FTAI Aviation Ltd. (Fortress Transportation and Infrastructure Investors LLC) — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also presents unaudited fourth-quarter results. The company invests in aviation leasing and transportation infrastructure, including terminals and ports. Amounts below are in U.S. dollars.
Financial performance and position
- Revenue: $578.8 million, up 69% from $342.1 million in 2018. Equipment leasing revenue was $349.3 million; infrastructure revenue was $229.5 million.
- Profit: Continuing-operations net income was $134.3 million, versus a $20.1 million loss in 2018. Consolidated net income was $207.8 million; net income attributable to shareholders was $223.3 million. Results included $203.3 million of gains on asset and subsidiary sales, including the Long Ridge transaction and aviation equipment disposals. Continuing-operations EPS was $1.74.
- Adjusted EBITDA: $503.4 million, up from $215.9 million. This is a non-GAAP measure; the substantial increase reflects, among other factors, higher activity and changes in the portfolio. It should not be treated as GAAP profit or cash flow.
- Fourth quarter: Revenue was $161.3 million and net income attributable to shareholders was $183.6 million, with $71.6 million of net income from discontinued operations. Fourth-quarter earnings included significant disposition-related gains.
- Cash flow and distributions: Operating cash flow was $151.0 million, compared with $133.7 million in 2018. Investing activities used $495.2 million; financing activities provided $465.9 million. Cash dividends paid on common and preferred shares totaled $115.4 million. Management cautions that operating cash flow has been below distributions. Reported non-GAAP Funds Available for Distribution (FAD) was $566.4 million, but included $432.3 million of asset-sale proceeds and excludes asset purchases and capital expenditures.
- Assets, debt and liquidity: Total assets were $3.24 billion, equity $1.34 billion, and debt net of issuance costs $1.42 billion at year-end. Cash and cash equivalents were $226.5 million, plus $16.0 million restricted cash. Scheduled principal payments included $182.0 million in 2020 and $702.1 million in 2022, including the $700 million 2022 Notes. The company reported compliance with debt covenants at year-end.
- Margins: No single comparable operating margin is presented as a headline measure; reported earnings were materially affected by gains on sales, high depreciation, interest expense and other portfolio-specific items.
Material changes from 2018
- Aviation leasing revenue increased as more aircraft and engines were placed on lease; year-end fleet utilization was approximately 80% by equity value. Aircraft on-lease had a weighted average remaining term of 29 months; engines on-lease averaged 10 months.
- Jefferson Terminal revenue rose substantially, partly because of crude marketing activity begun in 2018. The company exited that crude-marketing strategy in the fourth quarter of 2019; the activity contributed both revenue and substantial costs.
- FTAI sold a 49.9% interest in Long Ridge for $150 million cash plus an earn-out, recognized a $116.7 million gain, and retained significant influence through an equity-method investment.
- FTAI sold substantially all of its railroad business in December for $130 million and recognized a gain of about $77 million. The railroad results were classified as discontinued operations; 2019 discontinued-operations income was $73.5 million.
- Debt increased from $1.22 billion to $1.42 billion net, while interest expense rose to $95.6 million from $56.8 million. FTAI issued Series A and B preferred shares, raising approximately $194.0 million net.
Outlook, risks and unusual items
- Management expected Jefferson Terminal to generate positive Adjusted EBITDA in 2020, while acknowledging delays to anticipated contracts and volumes. Forecast performance depends on securing contracts, increasing throughput, rail capacity and pipeline development. Only about 4.4 million barrels of the terminal’s designed 21.7 million-barrel capacity was operational at year-end.
- Management described aviation demand as strong and offshore energy rates as having partially rebounded, but warned that oil-market weakness had contributed to offshore oversupply, lower utilization and earnings.
- Key risks include customer credit/defaults and concentration (one customer generated approximately 19% of 2019 revenue), asset utilization and residual values, development and permitting delays, environmental liabilities, access to refinancing and capital, and interest-rate exposure. The company reported $111 million of floating-rate debt and noted LIBOR-transition uncertainty.
- Environmental investigation and remediation at Repauno and Long Ridge are obligations of former owners under indemnities and insurance, but coverage limits or delays could expose FTAI to costs and delay redevelopment. A $4.7 million impairment was recorded at Long Ridge for expired unused gas leases.
- The filing discloses a potential offshore-energy charter claim with a stated exposure range of $0 to $3.3 million. Management did not expect current or threatened legal proceedings to have a material adverse effect, while noting outcomes remain uncertain.
- The board declared a common dividend of $0.33 per share for the fourth quarter, payable in March 2020. Dividends remain discretionary; preferred-share terms can restrict common distributions. February 2020 refinancing actions extended the earliest maturity of the Series 2012 and 2016 Bonds to 2025 and repaid the Jefferson Revolver.
Investor facts to verify
- How much of 2019 earnings and FAD came from asset sales versus recurring operations, and whether distributions are supported by recurring cash generation.
- Progress on Jefferson Terminal contracts, throughput, pipeline and rail expansions, and the assumptions supporting its goodwill valuation.
- Aviation fleet utilization, lease renewals, maintenance revenue estimates and lessee credit quality.
- Debt refinancing and repayment plans, particularly the 2022 Notes, and the effect of interest rates and benchmark transition.
- Execution of Long Ridge and Repauno development plans, including project funding, permits and environmental protections.
Audit and controls: Ernst & Young issued an unqualified opinion on the financial statements and internal controls. The auditor identified goodwill valuation for Jefferson Terminal and aircraft maintenance-revenue recognition as critical audit matters.