FTAI Aviation Ltd. — filing identity and period
Filing mismatch: The supplied filing is the 2016 Form 10-K of Fortress Transportation and Infrastructure Investors LLC (NYSE: FTAI), not a filing identified as FTAI Aviation Ltd. The filing reports the fiscal year ended December 31, 2016; unaudited fourth-quarter results are also included. Dollar amounts below are in millions unless otherwise noted.
The company owns and leases transportation assets across aviation, offshore energy, shipping containers, rail, and energy infrastructure. Its businesses include aviation and equipment leasing, Jefferson Terminal, and the Central Maine & Quebec Railway. It is externally managed by FIG LLC, an affiliate of Fortress Investment Group.
Financial performance and condition
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $148.7 | $136.6 |
| Net loss attributable to shareholders | $(20.1) | $(11.8) |
| Loss per share | $(0.26) | $(0.18) |
| Adjusted EBITDA (non-GAAP) | $69.0 | $72.6 |
| Adjusted net income (loss) (non-GAAP) | $(8.6) | $7.8 |
| Cash from operating activities | $30.9 | $23.5 |
| Cash used in investing activities | $(213.1) | $(239.9) |
| Cash used in financing activities | $(131.5) | $576.0 |
| Cash and cash equivalents at year-end | $68.1 | $381.7 |
| Debt, net | $259.5 | $266.2 |
| Total assets / total equity | $1,547.3 / $1,165.7 | $1,644.8 / $1,290.7 |
Revenue increased 8.9%, while the shareholder net loss widened. The filing does not present a single consolidated operating-margin measure as a key performance metric. Year-end restricted cash was $65.4 million, up from $21.6 million; it is subject to restrictions and should not be treated as unrestricted liquidity. The company reported compliance with its debt covenants.
For Q4 2016, revenue was $42.3 million and net loss attributable to shareholders was $1.8 million, or $0.02 per share. The comparable Q4 2015 figures were revenue of $33.8 million and a shareholder net loss of $4.7 million, or $0.06 per share.
Changes versus the prior year
- Aviation Leasing revenue rose to $95.4 million from $61.3 million, supported by more aircraft and engines on lease; segment net income attributable to shareholders increased to $59.0 million from $37.3 million.
- Railroad revenue increased to $30.8 million from $25.6 million, reflecting higher traffic and expanded customer services. The segment reported shareholder net income of $0.6 million versus a $4.1 million loss.
- Offshore Energy revenue fell to $5.3 million from $24.2 million. Two vessels were off lease or on short-term arrangements amid weak offshore-market conditions; the segment recorded an $18.9 million shareholder net loss.
- Shipping Containers revenue declined to $1.2 million from $7.2 million, substantially reflecting the first-quarter sale of approximately 42,000 containers and lower finance-lease income.
- Jefferson Terminal revenue decreased to $15.9 million from $18.3 million as prior railcar lease income ended, partly offset by higher tank-lease revenue. Operating expenses declined, but the segment remained loss-making.
- Depreciation and amortization rose $14.9 million, primarily due to acquired aviation assets and assets placed into service at Jefferson Terminal. The company recorded a $7.45 million impairment after deciding not to proceed with the MT6015 vessel purchase, and a $1.58 million loss on early debt repayment.
Liquidity, capital allocation and outlook
- Operating cash flow was below the $100.0 million of 2016 shareholder dividends and distributions disclosed in the cash-flow discussion. Annual declared dividends were $1.32 per share; the board declared a $0.33-per-share dividend for Q4, payable in March 2017. Management states that dividends are discretionary and may change.
- Management reported Funds Available for Distribution of $76.8 million, a non-GAAP measure that includes asset-sale proceeds and excludes items such as capital expenditures and acquisitions. It cautions that FAD has material limitations and does not assure future distributions.
- Debt, net, was $259.5 million at year-end, including $144.2 million of Series 2016 Bonds bearing an initial 7.25% rate. The bonds have a mandatory tender feature in February 2020 if not remarketed or redeemed. The company also has a $45.9 million Series 2012 bond balance and debt secured by offshore and railroad assets.
- After year-end, the company borrowed $100 million under term loans for general corporate purposes and potential aviation and infrastructure acquisitions. The loans mature in January 2018, with a possible one-year extension, and bear interest at a floating rate.
- Management described potential acquisitions but said no pipeline transaction was definitive. Jefferson’s ethanol distribution hub Phase I was expected to be completed in the second half of 2017; the company also expected to fund Jefferson working capital and construction as contracts were executed. No quantitative earnings or revenue guidance was provided.
- On February 14, 2017, Fortress announced a pending merger with a SoftBank affiliate. Fortress investment professionals were expected to remain, but the filing notes uncertainty about potential effects on FTAI and its management relationship.
Risks, contingencies and unusual items
- Offshore vessel re-leasing and charter rates remain exposed to depressed oil-and-gas activity; the construction-support and ROV vessels were off lease at year-end.
- Container-market weakness contributed to impairment losses at the unconsolidated joint venture; FTAI’s share of the joint venture’s 2016 impairment was $3.1 million. Customer, lease-renewal, asset-value, and residual-value risks are significant across the portfolio.
- Two offshore-energy lessees asserted claims for reimbursable expenses or charter adjustments. Management cited a potential damages range of $0–$10.3 million; no amount was accrued, and the company intends to contest the claims.
- Repauno, acquired in 2016 for approximately $24 million cash plus capitalized acquisition-related costs, requires redevelopment and is subject to historic environmental investigation and remediation by the former owner. The company relies on related indemnity and insurance protections.
- The company’s business depends on its external Manager and is subject to affiliate conflicts, management fees, and potential acquisition-allocation conflicts. The post-IPO management fee is based on equity at an annual rate of 1.50%.
- Management concluded disclosure controls and internal control over financial reporting were effective. The independent auditor gave an unqualified opinion on the 2016 financial statements but did not attest to internal-control effectiveness because the company qualified as an emerging growth company.
Most important facts for investors to verify
- Confirm the issuer and ticker: this source is FTAI’s 2016 Form 10-K, not a filing for FTAI Aviation Ltd.
- Assess whether recurring operating cash flow can support dividends, debt service, planned investment, and the sharp reduction in unrestricted cash.
- Review the quality and sustainability of non-GAAP Adjusted EBITDA and FAD, including their exclusions and reliance on asset-sale proceeds.
- Track offshore vessel utilization and charter renewals, container portfolio performance, and any further impairment or asset-sale effects.
- Examine the 2020 Series 2016 Bond tender/refinancing exposure, the subsequent $100 million floating-rate borrowing, and related guarantees and covenants.
- Monitor the offshore claims, Repauno remediation and redevelopment, and the pending Fortress–SoftBank transaction for changes to costs, oversight, or management continuity.