FTAI Aviation Ltd. quarterly report, Q3 FY2019

Business context and reporting period

This is Fortress Transportation and Infrastructure Investors LLC’s unaudited Form 10-Q for the quarter ended September 30, 2019. The filing describes aviation leasing and infrastructure operations, including Jefferson Terminal, CMQR railroad, Repauno and Long Ridge. The request names FTAI Aviation Ltd., but the filing’s registrant is Fortress Transportation and Infrastructure Investors LLC (ticker FTAI); confirm the intended issuer.

Financial performance and position

Metric	Q3 2019	Q3 2018	Nine months 2019	Nine months 2018
Revenue	$162.2 million	$101.2 million	$445.9 million	$242.0 million
Net income (loss) attributable to shareholders	$25.7 million	$4.6 million	$39.6 million	$4.8 million
Diluted EPS	$0.30	$0.05	$0.46	$0.06
Adjusted EBITDA (non-GAAP)	$114.1 million	$58.8 million	$274.6 million	$159.1 million
Net cash from operating activities	Not presented for quarter	Not presented for quarter	$92.7 million	$86.4 million

Q3 shareholder net income included a $37.1 million net gain on equipment sales; the nine-month gain was $61.4 million. These gains materially lifted reported earnings.
For the nine months, total expenses were $483.8 million, including $244.0 million operating expenses, $125.9 million depreciation and amortization, and $72.3 million interest expense. The filing does not provide a comparable consolidated gross margin measure.
At September 30, cash and cash equivalents were $99.3 million and restricted cash was $51.2 million. Total assets were $3.14 billion; debt, net, was $1.58 billion, up from $1.24 billion at December 31, 2018. Total liabilities were $2.03 billion and equity was $1.11 billion. The filing states the company was in compliance with debt covenants.
Investing cash outflow was $409.9 million and financing cash inflow was $346.9 million for the first nine months. Cash and restricted cash together increased by $29.7 million to $150.6 million.
The company reported non-GAAP Funds Available for Distribution (FAD) of $277.8 million for the nine months, versus $123.9 million. FAD adds asset-sale proceeds and excludes working-capital changes, among other adjustments; it is not operating cash flow and has stated limitations.
Common dividends declared were $0.33 per share each quarter, or $0.99 for the nine-month period. In September, the company issued 3.45 million Series A preferred shares, raising approximately $82.9 million net; the shares carry an 8.25% fixed-to-floating distribution rate.

Material changes versus the prior comparable period

Nine-month revenue rose $203.9 million, led by Jefferson Terminal crude marketing (+$125.2 million), aviation leasing (+$53.1 million) and higher infrastructure activity. Q3 revenue increased $61.1 million year over year.
Crude marketing growth brought substantial associated costs: nine-month operating expenses rose $147.2 million, primarily crude marketing cost of sales. Interest expense rose $32.4 million as average debt increased, and depreciation and amortization rose $29.0 million.
Aviation Leasing owned 221 assets at quarter-end (69 aircraft and 152 engines); 69 aircraft and 112 engines were leased. Utilization was approximately 92% by equity value.
Capital investment expanded: property, plant and equipment increased to $945.1 million from $708.9 million, with significant construction in progress. Leasing equipment, net, increased to $1.50 billion from $1.43 billion.
Operating cash flow increased $6.3 million, but investment and financing cash flows were lower than in 2018, in part reflecting lower common-share issuance proceeds and higher asset-sale proceeds.

Outlook, commentary, risks and unusual items

Long Ridge is developing a 485-megawatt natural-gas power plant under construction agreements totaling approximately $430 million. Project financing includes construction and term loans and a letter-of-credit facility; $121 million of letters of credit had been issued by quarter-end. Fixed-price power agreements cover 457 megawatts beginning in 2022.
Management expects Jefferson Terminal to generate positive Adjusted EBITDA in 2020. It cited contract and volume delays, while noting that terminal expansion, pipeline projects and customer activity are important to projections. Only about 13% of planned 21.7-million-barrel storage capacity was operational at September 30; a further 1.4 million barrels was planned for the fourth quarter of 2019.
The filing gives no consolidated earnings or dividend guidance. Management said it expects short-term liquidity needs to be met through cash, unused borrowing capacity, financing and operating cash flows, and is evaluating potential transactions that are not definitive.
Debt includes $700 million principal of 6.75% notes due 2022 and $450 million principal of 6.50% notes due 2025. A Series 2016 bond has a mandatory tender at par on February 13, 2020 if not previously remarketed or redeemed. The filing lists $189.1 million of debt due within one year, including the bond tender exposure.
Key risks include leverage and refinancing/capital access, customer defaults and concentration, aviation asset values and utilization, crude-market volatility, development and permitting delays, environmental obligations, interest-rate exposure and conflicts related to the external Manager. A 100-basis-point change in variable rates was estimated to affect next-12-month interest expense by approximately $1.7 million before derivatives.
Other notable items: the company adopted the new lease standard on January 1, 2019, recognizing about $46 million of right-of-use assets and liabilities; a casualty-related vessel insurance recovery generated approximately $1.0 million of other income; and a lessee dispute carries a stated potential loss range of $0 to $3.3 million.
After quarter-end, the board declared a $0.33 common dividend and a $0.53 Series A preferred dividend. The company also agreed to buy the remaining 50% of JGP for approximately $29 million, with closing expected in Q4 2019.

Important facts for investors to verify

Confirm issuer identity: this filing is for Fortress Transportation and Infrastructure Investors LLC, not an entity identified in the request as FTAI Aviation Ltd.
Assess earnings quality by separating recurring leasing and infrastructure performance from asset-sale gains, derivatives and other nonrecurring items; compare GAAP earnings with Adjusted EBITDA and its reconciliation.
Review cash available for dividends and investment needs using operating cash flow, required debt service, capital spending and acquisition commitments; do not treat FAD as a substitute for cash flow.
Verify upcoming debt maturities, the Series 2016 bond tender/remarketing outcome, borrowing availability and covenant headroom.
Track Long Ridge construction, financing, permits and power-market exposure, as well as Jefferson Terminal contract ramp-up, pipeline completion and utilization assumptions.
Review customer concentration, asset utilization and the stated contingent, environmental and legal exposures, along with the Manager’s fees, incentive allocations and related-party arrangements.