Business context and reporting period
This is Fortress Transportation and Infrastructure Investors LLC’s annual Form 10-K for the fiscal year ended December 31, 2015, filed March 9, 2016—not a standalone fourth-quarter report. The filing entity is Fortress Transportation and Infrastructure Investors LLC; the supplied company label, FTAI Aviation Ltd., does not match the registrant named in the filing.
The company owns transportation infrastructure and leased equipment across aviation, offshore energy, shipping containers, rail and energy terminals. It is externally managed by FIG LLC, an affiliate of Fortress. The company completed its IPO in May 2015, issuing 22.2 million shares at $17 per share, including the underwriters’ overallotment.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $136.6 million | $57.9 million |
| Consolidated net income (loss) | $(28.6) million | $2.9 million |
| Net income (loss) attributable to shareholders | $(11.8) million | $7.8 million |
| Adjusted Net Income (non-GAAP) | $7.8 million | $20.7 million |
| Adjusted EBITDA (non-GAAP) | $107.3 million | $89.3 million |
| Cash from operating activities | $23.5 million | $(31.6) million |
| Cash used in investing activities | $(239.9) million | $(571.4) million |
| Cash from financing activities | $576.0 million | $617.9 million |
| Total assets | $1.650 billion | $1.405 billion |
| Total equity | $1.291 billion | $713.5 million |
| Debt | $271.1 million | $592.9 million |
Amounts are rounded; financial statement amounts are in U.S. dollars. The company reported no single GAAP margin measure. The reported shareholder net loss was about 8.7% of revenue, calculated from the filing’s figures.
Revenue more than doubled, primarily from additional aviation and offshore leasing assets and a fuller year of operations at Jefferson Terminal and CMQR. Total expenses rose to $161.7 million, exceeding revenue; depreciation and amortization was $45.3 million, interest expense $19.3 million, and management fees and incentive allocation expense $15.0 million. A $20.6 million impairment at the shipping-container joint venture substantially reduced equity-method earnings; FTAI’s share of the impairment was $10.5 million.
Year-end cash and cash equivalents were $381.7 million, with another $21.6 million restricted. The filing reports $48.1 million of Funds Available for Distribution (FAD), a non-GAAP measure, versus $45.3 million in 2014. FAD excludes working-capital changes and capital expenditures, acquisitions and other significant cash uses; it is not equivalent to free cash flow or cash available after investment needs.
Material changes and operating developments
- Shareholder-attributable results shifted from $7.8 million income in 2014 to an $11.8 million loss in 2015, despite higher revenue and Adjusted EBITDA.
- Debt fell by $321.8 million, largely because $298.0 million of Jefferson Series 2010 tendered bonds were cancelled in 2015. Debt remained secured by assets and subject to covenants.
- Shipping-container conditions weakened: the unconsolidated container venture recorded a $20.6 million impairment after leases were not renewed, containers returned faster than expected, and resale values declined.
- At year-end, aviation equipment was approximately 86% utilized on an equity-weighted basis. The construction support vessel was off hire after its charter ended in November 2015; FTAI terminated the ROV vessel lease in February 2016 and was seeking a replacement lessee.
- Jefferson Terminal continued development. Its terminal operations generated $18.3 million of 2015 revenue against a $24.1 million shareholder-attributable loss for the segment. CMQR reported $25.6 million revenue and a $4.1 million shareholder-attributable loss.
Outlook, risks and unusual items
Management said it was evaluating more than $2 billion of potential infrastructure and equipment-leasing transactions over the following 12 months. These opportunities were not definitive and were not included in planned liquidity needs; the filing provides no formal earnings or revenue guidance. Management cited aviation demand and improving CMQR volumes and efficiencies, while describing lower oil prices as contributing to reduced offshore spending, oversupply and weaker offshore day rates, utilization and earnings. Lower container prices were also pressuring lease rates and residual values.
Subsequent to year-end, Jefferson-related entities issued $144.2 million of Series 2016 bonds, with an initial 7.25% interest rate through February 2020. FTAI and certain subsidiaries entered into a capital-call arrangement supporting a standby purchase obligation if the bonds are not successfully remarketed, redeemed or defeased at that date. The agreement includes restrictions involving liens on aviation assets and minimum equity and aviation-asset values. Jefferson’s prior $98.75 million credit facility was repaid and terminated in March 2016. Separately, FTAI sold approximately 39,000 containers in March 2016, receiving about $25 million net after repaying related debt.
The board declared a $0.33-per-share dividend for the quarter ended December 31, 2015, payable March 28, 2016. Future dividends are discretionary and depend on results, liquidity, legal and financing restrictions, and other factors. The company’s stated long-term payout goal was 50%–60% of FAD, but FAD has material limitations.
Other principal risks include customer and lessee concentration, defaults and contract renewals, asset values and residual risk, leverage and refinancing, exposure to volatile oil and gas markets, environmental and rail-safety regulation, and conflicts of interest with the external Manager and Fortress affiliates. CMQR had a Transport Canada investigation concerning a possible Railway Safety Act violation; management believed it would not have a material adverse effect. No claims against FTAI relating to the 2013 Lac-Mégantic derailment were reported as of year-end, and management did not anticipate cleanup expenditures, but future claims could not be ruled out. An offshore lessee asserted claims for reimbursable expenses or adjustments, with a disclosed potential range of $0–$3.978 million; no amount was accrued.
The financial statements received an unqualified audit opinion. Management concluded disclosure controls were effective at year-end. The filing did not include management’s internal-control assessment or an auditor attestation, citing the transition period for newly public companies.
Important facts for investors to verify
- Reconcile the $28.6 million consolidated net loss, $11.8 million shareholder-attributable loss, and $7.8 million Adjusted Net Income; review the non-GAAP definitions and adjustments.
- Assess recurring operating cash generation against reported FAD, including capital expenditure, acquisition, working-capital and maintenance needs.
- Review the terms and contingent support obligations of the $144.2 million Jefferson Series 2016 bond financing, including capital-call triggers and aviation-asset covenants.
- Monitor leasing and utilization, particularly the offshore vessels, container portfolio performance, and customer and receivable concentrations.
- Evaluate the Manager’s fees, expense reimbursements, incentive arrangements and related-party transactions, as well as the company’s ability to fund dividends and future acquisitions.