------------------------------------------------------------------------------- Ports and Terminals The following table presents our results of operations: Three Months Ended March 31, (in thousands) 2021 2020 Change Infrastructure revenues Terminal services revenues$ 132 $ -$ 132 Other revenue 7,964 314 7,650 Total revenues 8,096 314 7,782 Expenses Operating expenses 3,102 2,000 1,102 Acquisition and transaction expenses - 782 (782) Depreciation and amortization 2,211 376 1,835 Interest expense 279 393 (114) Total expenses 5,592 3,551 2,041 Other income Equity in earnings of unconsolidated entities 1,542 906 636 Total other income 1,542 906 636 Income (loss) before income taxes 4,046 (2,331) 6,377 Provision for (benefit from) income taxes 154 (281) 435 Net income (loss) 3,892 (2,050) 5,942
Less: Net income (loss) attributable to non-controlling interest in consolidated subsidiaries
55 (75) 130
Net income (loss) attributable to shareholders $ 3,837 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Net income (loss) attributable to shareholders $ 3,837 $ (1,975) $ 5,812
Add: Provision for (benefit from) income taxes 154 (281) 435
Add: Equity-based compensation expense 273 76 197
Add: Acquisition and transaction expenses - 782 (782)
Add: Losses on the modification or extinguishment of debt and capital lease obligations
- - -
Add: Changes in fair value of non-hedge derivative instruments (7,964)
- (7,964)
Add: Asset impairment charges - - -
Add: Incentive allocations - - -
Add: Depreciation and amortization expense 2,211 376 1,835
Add: Interest expense 279 393 (114)
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
2,705 228 2,477
Less: Equity in earnings of unconsolidated entities (1,542) (906) (636)
Less: Non-controlling share of Adjusted EBITDA (2) 179 (9) 188
Adjusted EBITDA (non-GAAP) $ 132 ________________________________________________________
(1) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) net income of$1,542 and$894 , (ii) interest expense of$160 and$5 , (iii) depreciation and amortization expense of$1,880 and$962 , (iv) acquisition and transaction expenses of$0 and$81 and (v) changes in fair value of non-hedge derivative instruments of$(877) and$(1,714) , respectively. (2) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) equity-based compensation of$9 and$2 , (ii) interest expense of$10 and$0 , (iii) depreciation and amortization expense of$76 and$7 and (iv) changes in fair value of non-hedge derivative instruments of$(274) and$0 , respectively. 45 --------------------------------------------------------------------------------
Revenues
Total revenue increased$7.8 million primarily due to an unrealized gain of$7.9 million recorded on butane forward purchase and sale contracts at Repauno. Expenses Total expenses increased$2.0 million which reflects higher (i) depreciation and amortization of$1.8 million at Repauno due to additional assets placed into service and (ii) operating expenses of$1.1 million , primarily due to higher compensation and related costs at Repauno, partially offset by lower (iii) acquisition and transaction expense of$0.8 million atLong Ridge due to lower professional fees. Other income Total other income increased$0.6 million due to an increase in equity in earnings atLong Ridge . Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased$1.4 million primarily due to the changes noted above. Corporate and Other The following table presents our results of operations: Three Months Ended March 31, (in thousands) 2021 2020 Change Revenues Equipment leasing revenues Lease income $ 438$ 2,872 $ (2,434) Other revenue 68 585 (517) Total equipment leasing revenues 506 3,457 (2,951) Infrastructure revenues Other revenue 1,727 1,336 391 Total infrastructure revenues 1,727 1,336 391 Total revenues 2,233 4,793 (2,560) Expenses Operating expenses 5,924 5,430 494 General and administrative 4,252 4,663 (411) Acquisition and transaction expenses 447 (312) 759 Management fees and incentive allocation to affiliate 3,990 4,766 (776) Depreciation and amortization 2,043 1,964 79 Interest expense 31,508 19,040 12,468 Total expenses 48,164 35,551 12,613 Other income (expense) Equity in earnings (losses) of unconsolidated entities 172 (50) 222 Interest income 18 7 11 Total other income (expense) 190 (43) 233 Loss before income taxes (45,741) (30,801) (14,940) Provision for income taxes - 3 (3) Net loss (45,741) (30,804) (14,937)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
- - -
Less: Dividends on preferred shares 4,625 4,539 86
Net loss attributable to shareholders $ (50,366) $ (35,343) $ (15,023)
46
--------------------------------------------------------------------------------
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA:
Three Months Ended March 31,
(in thousands) 2021 2020 Change
Net loss attributable to shareholders $ (50,366) $ (35,343) $ (15,023)
Add: Provision for income taxes - 3 (3)
Add: Equity-based compensation expense - - -
Add: Acquisition and transaction expenses 447 (312) 759
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 - - -
Add: Depreciation and amortization expense 2,043 1,964 79
Add: Interest expense 31,508 19,040 12,468
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1)
5 (50) 55
Less: Equity in losses (earnings) of unconsolidated entities (172) 50 (222)
Less: Non-controlling share of Adjusted EBITDA - - -
Adjusted EBITDA (non-GAAP) $ (16,535) $ (14,648) $ (1,887) ________________________________________________________
(1) Includes the following items for the three months endedMarch 31, 2021 and 2020: (i) net loss of$(22) and$(80) and (ii) interest expense of$27 and$30 , respectively. RevenuesEquipment Leasing Total revenues decreased$3.0 million in the offshore energy business as one of our vessels was off-hire in 2021 while it was on-hire in 2020. Infrastructure Total revenues increased$0.4 million due to higher volumes in our railcar cleaning business. Expenses Total expenses increased$12.6 million primarily due to higher (i) interest expense and (ii) acquisition and transaction expense, partially offset by lower (iii) management fees and incentive allocation to affiliate. Interest expense increased$12.5 million , which reflects an increase in the average outstanding debt of approximately$521.5 million due to increases in (i) the Senior Notes due 2025 of$407.5 million , (ii) the Senior Notes due 2027 of$400.0 million , (iii) the Revolving Credit Facility of$36.7 million , partially offset by decreases in (iv) the Senior Notes due 2022 of$296.5 million and (v) the FTAI Pride Credit Agreement of$24.0 million , which was repaid in full inMarch 2020 . Acquisition and transaction expense increased$0.8 million , primarily due to higher professional fees. Management fees and incentive allocation to affiliate decreased$0.8 million , which reflects a decrease in the base management fee as our average total equity is lower in 2021 compared to 2020. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased$1.9 million primarily due to the changes noted above. 47 -------------------------------------------------------------------------------- Liquidity and Capital Resources OnApril 12, 2021 , we issued$500 million aggregate principal amount of senior unsecured notes due 2028 (see Note 20 to the consolidated financial statements). OnMay 7, 2021 , we intend to use a portion of the net proceeds to redeem in full the Senior Notes due 2022, which total$400 million aggregate principal plus accrued and unpaid interest. OnJune 16, 2017 , we entered in a revolving credit facility (the "Revolving Credit Facility"). DuringApril 2021 , we repaid a net$100 million of outstanding borrowings under the Revolving Credit Facility. Following the repayment, we have additional borrowing capacity of$200 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 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$165.0 million and$122.4 million during the three months endedMarch 31, 2021 and 2020, respectively. •Dividends to shareholders and holders of eligible participating securities were$33.0 million and$32.9 million during the three months endedMarch 31, 2021 and 2020, respectively. •Uses of liquidity associated with our operating expenses are captured on a net basis in our cash flows from operating activities. Uses of liquidity associated with our debt obligations are captured in our cash flows from financing activities. Our principal sources of liquidity to fund these uses have been and continue to be (i) revenues from our transportation infrastructure and equipment assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales. •Cash flows (used in) provided from operating activities, plus the principal collections on finance leases and maintenance reserve collections were$(39.8) million and$2.1 million during the three months endedMarch 31, 2021 and 2020, respectively. •During the three months endedMarch 31, 2021 , additional borrowings were obtained in connection with the (i) Revolving Credit Facility of$150.0 million and (ii) EB-5 Loan Agreement of$21.6 million . During the three months endedMarch 31, 2020 , additional borrowings were obtained in connection with the (i) Series 2020 Bonds of$264.0 million and (ii) Revolving Credit Facility of$40.0 million . We made total principal repayments of$276.0 million relating to the Series 2016 Bonds, Series 2012 Bonds, Jefferson Revolver and FTAI Pride Credit Agreement. •Proceeds from the sale of assets were$4.6 million and$28.6 million during the three months endedMarch 31, 2021 and 2020, respectively. •Proceeds from the issuance of preferred shares, net of underwriter's discount and issuance costs were$101.2 million during the three months endedMarch 31, 2021 . We are currently evaluating several potentialInfrastructure and Equipment Leasing transactions, which could occur within the next 12 months. However, as of the date of this filing, none of these transactions or negotiations are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction. Historical Cash Flow Comparison of the three months endedMarch 31, 2021 and 2020 The following table compares the historical cash flow for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, (in thousands) 2021 2020 Cash Flow Data: Net cash used in operating activities$ (48,932) $ (11,806) Net cash used in investing activities (154,418) (91,125) Net cash provided by (used in) financing activities 235,408 (16,198) Net cash used in operating activities increased$37.1 million , which reflects an increase in our net loss of$31.8 million primarily due to lower total revenues. Net cash used in investing activities increased$63.3 million , primarily due to (i) an increase in acquisitions of leasing equipment of$57.2 million and (ii) lower proceeds from the sale of leasing equipment of$24.0 million , partially offset by (iii) a decrease in acquisitions of property, plant and equipment of$21.1 million . 48 -------------------------------------------------------------------------------- Net cash provided by financing activities increased$251.6 million , primarily due to (i) a decrease in repayments of debt of$276.0 million and (ii) an increase in proceeds from the issuance of preferred shares of$101.4 million , partially offset by (iii) a decrease in proceeds from debt of$132.4 million . We use Funds Available for Distribution ("FAD") in evaluating our ability to meet our stated dividend policy. FAD is not a financial measure in accordance with GAAP. The GAAP measure most directly comparable to FAD is net cash provided by operating activities. We believe FAD is a useful metric for investors and analysts for similar purposes. We define FAD as: net cash provided by operating activities plus principal collections on finance leases, proceeds from sale of assets, and return of capital distributions from unconsolidated entities, less required payments on debt obligations and capital distributions to non-controlling interest, and excludes changes in working capital. The following table sets forth a reconciliation of Net Cash Provided by Operating Activities to FAD: Three Months Ended March 31, (in thousands) 2021 2020 Net Cash Used in Operating Activities$ (48,932) $ (11,806) Add: Principal Collections on Finance Leases 395 320 Add: Proceeds from Sale of Assets 4,574 28,568
Add: Return of Capital Distributions from Unconsolidated Entities
- -
Less: Required Payments on Debt Obligations (1) - -
Less: Capital Distributions to Non-Controlling Interest - -
Exclude: Changes in Working Capital 58,370 78,955
Funds Available for Distribution (FAD) $
14,407
________________________________________________________
(1) Required payments on debt obligations for the three months endedMarch 31, 2020 exclude repayments of$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. 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 Refer to Note 9 of the Consolidated Financial Statements for additional information. 49 -------------------------------------------------------------------------------- Contractual Obligations The following table summarizes our future obligations, by period due, as ofMarch 31, 2021 , under our various contractual obligations and commitments. We had no off-balance sheet arrangements as ofMarch 31, 2021 . Remainder of (in thousands) 2021 2022 2023 2024 2025 Thereafter Total Series 2020 Bonds $ - $ - $ - $ -$ 79,060 $ 184,920 $ 263,980 DRP Revolver 25,000 - - - - - 25,000 EB-5 Loan Agreement - - - - - 21,600 21,600 Revolving Credit Facility - 150,000 - - - - 150,000 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 25,000 550,000 - - 929,060 606,520 2,110,580 Total estimated interest payments (1) 99,997 113,461 107,432 107,432 92,521 168,972 689,815 Third-party obligations (2) 7,000 10,220 3,220 20,440 Operating lease obligations 3,856 5,081 5,192 4,983 4,852 145,874 169,838 110,853 128,762 115,844 112,415 97,373 314,846 880,093 Total contractual obligations$ 135,853 $ 678,762 $ 115,844 $ 112,415 $ 1,026,433 $ 921,366 $ 2,990,673
________________________________________________________
(1) Estimated interest rates as ofMarch 31, 2021 . (2) Relates to a two-year pipeline capacity agreement atJefferson Terminal . 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. 50 -------------------------------------------------------------------------------- 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 ofJefferson Terminal . The carrying amount of goodwill was approximately$122.7 million as of bothMarch 31, 2021 andDecember 31, 2020 . 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 quantitative impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not elected for the year endedDecember 31, 2020 . 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%. 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 was no impairment of goodwill for the year endedDecember 31, 2020 . Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements. 51
--------------------------------------------------------------------------------
© Edgar Online, source
