40
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues | |
Equipment leasing revenues | | | | | | | | | | | |
Lease income | $ | 25,941 |
| | $ | 19,039 |
| | $ | 6,902 |
| | $ | 63,577 |
| | $ | 46,636 |
| | $ | 16,941 |
|
Maintenance revenue | 17,533 |
| | 7,646 |
| | 9,887 |
| | 46,778 |
| | 19,037 |
| | 27,741 |
|
Other revenue | — |
| | 375 |
| | (375 | ) | | 2 |
| | 687 |
| | (685 | ) |
Total revenues | 43,474 |
| | 27,060 |
| | 16,414 |
| | 110,357 |
| | 66,360 |
| | 43,997 |
|
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 1,706 |
| | 892 |
| | 814 |
| | 4,496 |
| | 2,875 |
| | 1,621 |
|
Acquisition and transaction expenses | 6 |
| | — |
| | 6 |
| | 276 |
| | — |
| | 276 |
|
Depreciation and amortization | 17,909 |
| | 9,376 |
| | 8,533 |
| | 43,284 |
| | 25,307 |
| | 17,977 |
|
Total expenses | 19,621 |
| | 10,268 |
| | 9,353 |
| | 48,056 |
| | 28,182 |
| | 19,874 |
|
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Equity losses of unconsolidated entities | (203 | ) | | — |
| | (203 | ) | | (1,046 | ) | | — |
| | (1,046 | ) |
Gain on sale of equipment, net | 2,871 |
| | — |
| | 2,871 |
| | 6,932 |
| | 2,717 |
| | 4,215 |
|
Interest income | 51 |
| | 6 |
| | 45 |
| | 210 |
| | 9 |
| | 201 |
|
Total other income | 2,719 |
| | 6 |
| | 2,713 |
| | 6,096 |
| | 2,726 |
| | 3,370 |
|
Income before income taxes | 26,572 |
| | 16,798 |
| | 9,774 |
| | 68,397 |
| | 40,904 |
| | 27,493 |
|
Provision for income taxes | 927 |
| | 100 |
| | 827 |
| | 1,598 |
| | 188 |
| | 1,410 |
|
Net income | 25,645 |
| | 16,698 |
| | 8,947 |
| | 66,799 |
| | 40,716 |
| | 26,083 |
|
Less: Net income attributable to non-controlling interest in consolidated subsidiaries | 303 |
| | 60 |
| | 243 |
| | 445 |
| | 350 |
| | 95 |
|
Net income attributable to shareholders | $ | 25,342 |
| | $ | 16,638 |
| | $ | 8,704 |
| | $ | 66,354 |
| | $ | 40,366 |
| | $ | 25,988 |
|
Add: Provision for income taxes | 927 |
| | 100 |
| | 827 |
| | 1,598 |
| | 188 |
| | 1,410 |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | 6 |
| | — |
| | 6 |
| | 276 |
| | — |
| | 276 |
|
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: Pro-rata share of Adjusted Net Income from unconsolidated entities(1) | (203 | ) | | — |
| | (203 | ) | | (1,046 | ) | | — |
| | (1,046 | ) |
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | (1 | ) | | (174 | ) | | 173 |
| | (1 | ) | | (538 | ) | | 537 |
|
Less: Equity in losses of unconsolidated entities | 203 |
| | — |
| | 203 |
| | 1,046 |
| | — |
| | 1,046 |
|
Less: Non-controlling share of Adjusted Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted Net Income | $ | 26,274 |
| | $ | 16,564 |
| | $ | 9,710 |
| | $ | 68,227 |
| | $ | 40,016 |
| | $ | 28,211 |
|
(1) Pro-rata share of Adjusted Net Income from unconsolidated entities includes Aviation’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above, for which there were no adjustments.
The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA for the Aviation Leasing segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
(Dollar amounts in thousands)
|
|
Net income attributable to shareholders | $ | 25,342 |
| | $ | 16,638 |
| | $ | 8,704 |
| | $ | 66,354 |
| | $ | 40,366 |
| | $ | 25,988 |
|
Add: Provision for income taxes | 927 |
| | 100 |
| | 827 |
| | 1,598 |
| | 188 |
| | 1,410 |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | 6 |
| | — |
| | 6 |
| | 276 |
| | — |
| | 276 |
|
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) | 19,811 |
| | 10,885 |
| | 8,926 |
| | 48,477 |
| | 30,089 |
| | 18,388 |
|
Add: Interest expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities(3) | (203 | ) | | — |
| | (203 | ) | | (1,046 | ) | | — |
| | (1,046 | ) |
Less: Equity in losses of unconsolidated entities | 203 |
| | — |
| | 203 |
| | 1,046 |
| | — |
| | 1,046 |
|
Less: Non-controlling share of Adjusted EBITDA(4) | (192 | ) | | (41 | ) | | (151 | ) | | (354 | ) | | (123 | ) | | (231 | ) |
Adjusted EBITDA (non-GAAP) | $ | 45,894 |
| | $ | 27,582 |
| | $ | 18,312 |
| | $ | 116,351 |
| | $ | 70,520 |
| | $ | 45,831 |
|
______________________________________________________________________________________
(2) Depreciation and amortization expense includes $17,909 and $9,376 of depreciation expense, $1,147 and $1,403 of lease intangible amortization, and $755 and $106 of amortization for lease incentives in the three months ended September 30, 2017 and 2016, respectively. Depreciation and amortization expense includes $43,284 and $25,307 of depreciation expense, $3,494 and $4,557 of lease intangible amortization, and $1,699 and $225 of amortization for lease incentives in the nine months ended September 30, 2017 and 2016, respectively.
(3) Aviation Leasing's pro-rata share of Adjusted EBITDA from unconsolidated entities includes net loss of $203 and $0 for the three months ended September 30, 2017 and 2016, respectively. Aviation Leasing’s pro-rata share of Adjusted EBITDA from unconsolidated entities includes net loss of $1,046 and $0 in the nine months ended September 30, 2017 and 2016, respectively.
(4) Non-controlling share of Adjusted EBITDA is comprised of depreciation and amortization expense of $192 and $41 for the three months ended September 30, 2017 and 2016, respectively. Non-controlling share of Adjusted EBITDA is comprised of depreciation and amortization expense of $354 and $123 for the nine months ended September 30, 2017 and 2016, respectively.
Revenues
Total revenues in the Aviation Leasing segment increased $16,414 in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, due to higher lease income and maintenance revenue driven by newly acquired assets. Lease income increased $6,902 primarily due to higher aircraft lease income of $2,639 driven by the addition of 17 aircraft on lease partially offset by the redelivery of two aircraft. Engine lease income increased $4,263 primarily driven by an increase in the number of engines which generated revenue from 34 in the three months ended September 30, 2016 to 76 in the three months ended September 30, 2017. Maintenance revenue increased $9,887 reflecting additional aircraft and engines on lease. Engine maintenance and aircraft maintenance revenue increased $7,646 and $2,241, respectively, in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016.
Total revenues in the Aviation Leasing segment increased $43,997 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, due to higher lease income and maintenance revenue reflecting newly acquired assets. Lease income increased $16,941 primarily due to higher aircraft lease income of $6,064 reflecting an additional 17 aircraft on lease partially offset by the redelivery and sale of three aircraft. Engine lease income increased $10,877 primarily driven by an increase in the number of engines which generated revenue from 40 in the nine months ended September 30, 2016 to 79 in the nine months ended September 30, 2017. Maintenance revenue increased $27,741 due to a higher number of aircraft and engines on lease and the receipt of end-of-lease compensation for two aircraft. Engine maintenance and aircraft maintenance revenue increased $17,355 and $10,386, respectively, in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
Expenses
Total expenses in the Aviation Leasing segment increased $9,353 in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 primarily due to an increase in depreciation and amortization and an increase in operating expenses. Depreciation and amortization increased by $8,533 reflecting the depreciation of additional aircraft and engines owned or put on lease in the three months ended September 30, 2017. Operating expenses increased $814 primarily reflecting increases in (i) professional fees of $456 due to an increased number of assets on lease, (ii) aviation shipping expense of $246 due to the positioning of our assets for lease and (iii) other operating expense of $112 due to the overall growth of the aviation portfolio.
Total expenses in the Aviation Leasing segment increased $19,874 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to an increase in depreciation and amortization and an increase in operating expenses. Depreciation and amortization increased by $17,977 reflecting the depreciation of additional aircraft and engines owned or put on lease in the nine months ended September 30, 2017. Operating expenses increased $1,621 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily reflecting increases in (i) professional fees of $912 due to an increased number of assets on lease, (ii) aviation shipping expense of $593 due to the positioning of our assets for lease and (iii) other operating expense of $116 due to the overall growth of the aviation portfolio. Acquisitions and transaction expenses increased $276 in the nine months ended September 30, 2017 compared to the same period of 2016 as we continue to pursue new business opportunities.
Other Income
Total other income in the Aviation Leasing segment increased $2,713 and $3,370 in the three and nine months ended September 30, 2017 as compared to the three and ninemonths ended September 30, 2016, respectively, reflecting increases in the gain on sale of leasing equipment, partially offset by increases in the equity in losses of unconsolidated entities.
Adjusted Net Income
Adjusted Net Income in the Aviation Leasing segment was $26,274 and $68,227 for the three and ninemonths ended September 30, 2017, respectively, increasing $9,710 and $28,211 as compared to the three and ninemonths ended September 30, 2016, respectively, primarily reflecting the changes to net income attributable to shareholders noted above, adjusted for the provision for income taxes, acquisition and transaction expenses, and cash payments for income taxes.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA in the Aviation Leasing segment was $45,894 and $116,351 for the three and ninemonths ended September 30, 2017, respectively, decreasing $18,312and$45,831 as compared to the three and ninemonths ended September 30, 2016, respectively. In addition to the changes in net income attributable to shareholders noted above, this movement was primarily due to (i) higher depreciation and amortization expense for the additional aircraft and engines owned and on lease in the three and ninemonths ended September 30, 2017, (ii) higher provision for income tax, and (iii) an increase in the acquisition and transaction expenses.
Offshore Energy Segment
In our Offshore Energy segment, we own one remotely operated vehicle (“ROV”) support vessel, one construction support vessel and one anchor handling tug supply (“AHTS”) vessel. The chart below describes the assets in our Offshore Energy segment as of September 30, 2017:
|
| | | |
Offshore Energy Assets |
Asset Type | Year Built | Description | Economic Interest (%) |
AHTS Vessel | 2010 | Anchor handling tug supply vessel with accommodation for 30 personnel and a total bollard pull of 68.5 tons | 100% |
Construction Support Vessel | 2014 | DP-3 construction support and well intervention vessel with 250-ton main crane, 2,000 square meter open deck space, moon pool and accommodation for 100 personnel | 100% |
ROV Support Vessel | 2011 | DP-2 dive and ROV support vessel with 50-ton crane, moon pool and accommodation for 120 personnel | 100%* |
* The increase in the economic interest in the third quarter of 2017 for the ROV support vessel reflects the transfer of the non-controlling interest to the Company as part of the settlement arrangement as more fully discussed in Note 2 and Note 8 of the Consolidated Financial Statements.
The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for the Offshore Energy segment for the three and nine months ended September 30, 2017 and September 30, 2016: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues | |
Equipment leasing revenues | | | | | | | | | | | |
Lease income | $ | 3,800 |
| | $ | 2,561 |
| | $ | 1,239 |
| | $ | 7,295 |
| | $ | 3,216 |
| | $ | 4,079 |
|
Finance lease income | 385 |
| | 403 |
| | (18 | ) | | 1,156 |
| | 1,212 |
| | (56 | ) |
Other revenue | 1,932 |
| | 5 |
| | 1,927 |
| | 2,504 |
| | 5 |
| | 2,499 |
|
Total revenues | 6,117 |
| | 2,969 |
| | 3,148 |
| | 10,955 |
| | 4,433 |
| | 6,522 |
|
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 5,103 |
| | 2,408 |
| | 2,695 |
| | 12,661 |
| | 8,410 |
| | 4,251 |
|
Depreciation and amortization | 1,607 |
| | 1,669 |
| | (62 | ) | | 4,820 |
| | 4,927 |
| | (107 | ) |
Interest expense | 946 |
| | 934 |
| | 12 |
| | 2,800 |
| | 2,805 |
| | (5 | ) |
Total expenses | 7,656 |
| | 5,011 |
| | 2,645 |
| | 20,281 |
| | 16,142 |
| | 4,139 |
|
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Asset impairment | — |
| | — |
| | — |
| | — |
| | (7,450 | ) | | 7,450 |
|
Interest income | 4 |
| | 4 |
| | — |
| | 11 |
| | 9 |
| | 2 |
|
Other income | 1,093 |
| | — |
| | 1,093 |
| | 1,093 |
| | — |
| | 1,093 |
|
Total other income (expense) | 1,097 |
| | 4 |
| | 1,093 |
| | 1,104 |
| | (7,441 | ) | | 8,545 |
|
Loss before income taxes | (442 | ) | | (2,038 | ) | | 1,596 |
| | (8,222 | ) | | (19,150 | ) | | 10,928 |
|
Benefit from income taxes | (5 | ) | | — |
| | (5 | ) | | — |
| | — |
| | — |
|
Net loss | (437 | ) | | (2,038 | ) | | 1,601 |
| | (8,222 | ) | | (19,150 | ) | | 10,928 |
|
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | (62 | ) | | (131 | ) | | 69 |
| | (526 | ) | | (4,289 | ) | | 3,763 |
|
Net loss attributable to shareholders | $ | (375 | ) | | $ | (1,907 | ) | | $ | 1,532 |
| | $ | (7,696 | ) | | $ | (14,861 | ) | | $ | 7,165 |
|
Add: Benefit from income taxes | (5 | ) | | — |
| | (5 | ) | | — |
| | — |
| | — |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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 | — |
| | — |
| | — |
| | — |
| | 7,450 |
| | (7,450 | ) |
Add: Pro-rata share of Adjusted Net Income from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted Net Income (1) | — |
| | — |
| | — |
| | — |
| | (3,725 | ) | | 3,725 |
|
Adjusted Net Loss | $ | (380 | ) | | $ | (1,907 | ) | | $ | 1,527 |
| | $ | (7,696 | ) | | $ | (11,136 | ) | | $ | 3,440 |
|
(1)Non-controlling share of Adjusted Net Loss is comprised of asset impairment of $0 and $3,725 for the nine months ended September 30, 2017 and 2016, respectively.
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for the Offshore Energy segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
| 2017 | | 2016 | | | 2017 | | 2016 | |
(Dollar amounts in thousands)
|
|
Net loss attributable to shareholders | $ | (375 | ) | | $ | (1,907 | ) | | $ | 1,532 |
| | $ | (7,696 | ) | | $ | (14,861 | ) | | $ | 7,165 |
|
Add: Benefit from income taxes | (5 | ) | | — |
| | (5 | ) | | — |
| | — |
| | — |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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 | — |
| | — |
| | — |
| | — |
| | 7,450 |
| | (7,450 | ) |
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Depreciation and amortization expense | 1,607 |
| | 1,669 |
| | (62 | ) | | 4,820 |
| | 4,927 |
| | (107 | ) |
Add: Interest expense | 946 |
| | 934 |
| | 12 |
| | 2,800 |
| | 2,805 |
| | (5 | ) |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted EBITDA (2) | (61 | ) | | (91 | ) | | 30 |
| | (247 | ) | | (3,992 | ) | | 3,745 |
|
Adjusted EBITDA (non-GAAP) | $ | 2,112 |
| | $ | 605 |
| | $ | 1,507 |
| | $ | (323 | ) | | $ | (3,671 | ) | | $ | 3,348 |
|
(2) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended September 30, 2017 and 2016: (i) depreciation expense of $42 and $62, and (ii) interest expense of $19 and $29, respectively. Non-controlling share of Adjusted EBITDA is comprised of the following items for the nine months ended September 30, 2017 and 2016: (i) depreciation expense of $165 and $183, (ii) interest expense of $82 and $84, and (iii) asset impairment of $0 and $3,725, respectively.
Revenues
Total revenues in the Offshore Energy segment increased $3,148 and $6,522 in the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016, respectively, primarily due to higher lease income and other revenue. Other revenue increased $1,927 and $2,499 in the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016, respectively, relate to the crew and insurance reimbursement income for the offshore construction vessel. In the three and nine months ended September 30, 2017 both the offshore construction vessel and the ROV support vessel were on hire compared to the prior year periods when both the offshore construction vessel and ROV support vessel were subject to short term charter arrangements.
Expenses
Total expenses in the Offshore Energy segment increased $2,645 in the three months ended September 30, 2017 compared to the prior period primarily due to increases in operating expenses.
Operating expenses increased $2,695 in the three months ended September 30, 2017 compared to the prior year. The increase reflected higher (i) project costs of $673, (ii) mobilization costs of $524 (iii) crew costs of $516 (iv) legal fees of $403 and (vi) other operating expenses of $579.
During the three months ended September 30, 2017, there was $1,195 and $412 of depreciation expense related to the construction support vessel and ROV support vessel, respectively, flat compared to the prior period.
During the three months ended September 30, 2017, there was $916 and $30 of interest expense primarily related to financing for the construction support vessel and ROV support vessel, respectively, flat compared to the prior period.
For the nine months ended September 30, 2017, total expenses increased $4,139 compared to the prior period primarily due to increases in operating expenses.
Operating expenses increased $4,251 in the nine months ended September 30, 2017 compared to the prior period reflecting higher (i) legal fees of $1,839, (ii) crew costs of $1,370 (iii) project costs of $927 and (iv) other operating expenses of $115.
During the nine months ended September 30, 2017, there was $3,586 and $1,234 of depreciation expense related to the construction support vessel and ROV support vessel, respectively, flat compared to the prior period.
During the nine months ended September 30, 2017, there was $2,708 and $92 of interest expense primarily related to financing for the construction support vessel and ROV support vessel, respectively, flat compared to the prior period.
Other Income
Other Income in the Offshore Energy segment increased $1,093 and $8,545 in the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively, primarily due to transfer of interests from the non-controlling interest holder to the Company as settlement for a note receivable, resulting in a gain of $1,093 in the third quarter of 2017. Also, contributing to the change in the nine months ended was the net impact of the asset impairment recorded in the second quarter of 2016.
Adjusted Net Loss
Adjusted Net Loss decreased $1,527 and $3,440 in the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016, respectively. The decrease in both periods is primarily due to the changes to net loss attributable to shareholders described above, with the addition of the net impact of the impairment recorded in the second quarter of 2016 contributing to the decrease in the nine months ended September 30, 2017.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $1,507 and $3,348 in the three and nine months ended September 30, 2017, compared to the three and nine months ended September 30, 2016, respectively. The increase in both periods is primarily due to lower net loss attributable to shareholders of $1,532 and $7,165 in the three and nine months ended September 30, 2017, respectively, compared to the three months ended September 30, 2017. The increase in both periods was partially offset by a decrease in depreciation and amortization expense of $62 and $107 in the three and nine months ended September 30, 2017, respectively. The increase in the nine months ended September 30, 2017 was also partially offset by the asset impairment charge recorded during 2016, there was no asset impairment in 2017.
Shipping Containers Segment
In our Shipping Containers segment, we own, through a joint venture, interest in approximately 36,000 maritime shipping containers and related equipment through one portfolio. The chart below describes the assets in our Shipping Containers segment as of September 30, 2017:
|
| | | | | |
Shipping Containers Assets |
Number of Containers | Type | Average Age | Lease Type | Customer Mix | Economic Interest (%) |
36,000 | 20’ Dry 20’ Reefer 40’ Dry 40’ HC Dry 40’ HC Reefer
| ~9 Years | Direct Finance Lease/Operating Lease | 5 Customers | 51% |
The following table presents our results of operations and reconciliation of Net (loss) income attributable to shareholders to Adjusted Net (Loss) Income for the Shipping Containers segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues | |
Equipment leasing revenues | | | | | | | | | | | |
Finance lease income | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,112 |
| | $ | (1,112 | ) |
Other revenue | 25 |
| | 25 |
| | — |
| | 75 |
| | 75 |
| | — |
|
Total revenues | 25 |
| | 25 |
| | — |
| | 75 |
| | 1,187 |
| | (1,112 | ) |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 8 |
| | 1 |
| | 7 |
| | 8 |
| | 43 |
| | (35 | ) |
Interest expense | — |
| | — |
| | — |
| | — |
| | 410 |
| | (410 | ) |
Total expenses | 8 |
| | 1 |
| | 7 |
| | 8 |
| | 453 |
| | (445 | ) |
| | | | | | | | | | | |
Other (expense) income | | | | | | | | | | | |
Equity in earnings / (losses) of unconsolidated entities | 359 |
| | (1,161 | ) | | 1,520 |
| | (316 | ) | | (1,335 | ) | | 1,019 |
|
Gain on sale of finance leases, net | — |
| | — |
| | — |
| | — |
| | 304 |
| | (304 | ) |
Other expense | — |
| | — |
| | — |
| | — |
| | (2 | ) | | 2 |
|
Total other income (expense) | 359 |
| | (1,161 | ) | | 1,520 |
| | (316 | ) | | (1,033 | ) | | 717 |
|
Income (loss) before income taxes | 376 |
| | (1,137 | ) | | 1,513 |
| | (249 | ) | | (299 | ) | | 50 |
|
Benefit from income taxes | (10 | ) | | (41 | ) | | 31 |
| | (44 | ) | | (54 | ) | | 10 |
|
Net (loss) income attributable to shareholders | $ | 386 |
| | $ | (1,096 | ) | | $ | 1,482 |
| | $ | (205 | ) | | $ | (245 | ) | | $ | 40 |
|
Add: Benefit from income taxes | (10 | ) | | (41 | ) | | 31 |
| | (44 | ) | | (54 | ) | | 10 |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Changes in fair value of non-hedge derivative instruments | — |
| | — |
| | — |
| | — |
| | 3 |
| | (3 | ) |
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities (1) | 313 |
| | (1,207 | ) | | 1,520 |
| | (454 | ) | | (1,444 | ) | | 990 |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Equity in earnings / (losses) of unconsolidated entities | (359 | ) | | 1,161 |
| | (1,520 | ) | | 316 |
| | 1,335 |
| | (1,019 | ) |
Less: Non-controlling share of Adjusted Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted Net Income (Loss) | $ | 330 |
| | $ | (1,183 | ) | | $ | 1,513 |
| | $ | (387 | ) | | $ | (405 | ) | | $ | 18 |
|
(1) Pro-rata share of Adjusted Net Income from unconsolidated entities includes Shipping’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above.
The following table sets forth a reconciliation of net income (loss) attributable to shareholders to Adjusted EBITDA for the Shipping Containers segment for the three and nine months ended September 30, 2017 and September 30, 2016: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands) | 2017 | | 2016 | | | 2017 | | 2016 | |
Net (loss) income attributable to shareholders | $ | 386 |
| | $ | (1,096 | ) | | $ | 1,482 |
| | $ | (205 | ) | | $ | (245 | ) | | $ | 40 |
|
Add: Benefit from income taxes | (10 | ) | | (41 | ) | | 31 |
| | (44 | ) | | (54 | ) | | 10 |
|
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Changes in fair value of non-hedge derivative instruments | — |
| | — |
| | — |
| | — |
| | 3 |
| | (3 | ) |
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Depreciation and amortization expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Interest expense | — |
| | — |
| | — |
| | — |
| | 410 |
| | (410 | ) |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) | 509 |
| | (287 | ) | | 796 |
| | 936 |
| | 1,873 |
| | (937 | ) |
Less: Equity in earnings / (losses) of unconsolidated entities | (359 | ) | | 1,161 |
| | (1,520 | ) | | 316 |
| | 1,335 |
| | (1,019 | ) |
Less: Non-controlling share of Adjusted EBITDA | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted EBITDA (non-GAAP) | $ | 526 |
| | $ | (263 | ) | | $ | 789 |
| | $ | 1,003 |
| | $ | 3,322 |
| | $ | (2,319 | ) |
(2) The Company’s pro-rata share of Adjusted EBITDA from unconsolidated entities includes the following items for the three months ended September 30, 2017 and 2016: (i) net income (loss) of $313 and $(1,208), (ii) interest expense of $176 and $270, and (iii) depreciation and amortization expense of $20 and $651, respectively. The Company’s pro-rata share of Adjusted EBITDA from unconsolidated entities includes the following items for the nine months ended September 30, 2017 and 2016: net loss of $454 and $1,475, offset by interest expense of $650 and $931, and depreciation and amortization expense of $740 and $2,417, respectively.
Revenues
Total revenues in the Shipping Containers segment were flat and decreased $1,112 in the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively. The decrease for the nine months ended September 30, 2017 compared to September 30, 2016 is primarily driven by the sale of 42,000 shipping containers that were subject to direct finance leases during the first quarter of 2016.
Expenses
Total expenses in the Shipping Containers segment increased $7 and decreased $445, in the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively. The decrease in the nine months ended September 30, 2017, primarily reflects lower interest expense of $410 due to lower principal balances on the term loans along with the termination of the term loan in conjunction with the sale of the shipping containers during the first quarter of 2016. Additionally, the sale of the 42,000 shipping containers resulted in a decrease in operating expense of $35 in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.
Other (Expense) Income
Total other income in the Shipping Containers segment increased $1,520 and $717 in the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively. This was primarily driven by income earned from our shipping container joint venture. Also contributing to the decrease in the nine months ended September 30, 2017 period was the gain on sale of direct finance leases of $304 from the sale of 42,000 shipping containers during the first quarter of 2016.
Adjusted Net (Loss) Income
Adjusted Net Income increased $1,513 in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, primarily due to the changes noted above.
Adjusted Net Loss decreased $18 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, reflecting the changes noted above coupled with a decrease in the pro-rata share of Adjusted Net Loss from unconsolidated entities. These changes were mostly offset by the change in equity of losses of unconsolidated entities.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $526 and $1,003 in the three and nine months ended September 30, 2017, respectively, an increase of $789 and decrease of $2,319 as compared to the three and nine months ended September 30, 2016, respectively. The increase in the three months ended September 30, 2017 primarily reflects a higher net income partially offset by the change in equity in unconsolidated entities. The decrease in the nine months ended September 30, 2017 primarily reflects the change in equity in unconsolidated entities coupled with a lower pro-rata share of Adjusted EBITDA from unconsolidated entities. Also contributing to the decrease was finance lease income in the nine months ended September 30, 2016 driven by the sale of 42,000 shipping containers during the first quarter of 2016.
Jefferson Terminal Segment
The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for the Jefferson Terminal segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues | |
Infrastructure revenues | | | | | | | | | | | |
Terminal services revenues | $ | 1,730 |
| | $ | 4,255 |
| | $ | (2,525 | ) | | $ | 9,622 |
| | $ | 11,271 |
| | $ | (1,649 | ) |
Total revenues | 1,730 |
| | 4,255 |
| | (2,525 | ) | | 9,622 |
| | 11,271 |
| | (1,649 | ) |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 7,039 |
| | 6,796 |
| | 243 |
| | 21,919 |
| | 16,182 |
| | 5,737 |
|
Acquisition and transaction expenses | — |
| | 109 |
| | (109 | ) | | — |
| | 400 |
| | (400 | ) |
Depreciation and amortization | 3,978 |
| | 3,920 |
| | 58 |
| | 11,885 |
| | 11,589 |
| | 296 |
|
Interest expense | 1,408 |
| | 4,016 |
| | (2,608 | ) | | 4,283 |
| | 11,804 |
| | (7,521 | ) |
Total expenses | 12,425 |
| | 14,841 |
| | (2,416 | ) | | 38,087 |
| | 39,975 |
| | (1,888 | ) |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Equity in losses of unconsolidated entities | (24 | ) | | — |
| | (24 | ) | | (99 | ) | | — |
| | (99 | ) |
Loss on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | (1,579 | ) | | 1,579 |
|
Interest income (expense) | 160 |
| | 196 |
| | (36 | ) | | 361 |
| | 69 |
| | 292 |
|
Other income | 1,055 |
| | 485 |
| | 570 |
| | 1,087 |
| | 585 |
| | 502 |
|
Total other income (expense) | 1,191 |
| | 681 |
| | 510 |
| | 1,349 |
| | (925 | ) | | 2,274 |
|
Loss before income taxes | (9,504 | ) | | (9,905 | ) | | 401 |
| | (27,116 | ) | | (29,629 | ) | | 2,513 |
|
(Benefit from) provision for income taxes | (3 | ) | | 20 |
| | (23 | ) | | 31 |
| | 55 |
| | (24 | ) |
Net loss | (9,501 | ) | | (9,925 | ) | | 424 |
| | (27,147 | ) | | (29,684 | ) | | 2,537 |
|
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | (4,806 | ) | | (4,241 | ) | | (565 | ) | | (13,209 | ) | | (12,522 | ) | | (687 | ) |
Net loss attributable to shareholders | $ | (4,695 | ) | | $ | (5,684 | ) | | $ | 989 |
| | $ | (13,938 | ) | | $ | (17,162 | ) | | $ | 3,224 |
|
Add: (Benefit from) provision for income taxes | (3 | ) | | 20 |
| | (23 | ) | | 31 |
| | 55 |
| | (24 | ) |
Add: Equity-based compensation expense | 90 |
| | — |
| | 90 |
| | 228 |
| | (4,168 | ) | | 4,396 |
|
Add: Acquisition and transaction expenses | — |
| | 109 |
| | (109 | ) | | — |
| | 400 |
| | (400 | ) |
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | — |
| | 1,579 |
| | (1,579 | ) |
Add: Changes in fair value of non-hedge derivative instruments | (1,036 | ) | | — |
| | (1,036 | ) | | (1,036 | ) | | — |
| | (1,036 | ) |
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Pro-rata share of Adjusted Net Loss from unconsolidated entities (1) | (24 | ) | | — |
| | (24 | ) | | (99 | ) | | — |
| | (99 | ) |
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | 3 |
| | — |
| | 3 |
| | (79 | ) | | (52 | ) | | (27 | ) |
Less: Equity in losses of unconsolidated entities | 24 |
| | — |
| | 24 |
| | 99 |
| | — |
| | 99 |
|
Less: Non-controlling share of Adjusted Net Loss(2) | (440 | ) | | (164 | ) | | (276 | ) | | (475 | ) | | 853 |
| | (1,328 | ) |
Adjusted Net Loss | $ | (6,081 | ) | | $ | (5,719 | ) | | $ | (362 | ) | | $ | (15,269 | ) | | $ | (18,495 | ) | | $ | 3,226 |
|
(1) Pro-rata share of Adjusted Net Loss from unconsolidated entities includes Jefferson’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above, for which there were no adjustments.
(2) Jefferson Terminal’s non-controlling share of Adjusted Net Loss is comprised of the following for the three months ended September 30, 2017 and 2016: (i) equity-based compensation of $36 and $0, (ii) provision for income taxes of $(1) and $8, (iii) acquisition and transaction expenses of $0 and $156 and (iv) changes in fair value of non-hedge derivative instruments of $404 and $0, less (v) cash tax payments of $(1) and $0, respectively. Jefferson Terminal’s non-controlling share of Adjusted Net Loss is comprised of the following for the nine months
ended September 30, 2017 and 2016: (i) equity-based compensation of $90 and $(1,627), (ii) provision for income taxes of $12 and $22, (iii) acquisition and transaction expenses of $0 and $156, (iv) changes in fair value of non-hedge derivative instruments of $404 and $0, and (v) loss on extinguishment of debt of $0 and $616, less (iv) cash paid for income taxes of $31 and $20, respectively.
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for the Jefferson Terminal segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands) | 2017 | | 2016 | | | 2017 | | 2016 | |
Net loss attributable to shareholders | $ | (4,695 | ) | | $ | (5,684 | ) | | $ | 989 |
| | $ | (13,938 | ) | | $ | (17,162 | ) | | $ | 3,224 |
|
Add: Provision for income taxes | (3 | ) | | 20 |
| | (23 | ) | | 31 |
| | 55 |
| | (24 | ) |
Add: Equity-based compensation expense | 90 |
| | — |
| | 90 |
| | 228 |
| | (4,168 | ) | | 4,396 |
|
Add: Acquisition and transaction expenses | — |
| | 109 |
| | (109 | ) | | — |
| | 400 |
| | (400 | ) |
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | — |
| | 1,579 |
| | (1,579 | ) |
Add: Changes in fair value of non-hedge derivative instruments | (1,036 | ) | | — |
| | (1,036 | ) | | (1,036 | ) | | — |
| | (1,036 | ) |
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Depreciation and amortization expense | 3,978 |
| | 3,920 |
| | 58 |
| | 11,885 |
| | 11,589 |
| | 296 |
|
Add: Interest expense | 1,408 |
| | 4,016 |
| | (2,608 | ) | | 4,283 |
| | 11,804 |
| | (7,521 | ) |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (3) | (24 | ) | | — |
| | (24 | ) | | (99 | ) | | — |
| | (99 | ) |
Less: Equity in losses of unconsolidated entities | 24 |
| | — |
| | 24 |
| | 99 |
| | — |
| | 99 |
|
Less: Non-controlling share of Adjusted EBITDA (4) | (2,439 | ) | | (3,160 | ) | | 721 |
| | (6,509 | ) | | (8,043 | ) | | 1,534 |
|
Adjusted EBITDA (non-GAAP) | $ | (2,697 | ) | | $ | (779 | ) | | $ | (1,918 | ) | | $ | (5,056 | ) | | $ | (3,946 | ) | | $ | (1,110 | ) |
(3)Jefferson Terminal's pro-rata share of Adjusted EBITDA from unconsolidated entities includes net loss of $24 and $0 for the three months ended September 30, 2017 and 2016, respectively. Jefferson Terminal’s pro-rata share of Adjusted EBITDA from unconsolidated entities includes net loss of $99 and $0 for the nine months ended September 30, 2017 and 2016, respectively.
(4) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended September 30, 2017 and 2016: (i) equity-based compensation of $36 and $0, (ii) provision for income taxes of $(1) and $8, (iii) interest expense of $447 and $1,466, (iv) acquisition and transaction expenses of $0 and $156, (v) changes in fair value of non-hedge derivative instruments of $404 and $0, and (vi) depreciation and amortization expense of $1,553 and $1,530, respectively. Non-controlling share of Adjusted EBITDA is comprised of the following items for the nine months ended September 30, 2017 and 2016: (i) equity-based compensation of $90 and $(1,627), (ii) provision for income taxes of $12 and $22, (iii) interest expense of $1,364 and $4,353, (iv) loss on extinguishment of debt of $0 and $616, (v) acquisition and transaction expenses of $0 and $156, (vi) changes in fair value of non-hedge derivative instruments of $404 and $0, and (vii) depreciation and amortization expense of $4,639 and $4,523, respectively.
Revenues
Total revenues in the Jefferson Terminal segment decreased $2,525 and $1,649 in the three and nine months ended September 30, 2017 as compared to the three and nine months ended September 30, 2016, respectively, reflecting lower volumes, offset by the realization of deferred revenues.
Expenses
Total expenses in the Jefferson Terminal segment decreased $2,416 in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The decrease is due to lower interest expense of $2,608 reflecting the capitalization of interest related to new construction projects in 2017. Partially offsetting the decrease was higher operating expenses of $243, which consisted of higher (i) compensation and benefit expense of $295, (ii) repairs and maintenance expense of $263, (iii) facility operations expense of $13, and (iv) other operating expenses of $82. These increases were partially offset by lower environmental expense of $410 reflecting remediation expense of an oil spill.
Total expenses decreased $1,888 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to lower interest expense of $7,521 reflecting the capitalization of interest related to new construction projects in 2017. Partially offsetting the decrease was higher operating expenses of $5,737. The increase reflects higher (i) compensation and benefits expense of $5,262, (ii) facility operations expense of $995, (iii) repairs and maintenance of $587, (iv) professional fees of $451, and (v) other operating expenses of $288. These increases were partially offset by $1,845 in
lower environmental expenses which was the result of remediation expense relating to an oil spill that occurred during the nine months ended September 30, 2016.
Adjusted Net Loss
Adjusted Net Loss was $6,081 in the three months ended September 30, 2017, increasing $362 as compared to the three months ended September 30, 2016. The increase reflects the changes in net loss attributable to shareholders noted above, mostly offset by the change in the fair value of the non-hedge derivative instrument of $1,036.
Adjusted Net Loss was $15,269 in the nine months ended September 30, 2017, decreasing $3,226 as compared to the nine months ended September 30, 2016. The decrease reflects the changes in net loss attributable to shareholders noted above coupled with the increase in equity-based compensation of $4,396. This was partially offset by a decrease in losses on modification or extinguishment of debt of $1,579 coupled with a change in the fair value of the non-hedge derivative instrument of $1,036.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $(2,697) in the three months ended September 30, 2017, a decrease of $1,918 as compared to the three months ended September 30, 2016. The decrease primarily reflects lower interest expense of $2,608 and the change in fair value of the non-hedge derivative instrument of $1,036. Partially offsetting these decreases was an increase in the non-controlling share of Adjusted EBITDA of $721 coupled with the changes in net loss attributable to shareholders noted above.
Adjusted EBITDA was $(5,056) in the nine months ended September 30, 2017, a decrease of $1,110 as compared to the nine months ended September 30, 2016. The decrease reflects (i) lower interest expense of $7,521, (ii) losses on modification or extinguishment of debt of $1,579 and (iii) the change in the fair value of the non-hedge derivative instrument of $1,036. Partially offsetting these changes was an increase in equity-based compensation of $4,396 coupled with lower net loss attributable to shareholders of $3,224.
Railroad Segment
The following table presents our results of operations and reconciliation of net income attributable to shareholders to Adjusted Net Income for the Railroad segment for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues | |
Infrastructure revenues | | | | | | | | | | | |
Rail revenues | $ | 8,258 |
| | $ | 7,401 |
| | $ | 857 |
| | $ | 24,323 |
| | $ | 23,107 |
| | $ | 1,216 |
|
Total revenues | 8,258 |
| | 7,401 |
| | 857 |
| | 24,323 |
| | 23,107 |
| | 1,216 |
|
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 6,980 |
| | 6,514 |
| | 466 |
| | 22,431 |
| | 21,004 |
| | 1,427 |
|
Depreciation and amortization | 507 |
| | 411 |
| | 96 |
| | 1,525 |
| | 1,471 |
| | 54 |
|
Interest expense | 264 |
| | 182 |
| | 82 |
| | 710 |
| | 536 |
| | 174 |
|
Total expenses | 7,751 |
| | 7,107 |
| | 644 |
| | 24,666 |
| | 23,011 |
| | 1,655 |
|
| | | | | | | | | | | |
Other (expense) income | | | | | | | | | | | |
(Loss) Gain on sale of equipment, net | (162 | ) | | 40 |
| | (202 | ) | | (206 | ) | | 286 |
| | (492 | ) |
Total other (expense) income | (162 | ) | | 40 |
| | (202 | ) | | (206 | ) | | 286 |
| | (492 | ) |
Income (loss) before income taxes | 345 |
| | 334 |
| | 11 |
| | (549 | ) | | 382 |
| | (931 | ) |
Provision for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net income (loss) | 345 |
| | 334 |
| | 11 |
| | (549 | ) | | 382 |
| | (931 | ) |
Less: Net income attributable to non-controlling interest in consolidated subsidiaries | (104 | ) | | 14 |
| | (118 | ) | | (43 | ) | | 11 |
| | (54 | ) |
Net income (loss) attributable to shareholders | $ | 449 |
| | $ | 320 |
| | $ | 129 |
| | $ | (506 | ) | | $ | 371 |
| | $ | (877 | ) |
Add: Provision for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Equity-based compensation expense | 75 |
| | 28 |
| | 47 |
| | 467 |
| | 350 |
| | 117 |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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: Pro-rata share of Adjusted Net Income from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted Net Income (1) | (7 | ) | | (6 | ) | | (1 | ) | | (28 | ) | | (19 | ) | | (9 | ) |
Adjusted Net Income (Loss) | $ | 517 |
| | $ | 342 |
| | $ | 175 |
| | $ | (67 | ) | | $ | 702 |
| | $ | (769 | ) |
(1) Non-controlling share of Adjusted Net Income is comprised of equity-based compensation of $7 and $6 for the three months ended September 30, 2017 and 2016, respectively. Non-controlling share of Adjusted Net Income is comprised of equity-based compensation of $28 and $19 for the nine months ended September 30, 2017 and 2016, respectively.
The following table sets forth a reconciliation of net income (loss) attributable to shareholders from continuing operations to Adjusted EBITDA for the Railroad segment for the three and nine months ended September 30, 2017 and September 30, 2016:EBITDA:
| | | | | | | | | | | | | | | | Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change | |
(Dollar amounts in thousands)
| 2017 | | 2016 | | 2017 | | 2016 | | |
Net income (loss) attributable to shareholders | $ | 449 |
| | $ | 320 |
| | $ | 129 |
| | $ | (506 | ) | | $ | 371 |
| | $ | (877 | ) | |
(in thousands) | | (in thousands) | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Net income (loss) attributable to shareholders from continuing operations | | Net income (loss) attributable to shareholders from continuing operations | $ | 77,299 | | | $ | 91,412 | | | $ | 135,109 | | | $ | (48,257) | | |
Add: Provision for income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Provision for income taxes | 1,087 | | | 715 | | | 372 | | | 2,082 | | | 1,701 | | | 381 | |
Add: Equity-based compensation expense | 75 |
| | 28 |
| | 47 |
| | 467 |
| | 350 |
| | 117 |
| Add: Equity-based compensation expense | 105 | | | — | | | 105 | | | 127 | | | — | | | 127 | |
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Acquisition and transaction expenses | 1,169 | | | 168 | | | 1,001 | | | 2,631 | | | 377 | | | 2,254 | |
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Losses on the modification or extinguishment of debt and capital lease obligations | — | | | — | | | — | | | — | | | — | | | — | |
Add: Changes in fair value of non-hedge derivative instruments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Changes in fair value of non-hedge derivative instruments | — | | | — | | | — | | | — | | | — | | | — | |
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Asset impairment charges | — | | | 886 | | | (886) | | | 1,220 | | | 123,676 | | | (122,456) | |
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Add: Incentive allocations | — | | | — | | | — | | | — | | | — | | | — | |
Add: Depreciation and amortization expense | 507 |
| | 411 |
| | 96 |
| | 1,525 |
| | 1,471 |
| | 54 |
| |
Add: Interest expense | 264 |
| | 182 |
| | 82 |
| | 710 |
| | 536 |
| | 174 |
| |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Less: Non-controlling share of Adjusted EBITDA (2) | (61 | ) | | (59 | ) | | (2 | ) | | (162 | ) | | (128 | ) | | (34 | ) | |
Add: Depreciation and amortization expense (1) | | Add: Depreciation and amortization expense (1) | 46,133 | | | 48,996 | | | (2,863) | | | 92,117 | | | 100,236 | | | (8,119) | |
Add: Interest expense and dividends on preferred shares | | Add: Interest expense and dividends on preferred shares | — | | | — | | | — | | | — | | | — | | | — | |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) | | Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) | 28 | | | 307 | | | (279) | | | (8) | | | 859 | | | (867) | |
Less: Equity in losses (earnings) of unconsolidated entities | | Less: Equity in losses (earnings) of unconsolidated entities | 35 | | | (246) | | | 281 | | | 134 | | | (798) | | | 932 | |
Less: Non-controlling share of Adjusted EBITDA | | Less: Non-controlling share of Adjusted EBITDA | — | | | — | | | — | | | — | | | — | | | — | |
Adjusted EBITDA (non-GAAP) | $ | 1,234 |
| | $ | 882 |
| | $ | 352 |
| | $ | 2,034 |
| | $ | 2,600 |
| | $ | (566 | ) | Adjusted EBITDA (non-GAAP) | $ | 125,856 | | | $ | 142,238 | | | $ | (16,382) | | | $ | 233,412 | | | $ | 177,794 | | | $ | 55,618 | |
(2) Non-controlling share of Adjusted EBITDA is comprised of(1) Includes the following items for the three months ended SeptemberJune 30, 20172023 and 2016:2022: (i) equity-based compensation of $7 and $6, (ii) interestdepreciation expense of $19$35,713 and $15,$37,191, (ii) lease intangible amortization of $3,616 and $3,310 and (iii) depreciationamortization for lease incentives of $6,804 and amortization expense of $35 and $38,$8,495, respectively. Non-controlling share of Adjusted EBITDA is comprised ofIncludes the following items for the ninesix months ended SeptemberJune 30, 20172023 and 2016:2022: (i) equity-based compensation of $28 and $19, (ii) interestdepreciation expense of $43$73,853 and $29,$76,419, (ii) lease intangible amortization of $7,599 and $6,968 and (iii) depreciationamortization for lease incentives of $10,665 and amortization expense of $91 and $80,$16,849, respectively.
Revenues
Total revenues in(2) Includes the Railroad segment increased $857 infollowing items for the three months ended SeptemberJune 30, 2017 compared to the same period of 2016 due to higher transportation revenue per car2023 and the seasonal volume shift to energy products. The increase reflects $625 of higher freight transportation revenue and $284 in higher switching and other rail service revenue. Partially offsetting the increase was lower car hire2022: (i) net (loss) income of $52.
Total revenues in$(35) and $246 and (ii) depreciation and amortization of $63 and $61, respectively. Includes the Railroad segment increased by $1,216 infollowing items for the ninesix months ended SeptemberJune 30, 2017 compared to the same period of 2016 due to higher traffic2023 and expanded service offerings to customers. The increase reflects $897 of higher freight transportation revenue and $495 in higher switching and other rail service revenue. Partially offsetting the increase was lower car hire2022: (i) net (loss) income of $176.$(134) and $798 and (ii) depreciation and amortization of $126 and $61, respectively.
ExpensesRevenues
Total expenses in the Railroad segment increased $644 inComparison of the three months ended SeptemberJune 30, 2017 as compared2023 and 2022
Total revenue increased $109.6 million driven by an increase in Asset sales revenue, Lease income and Maintenance revenue, partially offset by a decrease in Other revenue.
•Asset sales revenue increased $101.5 million primarily due to an increase in the sale of commercial aircraft and engines. See above discussion regarding presentation of asset sales.
•Lease income increased $10.9 million primarily due to an increase in the number of aircraft and engines placed on lease.
•Maintenance revenue increased $2.1 million primarily due an increase in the number of aircraft and engines placed on lease, and higher aircraft and engine utilization, partially offset by lower end-of-lease return compensation.
•Other revenue decreased $4.9 million primarily due to lower end-of-lease redelivery compensation.
Comparison of the six months ended June 30, 2023 and 2022
Total revenue increased $237.9 million driven by an increase in Asset sales revenue, Lease income and Other revenue.
•Asset sales revenue increased $210.2 million primarily due to an increase in the sale of commercial aircraft and engines. See above discussion regarding presentation of asset sales.
•Lease income increased $25.7 million primarily due to primarily due to an increase in the number of aircraft and engines placed on lease.
•Other revenue increased $1.5 million primarily due to an increase in end-of-lease redelivery compensation.
Expenses
Comparison of the three months ended SeptemberJune 30, 20162023 and 2022
Total expenses increased $68.6 million primarily driven by an increase in Cost of sales, partially offset by a decrease in Depreciation and amortization expense.
•Cost of sales increased $69.6 million primarily as a result of an increase in asset sales and the gross presentation of Asset sales revenues and related costs of sales as described above.
•Depreciation and amortization expense decreased $1.5 million driven by an increase in the number of aircraft redelivered and parted out into our engine leasing pool, partially offset by an increase in the number of assets owned and on lease.
Comparison of the six months ended June 30, 2023 and 2022
Total expenses decreased $7.9 million primarily driven by a decrease in Asset impairment and Operating expenses, partially offset by an increase in Cost of sales.
•Asset impairment decreased $122.5 million primarily due to higher operating expenses. Thethe write down in 2022 of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 4 to the consolidated financial statements for additional information.
•Operating expenses decreased $46.9 million primarily as a result of decreases in provision for credit losses and other expenses as a result of the sanctions imposed on Russian airlines in 2022.
•Cost of sales increased $161.8 million as a result of an increase in operating expensesasset sales and the gross presentation of $466 reflects higher (i) general operating expenseAsset sales revenues and related costs of $516 due to certain tax benefits taken insales as described above.
Other income (expense)
Total other income decreased $54.7 million during the three months ended SeptemberJune 30, 2016 not available in the three months ended September 30, 2017, (ii) compensation and benefits of $291 and (iii) fuel expense of $87. Partially offsetting these increases was lower (i) professional fees of $89, (ii) bad debt of $79 and (iii) other expenses of $260.
Total expenses in the Railroad segment increased $1,655 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 20162023 primarily due to higher operating expenses. The increasea decrease of $54.8 million in operating expensesGain on sale of $1,427 reflects (i) general operating expense of $1,562assets, net in 2022 due to certain tax benefits takenthe change in presentation of asset sales as described above.
Total other income decreased $62.1 million during the ninesix months ended SeptemberJune 30, 2016 not available2023 primarily due to a decrease of $61.4 million in the nine months ended September 30, 2017, (ii) an increaseGain on sale of assets, net in compensation and benefits of $534 and (iii) fuel expense of $425. Partially offsetting these increases was lower (i) professional fees of $369, (ii) bad debt of $71 and (iii) other expenses of $654. Also contributing2022 due to the increase was $174change in presentation of increased interest expense related to borrowings under the CMQR Credit Agreement used to finance constructionasset sales as described above and improvements to the railroad.
Adjusted Net Income (Loss)
Adjusted Net Income increased $175a decrease of $0.9 million in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. In addition to the changes inAviation Leasing’s proportionate share of unconsolidated entities’ net loss attributable to shareholders noted above, Adjusted Net Loss was impacted by higher equity-based compensation expense of $47.
Adjusted Net Income decreased $769 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. In addition to the changes in net income (loss) attributable to shareholders noted above, Adjusted Net Income was impacted by higher equity-based compensation expense of $117.income.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $1,234decreased $16.4 million and $2,034 inincreased $55.6 million during the three and ninesix months ended SeptemberJune 30, 2017,2023, respectively, increasing $352primarily due to lower gain on sales period over period and decreasing $566 as comparedthe changes noted above.
Aerospace Products Segment
The Aerospace Products segment develops and manufactures through a joint venture, and repairs and sells, through exclusivity arrangements, aircraft engines and aftermarket components primarily for the CFM56-7B and CFM56-5B commercial aircraft engines. Our engine and module sales are facilitated through The Module Factory, a dedicated commercial maintenance program, designed to focus on modular repair and refurbishment of CFM56-7B and CFM56-5B engines, performed by a third party. Used serviceable material is sold through our exclusive partnership with AAR Corp, who is responsible for the teardown, repair, marketing and sales of spare parts from our CFM56 engine pool. We also hold a 25% interest in the Advanced Engine Repair JV which focuses on developing new cost savings programs for engine repairs and a 50% interest in Quick Turn Engine Center LLC or “Quick Turn” (previously iAero Thrust LLC), a hospital maintenance and testing facility dedicated to the three and nine months ended September 30, 2016, respectively. In addition to the changes in net income (loss) attributable to shareholders noted above, Adjusted EBITDA was also impacted primarily by higher equity-based compensation expense of $47 and $117, and an increase in interest expense of $82 and $174, in the three and nine months ended September 30, 2017, respectively, as compared to the three and nine months ended September 30, 2016.CFM56 engine.
The following table presents our results of operations andoperations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands) | 2023 | | 2022 | | | 2023 | | 2022 | |
Aerospace products revenue | $ | 68,075 | | | $ | 26,497 | | | $ | 41,578 | | | $ | 153,188 | | | $ | 40,810 | | | $ | 112,378 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Cost of sales | 34,974 | | | 15,141 | | | 19,833 | | | 88,410 | | | 24,191 | | | 64,219 | |
Operating expenses | 3,236 | | | 2,980 | | | 256 | | | 6,891 | | | 4,603 | | | 2,288 | |
Acquisition and transaction expenses | 272 | | | — | | | 272 | | | 1,027 | | | — | | | 1,027 | |
Depreciation and amortization | 97 | | | 67 | | | 30 | | | 183 | | | 101 | | | 82 | |
Total expenses | 38,579 | | | 18,188 | | | 20,391 | | | 96,511 | | | 28,895 | | | 67,616 | |
| | | | | | | | | | | |
Other (expense) income | | | | | | | | | | | |
Equity in losses of unconsolidated entities | (345) | | | (211) | | | (134) | | | (1,581) | | | (565) | | | (1,016) | |
Gain on sale of assets, net | — | | | 8,861 | | | (8,861) | | | — | | | 18,562 | | | (18,562) | |
Total other (expense) income | (345) | | | 8,650 | | | (8,995) | | | (1,581) | | | 17,997 | | | (19,578) | |
Income before income taxes | 29,151 | | | 16,959 | | | 12,192 | | | 55,096 | | | 29,912 | | | 25,184 | |
Provision for income taxes | 584 | | | 1,887 | | | (1,303) | | | 1,500 | | | 1,958 | | | (458) | |
Net income | 28,567 | | | 15,072 | | | 13,495 | | | 53,596 | | | 27,954 | | | 25,642 | |
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | — | | | — | | | — | | | — | | | — | | | — | |
Net income attributable to shareholders from continuing operations | $ | 28,567 | | | $ | 15,072 | | | $ | 13,495 | | | $ | 53,596 | | | $ | 27,954 | | | $ | 25,642 | |
The following table sets forth a reconciliation of net lossincome attributable to shareholders from continuing operations to Adjusted Net Loss for Ports and TerminalsEBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands) | 2023 | | 2022 | | | 2023 | | 2022 | |
Net income attributable to shareholders from continuing operations | $ | 28,567 | | | $ | 15,072 | | | $ | 13,495 | | | $ | 53,596 | | | $ | 27,954 | | | $ | 25,642 | |
Add: Provision for income taxes | 584 | | | 1,887 | | | (1,303) | | | 1,500 | | | 1,958 | | | (458) | |
Add: Equity-based compensation expense | 70 | | | — | | | 70 | | | 85 | | | — | | | 85 | |
Add: Acquisition and transaction expenses | 272 | | | — | | | 272 | | | 1,027 | | | — | | | 1,027 | |
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 | 97 | | | 67 | | | 30 | | | 183 | | | 101 | | | 82 | |
Add: Interest expense and dividends on preferred shares | — | | | — | | | — | | | — | | | — | | | — | |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) | 122 | | | (155) | | | 277 | | | (538) | | | (453) | | | (85) | |
Less: Equity in losses of unconsolidated entities | 345 | | | 211 | | | 134 | | | 1,581 | | | 565 | | | 1,016 | |
Less: Non-controlling share of Adjusted EBITDA | — | | | — | | | — | | | — | | | — | | | — | |
Adjusted EBITDA (non-GAAP) | $ | 30,057 | | | $ | 17,082 | | | $ | 12,975 | | | $ | 57,434 | | | $ | 30,125 | | | $ | 27,309 | |
________________________________________________________(1) Includes the following items for the three and nine months ended SeptemberJune 30, 20172023 and September2022: (i) net loss of $345 and $211, (ii) depreciation and amortization expense of $372 and $56 and (iii) acquisition and transaction expense of $95 and $0, respectively. Includes the following items for the six months ended June 30, 2016:2023 and 2022: (i) net loss of $1,581 and $565, (ii) depreciation and amortization expense of $709 and $112 and (iii) acquisition and transaction expense of $334 and $0, respectively.
Revenues
Total Aerospace products revenue increased $41.6 million and $112.4 million during the three and six months ended June 30, 2023 primarily driven by an increase in sales relating to the CFM56-7B and CFM56-5B engines, engine modules, spare parts and used material inventory as operations continued to ramp-up in 2023.
Expenses
Total expenses increased $20.4 million during the three months ended June 30, 2023 primarily due to an increase in Cost of sales of $19.8 million as a result of an increase in Aerospace product sales and the gross presentation described above.
Total expenses increased $67.6 million primarily due to an increase in Cost of sales and Operating expenses during the six months ended June 30, 2023.
•Cost of sales increased $64.2 million primarily as a result of an increase in Aerospace products sales and the gross presentation described above.
•Operating expenses increased $2.3 million primarily due to an increase in commission expenses due to the increase in sales from the used material program.
Other income (expense)
Total other income decreased $9.0 million primarily due to a decrease of $8.9 million in Gain on sale of assets, net during the three months ended June 30, 2023. See above discussion regarding presentation of asset sales.
Total other income decreased $19.6 million primarily due to a decrease of $18.6 million in Gain on sale of assets, net and an increase of $1.0 million in our proportionate share of unconsolidated entities’ net loss during the six months ended June 30, 2023. See above discussion regarding presentation of asset sales.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $13.0 million and $27.3 million during the three and six months endedJune 30, 2023, respectively, primarily due to the changes noted above.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Revenues |
|
Infrastructure revenues |
|
| | | | | | | | | | |
Lease income | $ | 455 |
| | $ | 16 |
| | $ | 439 |
| | $ | 594 |
| | $ | 16 |
| | $ | 578 |
|
Other revenue | 303 |
| | — |
| | 303 |
| | 303 |
| | — |
| | 303 |
|
Total revenues | 758 |
| | 16 |
| | 742 |
| | 897 |
| | 16 |
| | 881 |
|
|
|
| | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 2,852 |
|
| 417 |
| | 2,435 |
| | 4,510 |
| | 417 |
| | 4,093 |
|
Depreciation and amortization | 783 |
| | — |
| | 783 |
| | 868 |
| | — |
| | 868 |
|
Interest expense | 273 |
| | 284 |
| | (11 | ) | | 817 |
| | 284 |
| | 533 |
|
Total expenses | 3,908 |
| | 701 |
| | 3,207 |
| | 6,195 |
| | 701 |
| | 5,494 |
|
Loss before income taxes | (3,150 | ) | | (685 | ) | | (2,465 | ) | | (5,298 | ) | | (685 | ) | | (4,613 | ) |
Provision for income taxes | — |
| | 4 |
| | (4 | ) | | — |
| | 5 |
| | (5 | ) |
Net loss | (3,150 | ) | | (689 | ) | | (2,461 | ) | | (5,298 | ) | | (690 | ) | | (4,608 | ) |
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | — |
| | (69 | ) | | 69 |
| | (483 | ) | | (69 | ) | | (414 | ) |
Net loss attributable to shareholders | $ | (3,150 | ) | | $ | (620 | ) | | $ | (2,530 | ) | | $ | (4,815 | ) | | $ | (621 | ) | | $ | (4,194 | ) |
Add: Provision for income taxes | — |
| | 4 |
| | (4 | ) | | — |
| | 5 |
| | (5 | ) |
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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: Pro-rata share of Adjusted Net Income from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | — |
| | — |
| | — |
| | — |
| | (5 | ) | | 5 |
|
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted Net Loss | $ | (3,150 | ) | | $ | (616 | ) | | $ | (2,534 | ) | | $ | (4,815 | ) | | $ | (621 | ) | | $ | (4,194 | ) |
Corporate and Other
The following table presents our results of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands) | 2023 | | 2022 | | | 2023 | | 2022 | |
Revenues | | | | | | | | | | | |
Lease income | $ | 11,374 | | | $ | 2,342 | | | $ | 9,032 | | | $ | 18,522 | | | $ | 7,709 | | | $ | 10,813 | |
Other revenue | 2,865 | | | 791 | | | 2,074 | | | 4,282 | | | 2,090 | | | 2,192 | |
Total revenues | 14,239 | | | 3,133 | | | 11,106 | | | 22,804 | | | 9,799 | | | 13,005 | |
| | | | | | | | | | | |
Expenses | | | | | | | | | | | |
Operating expenses | 13,983 | | | 8,890 | | | 5,093 | | | 25,774 | | | 14,595 | | | 11,179 | |
General and administrative | 3,188 | | | 3,906 | | | (718) | | | 7,255 | | | 8,467 | | | (1,212) | |
Acquisition and transaction expenses | 1,231 | | | 3,051 | | | (1,820) | | | 2,276 | | | 5,115 | | | (2,839) | |
Management fees and incentive allocation to affiliate | 5,563 | | | — | | | 5,563 | | | 8,560 | | | — | | | 8,560 | |
Depreciation and amortization | 2,704 | | | 2,045 | | | 659 | | | 5,404 | | | 4,088 | | | 1,316 | |
Interest expense | 38,499 | | | 47,889 | | | (9,390) | | | 77,791 | | | 92,030 | | | (14,239) | |
Total expenses | 65,168 | | | 65,781 | | | (613) | | | 127,060 | | | 124,295 | | | 2,765 | |
| | | | | | | | | | | |
Other income | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other income | — | | | 1,080 | | | (1,080) | | | — | | | 1,043 | | | (1,043) | |
Total other income | — | | | 1,080 | | | (1,080) | | | — | | | 1,043 | | | (1,043) | |
Loss before income taxes | (50,929) | | | (61,568) | | | 10,639 | | | (104,256) | | | (113,453) | | | 9,197 | |
Provision for (benefit from) income taxes | 184 | | | (773) | | | 957 | | | 299 | | | (491) | | | 790 | |
Net loss | (51,113) | | | (60,795) | | | 9,682 | | | (104,555) | | | (112,962) | | | 8,407 | |
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | — | | | — | | | — | | | — | | | — | | | — | |
Less: Dividends on preferred shares | 8,335 | | | 6,791 | | | 1,544 | | | 15,126 | | | 13,582 | | | 1,544 | |
Net loss attributable to shareholders from continuing operations | $ | (59,448) | | | $ | (67,586) | | | $ | 8,138 | | | $ | (119,681) | | | $ | (126,544) | | | $ | 6,863 | |
The following table sets forth a reconciliation of net loss attributable to shareholders from continuing operations to Adjusted EBITDA for PortsEBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
(in thousands) | 2023 | | 2022 | | | 2023 | | 2022 | |
Net loss attributable to shareholders from continuing operations | $ | (59,448) | | | $ | (67,586) | | | $ | 8,138 | | | $ | (119,681) | | | $ | (126,544) | | | $ | 6,863 | |
Add: Provision for (benefit from) income taxes | 184 | | | (773) | | | 957 | | | 299 | | | (491) | | | 790 | |
Add: Equity-based compensation expense | 335 | | | — | | | 335 | | | 406 | | | — | | | 406 | |
Add: Acquisition and transaction expenses | 1,231 | | | 3,051 | | | (1,820) | | | 2,276 | | | 5,115 | | | (2,839) | |
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 | 5,324 | | | — | | | 5,324 | | | 8,266 | | | — | | | 8,266 | |
Add: Depreciation and amortization expense | 2,704 | | | 2,045 | | | 659 | | | 5,404 | | | 4,088 | | | 1,316 | |
Add: Interest expense and dividends on preferred shares | 46,834 | | | 54,680 | | | (7,846) | | | 92,917 | | | 105,612 | | | (12,695) | |
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | — | | | — | | | — | | | — | | | — | | | — | |
Less: Equity in losses (earnings) of unconsolidated entities | — | | | — | | | — | | | — | | | — | | | — | |
Less: Non-controlling share of Adjusted EBITDA | — | | | — | | | — | | | — | | | — | | | — | |
Adjusted EBITDA (non-GAAP) | $ | (2,836) | | | $ | (8,583) | | | $ | 5,747 | | | $ | (10,113) | | | $ | (12,220) | | | $ | 2,107 | |
Revenues
Total revenues increased $11.1 million and Terminals for$13.0 million during the three and ninesix months ended SeptemberJune 30, 2017 and September 30, 2016:2023 primarily due to an increase in the Offshore Energy business driven by increased number of days on-hire for one of our vessels.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands) | 2017 | | 2016 | | | 2017 | | 2016 | |
Net loss attributable to shareholders | $ | (3,150 | ) | | $ | (620 | ) | | $ | (2,530 | ) | | $ | (4,815 | ) | | $ | (621 | ) | | $ | (4,194 | ) |
Add: Benefit from income taxes | — |
| | 4 |
| | (4 | ) | | — |
| | 5 |
| | (5 | ) |
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
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: Depreciation and amortization expense | 783 |
| | — |
| | 783 |
| | 868 |
| | — |
| | 868 |
|
Add: Interest expense | 273 |
| | 284 |
| | (11 | ) | | 817 |
| | 284 |
| | 533 |
|
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) | — |
| | (28 | ) | | 28 |
| | — |
| | (28 | ) | | 28 |
|
Adjusted EBITDA | $ | (2,094 | ) | | $ | (360 | ) | | $ | (1,734 | ) | | $ | (3,130 | ) | | $ | (360 | ) | | $ | (2,770 | ) |
(1) Non-controlling shareComparison of Adjusted EBITDA is comprised of the following items for the three months ended SeptemberJune 30, 20172023 and 2016: (i) interest expense of $0 and $28, respectively. Non-controlling share of Adjusted EBITDA is comprised of the following items for the nine months ended September 30, 2017 and 2016: (i) interest expense of $0 and $28, respectively.
Revenues
For the three and nine months ended September 30, 2017, there was $455 and $594, respectively, of lease income from existing lease agreements acquired with the acquisitions of Repauno and Hannibal. For the three and nine months ended September 30, 2017, there was $303 of other revenue, relating to the reimbursement of costs from leases at Hannibal.
Expenses2022
Total expenses increased by $3,207 for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase in expenses for the three months ended September 30, 2017decreased $0.6 million primarily consisted of increases in operating expenses of $2,435 , which consisted of (i) professional fees of $1,173 , (ii) facility operations of $772, (iii) compensation and benefits of $306, (iv) insurance expense of $79, and (v) other operating expenses of $105. There was depreciation expense of $783, due to the acquisition of Hannibal in the second quarter, as well as the placement of assets into service at Repauno during the third quarter of 2017.
Total expenses increased by $5,494 for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase in expenses primarily consisted of increases in operating expenses of $4,093, which consisted of (i) professional fees of $1,323, (ii) facility operations of $879, (iii) compensation and benefits of $1,248, (iv) insurance expense of $159, and (v) other operating expenses of $484. There was depreciation expense of $868, due to the acquisition of Hannibal in the second quarter, as well as the placement of assets into service at Repauno during the third quarter of 2017.lower Interest expense increased by $533 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to the payment obligation to the non-controlling interest holder as part of the Repauno purchase.
Adjusted Net Loss
Adjusted Net Loss increased by $2,534 and $4,194 for the three and nine months ended September 30, 2017, respectively, due to the changes in net loss attributable to shareholders noted above.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA was $(2,094) and $(3,130) for the three and nine months ended September 30, 2017, respectively. In addition to the changes in net loss attributable to shareholders noted above, Adjusted EBITDA for the three and nine months ended September 30, 2017 includes the impact of depreciation expense of $783 and $868, as well as interest expense of $273 and $817 as a result of interest expense related to an obligation payable to the non-controlling interest as part of the Repauno purchase, respectively.
Corporate
The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for Corporate for the three and nine months ended September 30, 2017 and September 30, 2016: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands)
| 2017 | | 2016 | | | 2017 | | 2016 | |
Expenses | | | | | | | | | | | |
Operating expenses | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
| $ | (6 | ) |
General and administrative | 3,439 |
| | 3,205 |
| | 234 |
| | 10,615 |
| | 9,154 |
| | 1,461 |
|
Acquisition and transaction expenses | 1,726 |
| | 1,579 |
| | 147 |
| | 4,788 |
| | 4,222 |
| | 566 |
|
Management fees and incentive allocation to affiliate | 3,771 |
| | 4,146 |
| | (375 | ) | | 11,529 |
| | 12,725 |
| | (1,196 | ) |
Interest expense | 6,023 |
| | — |
| | 6,023 |
| | 12,682 |
| | — |
| | 12,682 |
|
Total expenses | 14,959 |
| | 8,930 |
| | 6,029 |
| | 39,614 |
| | 26,107 |
| | 13,507 |
|
| | | | | | | | | | | |
Other expense | | | | | | | | | | | |
Loss on extinguishment of debt | — |
| | — |
| | — |
| | (2,456 | ) | | — |
| | (2,456 | ) |
Total other expense | — |
| | — |
| | — |
| | (2,456 | ) | | — |
| | (2,456 | ) |
Loss before income taxes | (14,959 | ) | | (8,930 | ) | | (6,029 | ) | | (42,070 | ) | | (26,107 | ) | | (15,963 | ) |
Provision for income taxes | — |
| | — |
| | — |
| | — |
| | 1 |
| | (1 | ) |
Net loss | (14,959 | ) | | (8,930 | ) | | (6,029 | ) | | (42,070 | ) | | (26,108 | ) | | (15,962 | ) |
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries | — |
| | (3 | ) | | 3 |
| | — |
| | (9 | ) | | 9 |
|
Net loss attributable to shareholders | $ | (14,959 | ) | | $ | (8,927 | ) | | $ | (6,032 | ) | | $ | (42,070 | ) | | $ | (26,099 | ) | | $ | (15,971 | ) |
Add: Provision for income taxes | — |
| | — |
| | — |
| | — |
| | 1 |
| | (1 | ) |
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| �� | — |
| | — |
|
Add: Acquisition and transaction expenses | 1,726 |
| | 1,579 |
| | 147 |
| | 4,788 |
| | 4,222 |
| | 566 |
|
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | 2,456 |
| | — |
| | 2,456 |
|
Add: Changes in fair value of non-hedge derivative instruments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Pro-rata share of Adjusted Net Income from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Cash payments for income taxes | (440 | ) | | — |
| | (440 | ) | | (953 | ) | | 1 |
| | (954 | ) |
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted Net Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted Net Loss | $ | (13,673 | ) | | $ | (7,348 | ) | | $ | (6,325 | ) | | $ | (35,779 | ) | | $ | (21,875 | ) | | $ | (13,904 | ) |
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for Corporate for the three and nine months ended September 30, 2017 and September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change | | Nine Months Ended September 30, | | Change |
(Dollar amounts in thousands) | 2017 | | 2016 | | | 2017 | | 2016 | |
Net loss attributable to shareholders | $ | (14,959 | ) | | $ | (8,927 | ) | | $ | (6,032 | ) | | $ | (42,070 | ) | | $ | (26,099 | ) | | $ | (15,971 | ) |
Add: Provision for income taxes | — |
| | — |
| | — |
| | — |
| | 1 |
| | (1 | ) |
Add: Equity-based compensation expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Acquisition and transaction expenses | 1,726 |
| | 1,579 |
| | 147 |
| | 4,788 |
| | 4,222 |
| | 566 |
|
Add: Losses on the modification or extinguishment of debt and capital lease obligations | — |
| | — |
| | — |
| | 2,456 |
| | — |
| | 2,456 |
|
Add: Changes in fair value of non-hedge derivative instruments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Asset impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Incentive allocations | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Depreciation and amortization expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Add: Interest expense | 6,023 |
| | — |
| | 6,023 |
| | 12,682 |
| | — |
| | 12,682 |
|
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Equity in earnings of unconsolidated entities | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Less: Non-controlling share of Adjusted EBITDA | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted EBITDA | $ | (7,210 | ) | | $ | (7,348 | ) | | $ | 138 |
| | $ | (22,144 | ) | | $ | (21,876 | ) | | $ | (268 | ) |
Expenses
Total expenses increased $6,029 in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase primarily consists of interest expense of $6,023 on the Senior Notes issued in 2017 and an increase in acquisitionAcquisition and transaction expenses, of $147 due to deal related expenses incurred. These increases were partially offset by a decrease in managementhigher Management fees and incentive allocation to affiliate of $375 as the average value of total equityand Operating expenses.
•Interest expense decreased during the period.
Total expenses increased $13,507 in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase primarily consists of interest expense of $12,682 on the Senior Notes issued in 2017. General and administrative costs increased $1,461 and reflected (i) $508 in higher reimbursement expenses to our Manager, (ii) $703 of higher professional fees, (iii) $270 of higher general corporate costs, and (iv) $20 of lower other general and administrative expenses. Partially offsetting these increases was lower management fees of $1,196 due to$9.4 million, which reflects a decrease in the average valueoutstanding debt of total equityapproximately $581.0 million due to decreases in (i) the 2021 Bridge Loans of $339.8 million, (ii) the Senior Notes due 2025 of $199.4 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $41.8 million.
•Acquisition and transaction expense decreased $1.8 million primarily due to lower professional fees related to strategic transactions.
•Management fees and incentive allocation to affiliate increased $5.6 million primarily due to an increase in incentive fee due to the Manager.
•Operating expenses increased $5.1 million which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel as well as increased number of days on-hire.
Comparison of the six months ended June 30, 2023 and 2022
Total expenses increased $2.8 million primarily due to higher Operating expenses and Management fees and incentive allocation to affiliate, partially offset by lower Interest expense and Acquisition and transaction expenses.
•Operating expenses increased $11.2 million which reflects increases in offshore crew expenses, project costs and other operating expenses for one of our vessels driven by increased cost of operations based on the operating location of the vessel as well as increased number of days on-hire.
•Management fees and incentive allocation to affiliate increased $8.6 million primarily due to an increase in incentive fee due to the Manager.
•Interest expense decreased $14.2 million, which reflects a decrease in the average outstanding debt of approximately $503.5 million due to decreases in (i) the 2021 Bridge Loans of $299.9 million and (ii) the Senior Notes due 2025 of $199.3 million, which were partially redeemed in August 2022, and (iii) the Revolving Credit Facility of $4.3 million.
•Acquisition and transaction expense decreased $2.8 million primarily due to lower professional fees related to strategic transactions.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $5.7 million and $2.1 million during the period.
Other Expenses
Total other expenses increased $2,456 in the ninethree and six months ended SeptemberJune 30, 2017 compared to the same period in 2016. The increase is2023, respectively, primarily due to a loss on extinguishment of debt.
Adjusted Net Loss
Adjusted Net Loss was $13,673 in the three months ended September 30, 2017, increasing by $6,325 as compared to the three months ended September 30, 2016. In addition to the changes in net loss attributable to shareholders noted above, Adjusted Net Loss was increased by acquisition and transaction expenses incurred for potential acquisition opportunities less cash payments for income taxes.above.
Adjusted Net Loss was $35,779 in the nine months ended September 30, 2017, increasing by $13,904, as compared to the nine months ended September 30, 2016. In addition to the changes in net loss attributable to shareholders noted above, Adjusted Net Loss was increased by the loss on extinguishment of debt, acquisition and transaction expenses incurred for potential acquisition opportunities less cash payments for income taxes.
Adjusted EBITDA (non-GAAP)
Adjusted EBITDA was $(7,210) for the three months ended September 30, 2017, increasing $138 compared to the same period in 2016. In addition to the changes in net loss attributable to shareholders noted above, Adjusted EBITDA was increased by acquisition and transaction expenses incurred for potential acquisition opportunities and interest expense of $6,023 related to the Senior Notes issued in March 2017.
Adjusted EBITDA was $(22,144) for the nine months ended September 30, 2017, decreasing $268 compared to the same period in 2016. In addition to the changes in net loss attributable to shareholders noted above, Adjusted EBITDA includes the impact of interest expense of $12,682 related to the Senior Notes issued in March 2017, $2,456 of a loss on extinguishment of debt and acquisition and transaction expenses incurred for potential acquisition opportunities.
Liquidity and Capital Resources
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 investments amid market volatility.
Our principal uses of liquidity have been and continue to be (i) acquisitions of transportation infrastructureaircraft and equipment,engines, (ii) distributionsdividends to our ordinary and preferred shareholders, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments (all dollar amounts are expressed in thousands).investments.
In the nine months endedSeptember 30, 2017 and 2016, cash•Cash used for the purpose of making investments was $392,177$380.8 million and $177,323, respectively.
In$457.9 million during the ninesix months ended SeptemberJune 30, 20172023 and 2016, distributions2022, respectively.
•Dividends to shareholders and holders of eligible participating securities were $75,041$75.0 million and $75,017, respectively,$79.4 million during the six months ended June 30, 2023 and no distributions were made to non-controlling interests.2022, 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 equipmentaviation assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of debt securities and (iii) distributions received from unconsolidated investees, (iv) proceeds from asset sales and (v) proceeds from the issuance of common shares.sales.
During the nine months ended September 30, 2017 and 2016, cash•Cash flows fromprovided by operating activities, plus the principal collections on finance leases and maintenance reserve collections were $87.3 million during the six months ended June 30, 2023. Cash flows used in operating activities, plus the principal collections on finance leases and maintenance reserve collections were $71,574 and $28,874, respectively.$23.6 million during the six months ended June 30, 2022
•During the ninesix months ended SeptemberJune 30, 2017,2023, additional borrowings and total principal repayments in connection with the Revolving Credit Facility were $325.0 million and $330.0 million, respectively. During the six months ended June 30, 2022, additional borrowings were obtained in connection with the Term Loan(i) 2021 Bridge Loans of $97,163, net of deferred financing costs, the$239.5 million, (ii) Revolving Credit Facility of $60,000, the CMQR Credit$255.0 million and (iii) EB-5 Loan Agreement of $20,030 and the Senior Notes of $239,998, net of deferred financing costs and repayment of the Term Loan.$9.5 million. We made total principal repaymentsrepayments of $22,623, primarily$224.5 million relating toto the FTAI PrideRevolving Credit Agreement and the CMQR Credit Agreement. During nine months ended September 30, 2016, additional borrowings were obtained in connection with the Series 2016 Bonds of $99,858 and the CMQR Credit Agreement of $10,800. We made total principal repayments of $157,603 primarily related to the termination of the Jefferson Terminal Credit Agreement, and the pay down of loans associated with the sale of our shipping container portfolios in Q1 2016.Facility.
During the nine months ended September 30, 2017 and 2016, we received $0 and $462 in cash distributions from our unconsolidated investees, respectively, of which $0, and $30 was included in cash flows from operating activities, respectively.
During the nine months ended September 30, 2017 and 2016, proceeds•Proceeds from the sale of assets were $87,144$273.2 million and $87,030, respectively.
During$142.3 million during the ninesix months ended SeptemberJune 30, 20172023 and 2016, there2022, respectively.
•Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs were no capital contributions from shareholders$61.7 million and capital contributions from non-controlling interests were $0$0.0 million during the six months ended June 30, 2023 and $7,433,2022, respectively.
Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. Our board of directors takes this and other factors into account as part of any decision to pay a dividend, and the timing and amount of any future dividend is subject to change at the discretion of our board of directors.
The Company isWe are currently evaluating several potential Infrastructuretransactions and Equipment Leasing transactions,related financings, which could occur within the next 12 months. However, as of the date of this filing, noneNone of these pipelinepotential transactions, negotiations, or negotiationsfinancings are definitive or included within theour planned liquidity needs of the Company.needs. We cannot assure you if or when any such transaction will be consummated or the terms of any such transaction.
The Company has a dividend reinvestment plan in place which allows shareholders to automatically reinvest dividends in the Company’s common shares. The plan became effective on February 24, 2017.
transaction or related financing.
Historical Cash Flow
Comparison of the ninesix months endedSeptember June 30, 20172023 and September 30, 20162022
The following table compares the historical cash flow from continuing and discontinued operations for the ninesix months ended SeptemberJune 30, 20172023 and September 30, 2016:2022:
| | | | | | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2023 | | 2022 |
Cash Flow Data: | | | |
Net cash provided by (used in) operating activities | $ | 67,241 | | | $ | (48,569) | |
Net cash used in investing activities | (101,846) | | | (306,784) | |
Net cash provided by financing activities | 2,674 | | | 212,097 | |
|
| | | | | | | |
| Nine Months Ended |
(Dollar amounts in thousands)
| September 30, 2017 | | September 30, 2016 |
Cash Flow Data: | | | |
Net cash provided by operating activities | $ | 52,443 |
| | $ | 15,662 |
|
Net cash used in investing activities | $ | (275,703 | ) | | $ | (88,004 | ) |
Net cash provided by (used in) financing activities | $ | 331,562 |
| | $ | (111,487 | ) |
Net cash provided by operating activities was $52,443 in the nine months ended September 30, 2017 as compared to $15,662 in the nine months ended September 30, 2016, representing a $36,781 increase. Net loss was $16,692 for the nine months ended September 30, 2017, compared $34,779 for the nine months endedSeptember 30, 2016,increased $115.8 million, which primarily reflects (i) an increase in netNet income of $18,087. The increase was also attributable to$304.0 million and (ii) Changes in working capital of $50.9 million, partially offset by certain adjustments to reconcile net income which include an increaseto Cash used in operating activities including, (iii) Asset impairment of (i) $4,513$122.5 million, (iv) Provision for credit losses of equity based compensation, (ii) $19,088 relating to depreciation$46.2 million, (v) Equity in losses of unconsolidated entities of $36.1 million and (vi) Depreciation and amortization and (iii) $3,419 of gains on the sale of leasing equipment, offset by a decrease of $7,450 of asset impairment charges. The increase also includes the impact of the change in other assets of $14,665 due to cash receipts in the nine months ended September 30, 2017 for a maintenance right asset that was settled upon the redelivery of an aircraft and other receivables, offset by a decrease in other liabilities of $6,922 due to a decrease in deferred revenue.$35.5 million.
Net cash used in investing activities was $275,703 in the nine months ended September 30, 2017 as compared to $88,004 in the nine months ended September 30, 2016, representing a $187,699 increase. Cash used in investing activities increaseddecreased $204.9 million, primarily due to the acquisition of leasing equipment and lease intangibles of $154,210 in the Aviation Leasing segment, cash used for investments of $23,149, and the acquisition of property, plant and equipment of $39,001 mainly due to the acquisition of Hannibal, offset by an increase in proceeds(i) higher Proceeds from the sale of leasing equipment of $71,188$135.2 million and change in restricted cash of $29,782 in nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Additionally, cash used in investing activities increased due to(ii) a decrease in cash receivedAcquisitions of property, plant and equipment of $116.4 million partially offset by (iii) an increase in Investment in unconsolidated entities of $17.3 million, (iv) a decrease in Proceeds for thedeposit on sale of two finance leases, resultingaircraft and engine of $6.4 million, (v) an increase in proceedsAcquisition of $71,000lease intangibles of $5.5 million and (vi) an increase in the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2017.Acquisitions of leasing equipment of $4.7 million.
Net cash provided by financing activities was $331,562 in the nine months ended September 30, 2017 as compared to cash used in financing activities of $111,487 in the nine months ended September 30, 2016, representing a $443,049 increase. Such increase was attributabledecreased $209.4 million, primarily due to (i) proceedsa decrease in Proceeds from borrowings underdebt of $179.0 million, and (ii) an increase in Repayments of debt of $105.3 million partially offset by (iii) an increase in Proceeds from the Term Loanissuance of $97,163, netpreferred shares of $61.7 million, and (iv) a decrease in Payments of deferred financing costs the Revolving Credit Facility of $60,000, the CMQR Credit Agreement$13.0 million.
We also have current availability for borrowing of $20,030up to $155.0 million.
Cash Flow of Discontinued Operations
The cash flows related to discontinued operations have not been segregated and the Senior Notes of $239,998, net of deferred financing costs and repayment of the Term Loan, (ii) a decreaseare included in the repaymentConsolidated Statements of debt related to the termination of the Jefferson Terminal Credit Agreement and loans associated with the sale of our shipping containers in the nine months ended September 30, 2016, and (iii) an increase in receipt of maintenance deposits of $7,978, offset by a decrease in cash contributions from non-controlling interests of $7,433.
Funds AvailableCash Flows for Distribution (Non-GAAP)all periods presented.
The Company uses Funds Available for Distribution (“FAD”) in evaluating itsabsence of cash flows from discontinued operations is not expected to adversely affect our liquidity or our ability to meet its 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. The Company believes FAD is a useful metric for investors and analysts for similar purposes.
The Company defines 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 excluding changes in working capital. The following table sets forth a reconciliation of Net Cash Provided by Operating Activities to FAD:
|
| | | | | | | |
| Nine Months Ended |
(Dollar amounts in thousands) | September 30, 2017 | | September 30, 2016 |
Net Cash Provided by Operating Activities | $ | 52,443 |
|
| $ | 15,662 |
|
Add: Principal Collections on Finance Leases | 347 |
|
| 2,406 |
|
Add: Proceeds from sale of assets (1) | 87,144 |
|
| 87,530 |
|
Add: Return of Capital Distributions from Unconsolidated Entities | �� |
|
| 432 |
|
Less: Required Payments on Debt Obligations (2) | (8,368 | ) |
| (52,105 | ) |
Less: Capital Distributions to Non-Controlling Interest | — |
|
| — |
|
Exclude: Changes in Working Capital | (1,563 | ) |
| 2,370 |
|
Funds Available for Distribution (FAD) | $ | 130,003 |
|
| $ | 56,295 |
|
(1) Proceeds from sale of assets for the nine months ended September 30, 2016 includes $500 received in December 2015 for a deposit on the sale of a commercial jet engine, which was completed in the nine months ended September 30, 2016.
(2) Required payments on debt obligations for the nine months ended September 30, 2017 excludes $100,000 repayment of the Term Loan and $14,255 repayment of the CMQR loan, and for the nine months ended September 30, 2016 excludes $98,750 repayment upon the termination of the Jefferson Terminal Credit Agreement and $6,748 repayment under the CMQR Credit Agreement, which were voluntary refinancings as repayment of these amounts were not required at such time.
Limitations
FAD is subject to a number of limitations and assumptions and there can be no assurance that the Company will generate FAD sufficient to meet its intended dividends. FAD has material limitations as a liquidity measure of the Company because such measure excludes items that are required elements of the Company’s net cash provided by operating activities as described below. FAD should not be considered in isolation nor as a substitute for analysis of the Company’s results of operations under GAAP, and it is not the only metric that should be considered in evaluating the Company’s ability to meet its stated dividend policy. Specifically:
FAD does not include equity capital called from the Company’s existing limited partners, proceeds from any debt issuance or future equity offering, historical cash and cash equivalents and expected investments in the Company’s 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 the Company relies on alternative sources of liquidity to fund such purchases.
FAD does not reflect expenditures related to capital expenditures acquisitions and other investments as the Company has multiple sources of liquidity and intends 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 the Company’s distribution decisions.needs. The discontinued operations historically generate negative operating and investing cash flows.
Management has significant discretion to make distributions, and the Company is not bound by any contractual provision that requires it to use cash for distributions.
If such factors were included in FAD, there can be no assurance that the results would be consistent with the Company’s presentation of FAD.
Debt Obligations
Refer to Note 8 of the Consolidated Financial Statements for detail.
Contractual Obligations
TheOur material cash requirements include the following table summarizescontractual and other obligations:
Debt Obligations—As of June 30, 2023, we had outstanding principal and interest payment obligations of $2.2 billion and $0.6 billion, respectively, of which only interest payments of $152.2 million are due in the next twelve months. See Note 7 to the consolidated financial statements for additional information about our futuredebt obligations.
Lease Obligations—As of June 30, 2023, we had outstanding operating and finance lease obligations by periodof $2.5 million, of which $0.8 million is due as of September 30, 2017, underin the next twelve months.
Other Cash Requirements—In addition to our various contractual obligations, we pay quarterly cash dividends on our ordinary shares and commitments. We had no off-balance sheet arrangements aspreferred shares, which are subject to change at the discretion of September 30, 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
(in thousands)
| 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
FTAI Pride Credit Agreement | $ | — |
| | $ | 6,250 |
| | $ | 47,743 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 53,993 |
|
CMQR Credit Agreement | — |
| | — |
| | 18,400 |
| | — |
| | — |
| | — |
| | 18,400 |
|
Revolving Credit Facility | — |
| | — |
| | 60,000 |
| | — |
| | — |
| | — |
| | 60,000 |
|
Jefferson Bonds Payable | — |
| | 1,545 |
| | 1,670 |
| | 146,010 |
| | 1,960 |
| | 35,780 |
| | 186,965 |
|
Senior Notes | — |
| | — |
| | — |
| | — |
| | — |
| | 350,000 |
| | 350,000 |
|
Note payable to non-controlling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total principal payments on loans and bonds payable | — |
| | 7,795 |
| | 127,813 |
| | 146,010 |
| | 1,960 |
| | 385,780 |
| | 669,358 |
|
| | | | | | | | | | | | | |
Total estimated interest payments (1) | 16,035 |
| | 23,741 |
| | 32,707 |
| | 30,518 |
| | 21,215 |
| | 22,063 |
| | 146,279 |
|
| | | | | | | | | | | | | |
Obligation to third-party (Repauno) | — |
| | 5,500 |
| | — |
| | — |
| | — |
| | — |
| | 5,500 |
|
| | | | | | | | | | | | | |
Operating lease obligations | 1,950 |
| | 6,616 |
| | 6,200 |
| | 5,186 |
| | 4,061 |
| | 73,318 |
| | 97,331 |
|
Capital lease obligations | 97 |
| | 309 |
| | 314 |
| | 298 |
| | 105 |
| | 12 |
| | 1,135 |
|
| 2,047 |
| | 6,925 |
| | 6,514 |
| | 5,484 |
| | 4,166 |
| | 73,330 |
| | 98,466 |
|
Total contractual obligations | $ | 18,082 |
| | $ | 43,961 |
| | $ | 167,034 |
| | $ | 182,012 |
| | $ | 27,341 |
| | $ | 481,173 |
| | $ | 919,603 |
|
|
| |
| |
(1) Estimated interest payments based on rates as of September 30, 2017.
|
our Board of Directors. During the last twelve months, we declared cash dividends of $122.5 million and $28.7 million on our ordinary shares and preferred shares, respectively.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.
Application of Critical Accounting Estimates and Policies
Goodwill—The following is an updateThere were no material changes to the Company’s Application of Critical Accounting Policies disclosure relating to goodwill which was presentedour critical accounting estimates described in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016. This update should be read in conjunction with the disclosures made in that aforementioned Form 10-K, and relates2022.
Recent Accounting Pronouncements
See Note 2 to the Company’s Jefferson Terminal.
Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisitions of CMQR and Jefferson Terminal. The carrying amount of goodwill is approximately $116,584 as of September 30, 2017 and December 31, 2016.
The Company reviews the carrying values of goodwill at least annually to assess impairment since these assets are not amortized. An annual impairment review is conducted as of October 1st of each year. Additionally, the Company reviews 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 two-step goodwill impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not electedour Consolidated Financial Statements for the years ended December 31, 2016 or December 31, 2015.
The first step of an 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 the Company’s assumptions about operating results, business
recent accounting pronouncements.
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 second step must be completed in order to determine the amount of goodwill impairment that should be recorded, if any.
For the purpose of performing the annual analysis, the Company’s two reporting units subject to the test are the Jefferson Terminal and Railroad reporting units. The Company estimates the fair value of the reporting units using an income approach, specifically a discounted cash flow analysis. This analysis requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth 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. The Company also utilizes valuation models and other financial ratios, which require the Company to make certain assumptions and estimates regarding the applicability of those models to its assets and businesses.
Although the Company believes 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 the Jefferson Terminal and Railroad reporting units or other key inputs are negatively revised in the future, the estimated fair value of the Jefferson Terminal and Railroad reporting units could be adversely impacted, potentially leading to an impairment in the future that could materially affect the Company’s operating results. Specifically, as it relates to the Jefferson Terminal segment, forecasted revenue is dependent on ramp-up of volumes under current contracts and the acquisition of additional storage contracts for both the heavy and light crude and refined products during 2018. The expansion of refineries in the Beaumont/Port Arthur area, as well as growing crude oil production in the U.S. and Canada, are expected to result in increased demand for storage on the U.S. Gulf Coast. Other assumptions 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 15% and our terminal value growth rate of 3%.
For the years ended December 31, 2016, the Company’s estimated fair value exceeded carrying value by approximately 10%, and there was no impairment of goodwill. We expect the Jefferson Terminal segment to generate positive Adjusted EBITDA during the first half of 2018. Furthermore, changes in any of the significant assumptions used, including the Company’s timeline or ability to achieve its operating plan or adverse effects of market-driven factors, could materially affect the expected cash flows and may result in a material impairment charge.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Interest Rate Risk
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including the U.S. government’s monetary and tax policies, global economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposure relates to our term loan arrangements.
LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform. The ICE Benchmark Administration ceased publication of one-week and two-month USD LIBOR settings after December 31, 2021 and the remaining USD LIBOR settings after June 30, 2023, other than certain USD LIBOR settings that are expected to continue to be published under a synthetic methodology until September 2024. In anticipation of LIBOR’s phase out, we amended our revolving credit facility to incorporate SOFR as the successor rate to LIBOR. We continue to monitor related reform proposals and evaluate the related risks; however, it is not possible to predict the effects of any of these developments, and any future initiatives to regulate, reform or change the manner of administration of LIBOR, SOFR or other benchmark indices could result in adverse consequences to the rate of interest payable and receivable on, market value of and market liquidity for financial instruments tied to variable interest rate indices.
Our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR.SOFR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our finance leases. We may elect to manage our exposure to interest rate movements through the use of interest rate derivatives (interest rate swaps and caps). As a result, when market rates of interest change, there is generally not a material impact on our interest expense, future earnings or cash flows.
The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives.derivatives, if any. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates. In addition, the following discussion does not take into account our Series A and Series B preferred shares, on which distributions currently accrue interest at a fixed rate but will accrue interest at a floating rate based on a certain variable interest rate index plus a spread from and after September 15, 2024.
As of SeptemberJune 30, 2017,2023, assuming we do not hedge our exposure to interest rate fluctuations related to our outstanding floating rate debt, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/(decrease)increase of approximately $705 and $(690), respectively,$1.5 million or a decrease of approximately $1.5 million in interest expense over the next 12 months before the impact of interest rate derivatives.months.
Foreign Currency Exchange Risk
Our functional currency is U.S. dollars. All of our leasing arrangements are denominated in U.S. dollars. Currently, the majority of freight rail revenue is also denominated in U.S. dollars, but a portion is denominated in Canadian dollars. Although foreign exchange risk could arise from our operations in multiple jurisdictions, we do not have significant exposure to foreign currency risk as our leasing arrangements are denominated in U.S. dollars. All of our purchase agreements are negotiated in U.S. dollars, and we currently receive the majority of revenue in U.S. dollars. We pay substantially all of our expenses in U.S. dollars; however we pay some expenses in Canadian dollars. Because we currently receive the majority of our revenues in U.S. dollars and pay substantially all of our expenses in U.S. dollars, we do not expect a change in foreign exchange rates would have a significant impact on our results of operations or cash flows.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’sour management, including itsour Chief Executive Officer and Chief Financial Officer, of the effectiveness of itsour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Company’sour Chief Executive Officer and Chief Financial Officer have concluded that theseour disclosure controls and procedures were effective as of and for the period covered by this report.
Internal Control over Financial Reporting
In addition,There have been no changechanges in the Company’sour internal control over financial reporting (as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during its most recentthe fiscal quarter to which this report relates that hashave materially affected, or isare reasonably likely to materially affect, itsour internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are and may become involved in legal proceedings, including but not limited to regulatory investigations and inquiries, in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, we do not expect our current and any threatened legal proceedings to have a material adverse effect on our business, financial position or results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material adverse effect on our financial results.
Item 1A. Risk Factors
You should carefully consider the following risks and other information in this Form 10-Q in evaluating us and our common shares. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition. The risk factors generally have been separated into the following categories: risks related to our business, risks related to our Manager, risks related to taxation and risks related to our commonthe Company’s shares. However, these categories do overlap and should not be considered exclusive.
Risks Related to Our Business
Uncertainty relating to macroeconomic conditions may reduce the demand for our assets, result in non-performance of contracts by our lessees or charterers, limit our ability to obtain additional capital to finance new investments, or have other unforeseen negative effects.
Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and commodity price volatility, historically have created difficult operating environments for owners and operators in the transportation industry.industries. Many factors, including factors that are beyond our control, may impact our operating results or financial condition and/or affect the lessees and charterers that form our customer base. For some years, the world has experienced weakened economic conditions and volatility following adverse changes in global capital markets. More recently, excessExcess supply in oil and gas markets hascan put significant downward pressure on prices for these commodities, and may affect demand for assets used in production, refining and transportation of oil and gas. In particular, the past, a significant decline in oil prices during 2016 has resulted inled to lower offshore exploration and production budgets worldwide, with industry experts predicting that offshore exploration and production spending will decrease by approximately 9% in 2017, as compared to 2016.worldwide. These conditions have resulted in significant contraction, de-leveragingdeleveraging and reduced liquidity in the credit markets. A number of governments have implemented, or are considering implementing, a broad variety of governmental actions or new regulations for the financial markets. In addition, limitations on the availability of capital, higher costs of capital for financing expenditures or the desire to preserve liquidity, may cause our current or prospective customers to make reductions in future capital budgets and spending.
Further, demand for our assets is related to passenger and cargo traffic growth, which in turn is dependent on general business and economic conditions. Global economic downturns could have an adverse impact on passenger and cargo traffic levels and consequently our lessees’ and charterers’ business, which may in turn result in a significant reduction in revenues, earnings and cash flows, difficulties accessing capital and a deterioration in the value of our assets. We may also becomehave in the past been exposed to increased credit risk from our customers and third parties who have obligations to us, which could resultresulted in increased non-performance of contracts by our lessees or charterers and adversely impactimpacted our business, prospects, financial condition, results of operations and cash flows. We cannot assure you that similar loss events may not occur in the future.
Instability in geographies where we have assets or where we derive revenue could have a material adverse effect on our business, customers, operations and financial results.
The industriesEconomic, civil, military and political uncertainty exists and may increase in regions where we operate and derive our revenue. Various countries in which we operate are experiencing and may continue to experience military action and civil and political unrest. We have assets in the emerging market economies of Eastern Europe, including some assets in Russia and Ukraine. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely. The impact to Russia and Ukraine, as well as actions taken by other countries, including new and stricter export controls and sanctions by Canada, the United Kingdom, the European Union, the U.S. and other countries and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, could have a material adverse effect on our business and delay or prevent us from accessing certain of our assets. We are actively monitoring the security of our remaining assets in the region.
The aviation industry has experienced periods of oversupply during which lease rates and asset values have declined, particularly during the most recent economic downturn, and any future oversupply could materially adversely affect our results of operations and cash flows.
The oversupply of a specific asset is likely to depress the lease or charter rates for and the value of that type of asset and result in decreased utilization of our assets, and the industries in which we operate have experienced periods of oversupply during which rates and asset values have declined, particularly during the most recent economic downturn. Factors that could lead to such oversupply include, without limitation:
•general demand for the type of assets that we purchase;
•general macroeconomic conditions, including market prices for commodities that our assets may serve;
•geopolitical events, including war, prolonged armed conflict and acts of terrorism;
•outbreaks of communicable diseases and natural disasters;
•governmental regulation;
•interest rates;
•the availability of credit;
•potential reduced cash flows and financial condition, including potential liquidity restraints;
•restructurings and bankruptcies of companies in the industries in which we operate, including our customers;
•manufacturer production levels and technological innovation;
•manufacturers merging or exiting the industry or ceasing to produce certain asset types;
•retirement and obsolescence of the assets that we own;
our railroad infrastructure may be damaged, including by flooding and railroad derailments;
•increases in supply levels of assets in the market due to the sale or merging of operating lessors; and
•reintroduction of previously unused or dormant assets into the industries in which we operate.
These and other related factors are generally outside of our control and could lead to persistence of, or increase in, the oversupply of the types of assets that we acquire or decreased utilization of our assets, either of which could materially adversely affect our results of operations and cash flow. In addition, aviation lessees may redeliver our assets to locations where there is oversupply, which may lead to additional repositioning costs for us if we move them to areas with higher demand. Positioning expenses vary depending on geographic location, distance, freight rates and other factors, and may not be fully covered by drop-off charges collected from the last lessees of the equipment or pick-up charges paid by the new lessees. Positioning expenses can be significant if a large portion of our assets are returned to locations with weak demand, which could materially adversely affect our business, prospects, financial condition, results of operations and cash flow.flows.
There canThe airline industry is heavily regulated, and if we fail to comply with applicable requirements, our results of operations could suffer.
The Federal Aviation Administration (“FAA”) and equivalent regulatory agencies have increasingly focused on the need to assure that airline industry products are designed with sufficient cybersecurity controls to protect against unauthorized access or other unwanted compromise. A failure to meet these evolving expectations could negatively impact sales into the industry and expose us to legal or contractual liability.
Governmental agencies throughout the world, including the FAA, prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. If any material authorization or approval qualifying us to supply our products is revoked or suspended, then sale of the product would be no assurance that any target returns will be achieved.
Our target returns for assets are targets only and are not forecasts of future profits. We develop target returns basedprohibited by law, which would have an adverse effect on our Manager’s assessmentbusiness, financial condition and results of appropriate expectations for returns on assetsoperations.
From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which often are more stringent than existing regulations. If such proposals are adopted and the ability of our Manager to enhance the return generated by those assets through active management. There can be no assurance that these assessments and expectations will be achieved and failureenacted, we may incur significant additional costs to achieve any or all of them may materially adversely impact our ability to achieve any target return with respect to any or all of our assets.
In addition, our target returns are based on estimates and assumptions regarding a number of other factors, including, without limitation, holding periods, the absence of material adverse events affecting specific investments (whichcompliance, which could include, without limitation, natural disasters, terrorism, social unrest or civil disturbances), general and local economic and market conditions, changes in law, taxation, regulation or governmental policies and changes in the political approach to transportation investment, either generally or in specific countries in which we may invest or seek to invest. Many of these factors, as well as the other risks described elsewhere in this report, are beyond our control and all could adversely affect our ability to achieve a target return with respect to an asset. Further, target returns are targets for the return generated by specific assets and not by us. Numerous factors could prevent us from achieving similar returns, notwithstanding the performance of individual assets, including, without limitation, taxation and fees payable by us or our operating subsidiaries, including fees and incentive allocation payable to our Manager.
There can be no assurance that the returns generated by any of our assets will meet our target returns, or any other level of return, or that we will achieve or successfully implement our asset acquisition objectives, and failure to achieve the target return in respect of any of our assets could, among other things, have a material adverse effect on our business, prospects, financial condition and results of operationsoperations.
Recent trends by China’s aviation authority to relax restrictions on airspace may be reversed, and cash flow. Further, even if the returns generated by individual assets meet target returns, there can be no assurance that the returns generated by other existinganticipated new regulations loosening airspace restrictions may not materialize, which could impact sales prospects in China for our commercial aerospace businesses.
The retirement or future assets would do so,prolonged grounding of commercial aircraft could reduce our revenues and the historical performancevalue of any related inventory.
We sell aircraft components and replacement parts. If aircraft or engines for which we offer aircraft components and replacement parts are retired or grounded for prolonged periods of time and there are fewer aircraft that require these components or parts, our revenues may decline as well as the assets in our existing portfolio should not be considered as indicativevalue of future results with respect to any assets.related inventory.
Contractual defaults may adversely affect our business, prospects, financial condition, results of operations and cash flows by decreasing revenues and increasing storage, positioning, collection, recovery and lost equipment expenses.
The success of our business depends in large part on the success of the operators in the sectors in which we participate. Cash flows from our assets are substantially impacted by our ability to collect compensation and other amounts to be paid in respect of such assets from the customers with whichwhom we enter into leases, charters or other contractual arrangements. Inherent in the nature of the leases, charters and other arrangements for the use of such assets is the risk that we may not receive, or may experience delay in realizing, such amounts to be paid. While we target the entry into contracts with credit-worthy counterparties, no assurance can be given that such counterparties will perform their obligations during the term of the leases, charters or other contractual arrangements. In addition, when counterparties default, we may fail to recover all of our assets, and the assets we do recover may be returned in damaged condition or to locations where we will not be able to efficiently lease, charter or sell them. In most cases, we maintain, or require our lessees to maintain, certain insurances to cover the risk of damages or loss of our assets. However, these insurance policies may not be sufficient to protect us against a loss.
Depending on the specific sector, the risk of contractual defaults may be elevated due to excess capacity as a result of oversupply during the most recent economic downturn. We lease assets to our customers pursuant to fixed-price contracts, and our customers then seek to utilize those assets to transport goods and provide services. If the price at which our customers receive for their transportation services decreases as a result of an oversupply in the marketplace, then our customers may be forced to reduce their prices in order to attract business (which may have an adverse effect on their ability to meet their contractual lease obligations to us), or may seek to renegotiate or terminate their contractual lease arrangements with us to pursue a lower-priced opportunity with another lessor, which may have a direct, adverse effect on us. See “-The industries in which we operate have experienced periods of oversupply during which lease rates and asset values have declined, particularly during the financial crisis,most recent economic downturn, and any future oversupply could materially adversely affect our results of operations and cash flows.” Any default by a material customer would have a significant impact on our profitability at the time the customer defaulted, which could materially adversely affect our operating results and growth prospects. In addition, some of our counterparties may reside in jurisdictions with legal and regulatory regimes that make it difficult and costly to enforce such counterparties’ obligations.
We may not be able to renew or obtain new or favorable charters or leases, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
Our operating leases are subject to greater residual risk than direct finance leases because we will own the assets at the expiration of an operating lease term and we may be unable to renew existing charters or leases at favorable rates, or at all, or sell the leased or chartered assets, and the residual value of the asset may be lower than anticipated. In addition, our ability to renew existing charters or leases or obtain new charters or leases will also depend on prevailing market conditions, and upon expiration of the contracts governing the leasing or charter of the applicable assets, we may be exposed to increased volatility in terms of rates and contract provisions. For example, we do not currently have long-term charters for our construction support vessel and our ROV support vessel. Likewise, our customers may reduce their activity levels or seek to terminate or renegotiate their charters or leases with us. If we are not able to renew or obtain new charters or leases in direct continuation, or if new charters or leases are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to existing contractual terms, or if we are unable to sell assets for which we are unable to obtain new contracts or leases, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected.
If we acquire a high concentration of a particular type of asset, or concentrate our investments in a particular sector, and our business, prospects, financial condition, results of operations and cash flows could be adversely affected by changes in market demand or problems specific to that asset or sector.
If we acquire a high concentration of a particular asset, or concentrate our investments in a particular sector, and our business and financial results could be adversely affected by sector-specific or asset-specific factors. For example, if a particular sector experiences difficulties such as increased competition or oversupply, the operators we rely on as a lessor may be adversely affected and consequently our business and financial results may be similarly affected. If we acquire a high concentration of a particular asset and the market demand for a particular asset declines, it is redesigned or replaced by its manufacturer or it experiences design or technical problems, the value and rates relating to such asset may decline, and we may be unable to lease or charter such asset on favorable terms, if at all. Any decrease in the value and rates of our assets may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We operate in highly competitive markets.
The business of acquiring transportation and transportation-related infrastructureaviation assets is highly competitive. Market competition for opportunities includes traditional transportation and infrastructure companies, commercial and investment banks, as well as a growing number of non-traditional participants, such as hedge funds, private equity funds and other private investors, including Fortress-related entities. Some of these competitors may have access to greater amounts of capital and/or to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have certain advantages not shared by us. In addition, competitors may have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us. Strong competition for investment opportunities could result in fewer such opportunities for us, as certain of these competitors have established and are establishing investment vehicles that target the same types of assets that we intend to purchase.
In addition, some of our competitors may have longer operating histories, greater financial resources and lower costs of capital than us, and consequently, may be able to compete more effectively in one or more of our target markets. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
Litigation to enforce our contracts and recover our assets has inherent uncertainties that are increased by the location of our assets in jurisdictions that have less developed legal systems.
While some of our contractual arrangements are governed by New York law and provide for the non-exclusive jurisdiction of the courts located in the state of New York, our ability to enforce our counterparties’ obligations under such contractual arrangements is subject to applicable laws in the jurisdiction in which enforcement is sought. While some of our existing assets are used in specific jurisdictions, transportation and transportation-related infrastructure assets by their nature generally move throughout multiple jurisdictions in the ordinary course of business. As a result, it is not possible to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be commenced. Litigation and enforcement proceedings have inherent uncertainties in any jurisdiction and are expensive. These uncertainties are enhanced in countries that have less developed legal systems where the interpretation of laws and regulations is not consistent, may be influenced by factors other than legal merits and may be cumbersome, time-consuming and even more expensive. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and where the legal system is not as well developed. As a result, the remedies available and the relative success and expedience of collection and enforcement proceedings with respect to the owned assets in various jurisdictions cannot be predicted. To the extent more of our business shifts to areas outside of the United States and Europe, such as China and Malaysia, it may become more difficult and expensive to enforce our rights and recover our assets.
Certain liens may arise on our assets.
Certain of our assets are currently subject to liens under separate financing arrangements entered into by certain subsidiaries in connection with acquisitions of assets. In the event of a default under such arrangements by the applicable subsidiary, the lenders thereunder would be permitted to take possession of or sell such assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.” In addition, our currently owned assets and assets that we purchase in the future may be subject to other liens based on the industry practices relating to such assets. Until they are discharged, these liens could impair our ability to repossess, re-lease or sell our assets, and to the extent our lessees or charterers do not comply with their obligations to discharge any liens on the applicable assets, we may find it necessary to pay the claims secured by such liens in order to repossess such assets. Such payments could materially adversely affect our operating results and growth prospects.
The values of theour assets that we purchase may fluctuate due to various factors.
The fair market values of our assets may decrease or increase depending on a number of factors, including the prevailing level of charter or lease rates from time to time, general economic and market conditions affecting our target markets, type and age of assets, supply and demand for assets, competition, new governmental or other regulations and technological advances, all of which could impact our profitability and our ability to lease, charter, develop, operate, or sell such assets. In addition, our assets depreciate as they age and may generate lower revenues and cash flows. We must be able to replace such older, depreciated assets with newer assets, or our ability to maintain or increase our revenues and cash flows will decline. In addition, if we dispose of an asset for a price that is less than the depreciated book value of the asset on our balance sheet or if we determine that an asset’s value has been impaired, we will recognize a related charge in our consolidated statement of operations and such charge could be material.
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We may not generate a sufficient amount of cash or generate sufficient free cash flow to fund our operations or repay our indebtedness.
Our ability to make payments on our indebtedness as required depends on our ability to generate cash flow in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not generate sufficient free cash flow to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient free cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition and results of operations.
Our use of joint ventures or partnerships, and our Manager’s outsourcing of certain functions, may present unforeseen obstacles or costs.
We have acquired and may in the future acquire interests in certain assets in cooperation with third-party partners or co-investors through jointly-owned acquisition vehicles, joint ventures or other structures. In these co-investment situations, our ability to control the management of such assets depends upon the nature and terms of the joint arrangements with such partners and our relative ownership stake in the asset, each of which will be determined by negotiation at the time of the investment and the determination of which is subject to the discretion of our Manager. Depending on our Manager’s perception of the relative risks and rewards of a particular asset, our Manager may elect to acquire interests in structures that afford relatively little or no operational and/or management control to us. Such arrangements present risks not present with wholly-owned assets, such as the possibility that a co-investor becomes bankrupt, develops business interests or goals that conflict with our interests and goals in respect of the assets, all of which could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
In addition, our Manager expects to utilize third partythird-party contractors to perform services and functions related to the operation and leasing of our assets. These functions may include billing, collections, recovery and asset monitoring. Because we and our Manager do not directly control these third parties, there can be no assurance that the services they provide will be delivered at a level commensurate with our expectations, or at all. The failure of any such third partythird-party contractors to perform in accordance with our expectations could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
We are subject to the risks and costs of obsolescence of our assets.
Technological and other improvements expose us to the risk that certain of our assets may become technologically or commercially obsolete. For example, in our Aviation Leasing segment, as manufacturers introduce technological innovations and new types of aircraft, some of our assets could become less desirable to potential lessees. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by us. In addition, the imposition of increased regulation regarding stringent noise or emissions restrictions may make some of our aircraft less desirable and less valuable in the marketplace. In our Offshore Energy segment,offshore energy business, development and construction of new, sophisticated, high-specification assets could cause our assets to become less desirable to potential charterers, and insurance rates may also increase with the age of a vessel, making older vessels less desirable to potential charterers. Any of these risks may adversely affect our ability to lease, charter or sell our assets on favorable terms, if at all, which could materially adversely affect our operating results and growth prospects.
The North American rail sectorinability to obtain certain components from suppliers could harm our business.
Our business is affected by the availability and price of the component parts that we use to maintain our products or to manufacture products. Our ability to manage inventory and meet delivery requirements may be constrained by our suppliers’ ability to adjust delivery of long-lead time products during times of volatile demand. The supply chains for our business could also be disrupted by external events such as natural disasters, extreme weather events, pandemics, labor disputes, governmental actions and legislative or regulatory changes. As a highly regulated industryresult, our suppliers may fail to perform according to specifications when required and we may be unable to identify alternate suppliers or to otherwise mitigate the consequences of their non-performance.
Transitions to new suppliers may result in significant costs and delays, including those related to the required recertification of parts obtained from new suppliers with our customers and/or regulatory agencies. Our inability to fill our supply needs could jeopardize our ability to fulfill obligations under customer contracts, which could result in reduced revenues and profits, contract penalties or terminations, and damage to customer relationships. Further, increased costs of compliance with, or liability for violation of, existing or future laws, regulationssuch components could reduce our profits if we were unable to pass along such price in-creases to our customers.
We could be negatively impacted by environmental, social, and governance (ESG) and sustainability-related matters.
Governments, investors, customers, employees and other requirements could significantly increase our costs of doing business, thereby adversely affecting our profitability.
The rail sector is subject to extensive laws, regulationsstakeholders are increasingly focusing on corporate ESG practices and disclosures, and expectations in this area are rapidly evolving. We have announced, and may in the future announce, sustainability-focused investments, partnerships and other requirementsinitiatives and goals. These initiatives, aspirations, targets or
objectives reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our efforts to accomplish and accurately report on these initiatives and goals present numerous operational, regulatory, reputational, financial, legal, and other risks, any of which could have a material negative impact, including on our reputation and stock price.
In addition, the standards for tracking and reporting on ESG matters are relatively new, have not been harmonized and continue to evolve. Our selection of disclosure frameworks that seek to align with various voluntary reporting standards may change from time to time and may result in a lack of comparative data from period to period. Moreover, our processes and controls may not always align with evolving voluntary standards for identifying, measuring, and reporting ESG metrics, our interpretation of reporting standards may differ from those of others, and such standards may change over time, any of which could result in significant revisions to our goals or reported progress in achieving such goals. In this regard, the criteria by which our ESG practices and disclosures are assessed may change due to the quickly evolving landscape, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy such new criteria. The increasing attention to corporate ESG initiatives could also result in increased investigations and litigation or threats thereof. If we are unable to satisfy such new criteria, investors may conclude that our ESG and sustainability practices are inadequate. If we fail or are perceived to have failed to achieve previously announced initiatives or goals or to accurately disclose our progress on such initiatives or goals, our reputation, business, financial condition and results of operations could be adversely impacted.
We may be affected by fluctuating prices for fuel and energy.
Volatility in energy prices could have a significant effect on a variety of items including, but not limited to, those relatingthe economy and demand for transportation services.
International, political, and economic factors, events and conditions, including current sanctions against Russia related to its invasion of Ukraine, affect the environment, safety, ratesvolatility of fuel prices and charges, service obligations, employment, labor, immigration, minimum wagessupplies. Weather can also affect fuel supplies and overtime pay, health care and benefits, working conditions, public accessibility and other requirements. These laws and regulations are enforced by U.S. and Canadian federal agencies including the U.S. and Canadian Environmental Protection Agencies, the U.S. and Canadian Departmentslimit domestic refining capacity. A severe shortage of, Transportation (USDOT or Transport Canada), the Occupational Safety and Health Act (OSHA or Canadian provincial equivalents), the U.S. Federal Railroad Administration, or FRA, and the U.S. Surface Transportation Board, or STB, as well as numerous other state, provincial, local and federal agencies. Ongoing compliance with, or a violation of, these laws, regulations and other requirementsdisruption to, domestic fuel supplies could have a material adverse effect on our business,results of operations, financial condition, and results of operations.
We believe that our rail operations are in substantial compliance with applicable laws and regulations. However, these laws and regulations, and the interpretation or enforcement thereof, are subject to frequent change and varying interpretation by regulatory authorities, and we are unable to predict the ongoing cost to us of complying with these laws and regulations or the future impact of these laws and regulations on our operations. In addition, from time to time we are subject to inspections and investigations by various regulators. Violation of environmental or other laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions and construction bans or delays.
Legislation passed by the U.S. Congress or Canadian Parliament or new regulations issued by federal agencies can significantly affect the revenues, costs and profitability of our business. For instance, in December 2009, a proposed bill called the “Surface Transportation Board Reauthorization Act of 2009” was introduced in the Senate but not advanced. In addition, more recently proposed bills such as the “Rail Shipper Fairness Act of 2015,” if adopted, could increase government involvement in railroad pricing, service and operations and significantly change the federal regulatory framework of the railroad industry. Several of the changes under consideration could have a significant negative impact on FTAI’s ability to determine prices for rail services, meet service standards and could force a reduction in capital spending. Statutes imposing price constraints or affecting rail-to-rail competition could adversely affect FTAI’s profitability.
Under various U.S. and Canadian federal, state, provincial and local environmental requirements, as the owner or operator of terminals or other facilities, we may be liable for the costs of removal or remediation of contamination at or from our existing locations, whether we knew of, or were responsible for, the presence of such contamination. The failure to timely report and properly remediate contamination may subject us to liability to third parties and may adversely affect our ability to sell or rent our property or to borrow
money using our property as collateral. Additionally, we may be liable for the costs of remediating third-party sites where hazardous substances from our operations have been transported for treatment or disposal, regardless of whether we own or operate that site. In the future, we may incur substantial expenditures for investigation or remediation of contamination that has not yet been discovered at our current or former locations or locations that we may acquire.
A discharge of hydrocarbons or hazardous substances into the environment associated with operating our rail assets could subject us to substantial expense, including the cost to recover the materials spilled, restore the affected natural resources, pay fines and penalties, and natural resource damages and claims made by employees, neighboring landowners, government authorities and other third parties, including for personal injury and property damage. We may experience future catastrophic sudden or gradual releases into the environment from our facilities or discover historical releases that were previously unidentified or not assessed. Although our inspection and testing programs are designed to prevent, detect and address any such releases promptly, the liabilities incurred due to any future releases into the environment from our assets, have the potential to substantially affect our business. Such events could also subject us to media and public scrutiny that could have a negative effect on our operations and also on the value of our common shares.
Our business could be adversely affected if service on the railroads is interrupted or if more stringent regulations are adopted regarding railcar design or the transportation of crude oil by rail.
As a result of hydraulic fracturing and other improvements in extraction technologies, there has been a substantial increase in the volume of crude oil and liquid hydrocarbons produced and transported in North America, and a geographic shift in that production versus historical production. The increase in volume and shift in geography has resulted in a growing percentage of crude oil being transported by rail. High-profile accidents involving crude-oil-carrying trains in Quebec, North Dakota and Virginia, and more recently in West Virginia and Illinois, have raised concerns about the environmental and safety risks associated with crude oil transport by rail and the associated risks arising from railcar design.
In May 2015, the DOT issued new production standards and operational controls for rail tank cars used in “High-Hazard Flammable Trains” (i.e., trains carrying commodities such as ethanol, crude oil and other flammable liquids). Similar standards have been adopted in Canada. The new standard applies for all cars manufactured after October 1, 2015, and existing tank cars must be retrofitted within the next three to eight years. The applicable operational controls include reduced speed restrictions, and maximum lengths on trains carrying these materials. Retrofitting our tank cars will be required under these new standards. While we may be able to pass some of these costs on to our customers, there may be costs that we cannot pass on to them. We continue to monitor the railcar regulatory landscape and remain in close contact with railcar suppliers and other industry stakeholders to stay informed of railcar regulation rulemaking developments. It is unclear how these regulations will impact the crude-by-rail industry, and any such impact would depend on a number of factors that are outside of our control. If, for example, overall volume of crude-by-rail decreases, or if we do not have access to a sufficient number of compliant cars to transport required volumes under our existing contracts, our operations may be negatively affected. This may lead to a decrease in revenues and other consequences.
The adoption of additional federal, state, provincial or local laws or regulations, including any voluntary measures by the rail industry regarding railcar design or crude oil and liquid hydrocarbon rail transport activities, or efforts by local communities to restrict or limit rail traffic involving crude oil, could affect our business by increasing compliance costs and decreasing demand for our services, which could adversely affect our financial position and cash flows. Moreover, any disruptions in the operations of railroads, including those due to shortages of railcars, weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts or bottlenecks, could adversely impact our customers’ ability to move their product and, as a result, could affect our business.
Our assets are exposed to unplanned interruptions caused by catastrophic events outside of our control which may disrupt our business and cause damage or losses that may not be adequately covered by insurance.
The operations of transportation and infrastructure projects are exposed to unplanned interruptions caused by significant catastrophic events, such as cyclones, earthquakes, landslides, floods, explosions, fires, major plant breakdowns, pipeline or electricity line ruptures or other disasters. Operational disruption, as well as supply disruption, could adversely impact the cash flows available from these assets. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged interruption may result in temporary or permanent loss of customers, substantial litigation or penalties for regulatory or contractual non-compliance, and any loss from such events may not be recoverable under relevant insurance policies. Although we believe that we are adequately insured against these types of events, either indirectly through our lessees or charterers or through our own insurance policies, no assurance can be given that the occurrence of any such event will not materially adversely affect us. In addition, if a lessee or charterer is not obligated to maintain sufficient insurance, we may incur the costs of additional insurance coverage during the related lease or charter. We can give no assurance that such insurance will be available at commercially reasonable rates, if at all.liquidity.
Our assets generally require routine maintenance, and we may be exposed to unforeseen maintenance costs.
We may be exposed to unforeseen maintenance costs for our assets associated with a lessee’s or charterer’s failure to properly maintain the asset. We enter into leases and charters with respect to some of our assets pursuant to which the lessees are primarily responsible for many obligations, which generally include complying with all governmental requirements applicable to the lessee or charterer, including operational, maintenance, government agency oversight, registration requirements and other applicable directives. Failure of a lessee or charterer to perform required maintenance during the term of a lease or charter could result in a decrease in value of an asset, an inability to re-lease or charter an asset at favorable rates, if at all, or a potential inability to utilize an asset. Maintenance failures would also likely require us to incur maintenance and modification costs upon the termination of the applicable lease or charter; such costs to restore the asset to an acceptable condition prior to re-leasing, charter or sale could be substantial. Any failure by our lessees or charterers to meet their obligations to perform required scheduled maintenance or our inability to maintain our assets could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
Some of our customers operate in highly regulated industries and changes in laws or regulations, including laws with respect to international trade, may adversely affect our ability to lease, charter or sell our assets.
Some of our customers operate in highly regulated industries such as aviation and offshore energy. A number of our contractual arrangements-for example, our leasing aircraft engines or offshore energy equipment to third-party operators-require the operator (our customer) to obtain specific governmental or regulatory licenses, consents or approvals. These include consents for certain payments under such arrangements and for the export, import or re-export of the related assets. Failure by our customers or, in certain circumstances, by us, to obtain certain licenses and approvals could negatively affect our ability to conduct our business. In addition, the shipment of goods, services and technology across international borders subjects the operation of our assets to international trade laws and regulations. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. If any such regulations or sanctions affect the asset operators that are our customers, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
It is impossible to predict whether third parties will allege liability related to our purchase of the Montreal, Maine and Atlantic Railway (“MM&A”) assets out of bankruptcy, including possible claims related to the July 6, 2013 train derailment near Lac-Mégantic, Quebec.
On July 6, 2013, prior to our ownership, a train carrying crude oil on the MM&A line derailed near Lac-Mégantic, Quebec which resulted in fires that claimed the lives of 47 individuals (the “Incident”). Approximately two million gallons of crude oil were either burned or released into the environment, including into the nearby Chaudière River. Prior to our acquisition of the MM&A assets in May and June 2014, we received written assurance from the Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks that it would take full responsibility for the environmental clean-up and that it would not hold CMQR liable for any environmental damages or costs relating to clean-up or restoration of the affected area as a result of the Incident. While we don’t anticipate any liability relating to the Incident, including liability for claims alleging personal injury, property damage or natural resource damages, there can be no assurance that such claims relating to the Incident will not arise in the future. No claims have been made or threatened against us as of September 30, 2017 and we do not anticipate any expenditures relating to environmental clean-up (including impacts to the Chaudière River) as a result of the Incident.
Certain of our assets are subject to purchase options held by the charterer or lessee of the asset which, if exercised, could reduce the size of our asset base and our future revenues.
We have granted purchase options to the charterers and lessees of certain of our assets. The market values of these assets may change from time to time depending on a number of factors, such as general economic and market conditions affecting the industries in which we operate, competition, cost of construction, governmental or other regulations, technological changes and prevailing levels of charter or lease rates from time to time. The purchase price under a purchase option may be less than the asset’s market value at the time the option may be exercised. In addition, we may not be able to obtain a replacement asset for the price at which the asset is sold. In such cases, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
The profitability of our Offshore Energy segmentoffshore energy assets may be impacted by the profitability of the offshore oil and gas industry generally, which is significantly affected by, among other things, volatile oil and gas prices.
Demand for assets in the Offshore Energy segmentoffshore energy business and our ability to secure charter contracts for our assets at favorable charter rates following expiry or termination of existing charters will depend, among other things, on the level of activity in the offshore oil and gas industry. The offshore oil and gas industry is cyclical and volatile, and demand for oil-service assets depends on, among other things, the level of development and activity in oil and gas exploration, as well as the identification and development of oil and gas reserves and production in offshore areas worldwide. The availability of high quality oil and gas prospects, exploration success, relative production costs, the stage of reservoir development, political concerns and regulatory requirements all affect the level of activity for charterers of oil-service vessels. Accordingly, oil and gas prices and market expectations of potential changes in these prices significantly affect the level of activity and demand for oil-service assets. Oil and gas prices can be extremely volatile (and have declined significantly in the last year) and are affected by numerous factors beyond the Company’sour control, such as: worldwide demand for oil and gas; costs of exploring, developing, producing and delivering oil and gas; expectations regarding future energy prices; the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and impact pricing; the level of production in non-OPEC countries; governmental regulations and policies regarding development of oil and gas reserves; local and international political, economic and weather conditions; domestic and foreign tax or trade policies; political and military conflicts in oil-producing and other countries; and the development and exploration of alternative fuels. Any reduction in the demand for our assets due to these or other factors could materially adversely affect our operating results and growth prospects.
We may not be able to renew or obtain new or favorable charters or leases, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
Our Shipping Containers segment is affectedoperating leases are subject to greater residual risk than direct finance leases because we will own the assets at the expiration of an operating lease term and we may be unable to renew existing charters or leases at favorable rates, or at all, or sell the leased or chartered assets, and the residual value of the asset may be lower than anticipated. In addition, our ability to renew existing charters or leases or obtain new charters or leases will also depend on prevailing market conditions, and upon expiration of the contracts governing the leasing or charter of the applicable assets, we may be exposed to increased volatility in terms of rates and contract provisions. For example, we do not currently have long-term charters for our construction support vessel and our ROV support vessel. Likewise, our customers may reduce their activity levels or seek to terminate or renegotiate their charters or leases with us. If we are not able to renew or obtain new charters or leases in direct continuation, or if new charters or leases are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to existing contractual terms, or if we are unable to sell assets for which we are unable to obtain new contracts or leases, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected.
Litigation to enforce our contracts and recover our assets has inherent uncertainties that are increased by the lacklocation of an international title registryour assets in jurisdictions that have less developed legal systems.
While some of our contractual arrangements are governed by New York law and provide for containers,the non-exclusive jurisdiction of the courts located in the state of New York, our ability to enforce our counterparties’ obligations under such contractual arrangements is subject to applicable laws in the jurisdiction in which increasesenforcement is sought. While some of our existing assets are used in specific jurisdictions, transportation and aviation assets by their nature generally move throughout multiple jurisdictions in the riskordinary course of ownership disputes.
Althoughbusiness. As a result, it is not possible to predict, with any degree of certainty, the Bureau International des Containers registersjurisdictions in which enforcement proceedings may be commenced. Litigation and allocatesenforcement proceedings have inherent uncertainties in any jurisdiction and are expensive. These uncertainties are enhanced in countries that have less developed legal systems where the interpretation of laws and regulations is not consistent, may be influenced by factors other than legal merits and may be cumbersome, time-consuming and even more expensive. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and where the legal system is not as well developed. As a unique four letter prefix to every container in accordance with International Standardization Organization (“ISO”) standard 6346 (Freight container coding, identificationresult, the remedies available and marking) there is no internationally recognized systemthe relative success and expedience of recordation or filing to evidence our title to containers nor is there an internationally recognized system for filing security interest in containers. While this has not historically had a material impact on our intermodal assets, the lack of a title recordation systemcollection and enforcement proceedings with respect to containers could resultthe owned assets in disputes with lessees, end-users, or third parties,various jurisdictions cannot be predicted. To the extent more of our business shifts to areas outside of the United States and Europe, such as creditors of end-users, whoAsia and the Middle East, it may improperly claim ownership of the containers, especially in countries with less developed legal systems.become more difficult and expensive to enforce our rights and recover our assets.
Our international operations involve additional risks, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
We and our customers operate in various regions throughout the world. As a result, we may, directly or indirectly, be exposed to political and other uncertainties, including risks of:
•terrorist acts, armed hostilities, war and civil disturbances;
•acts of piracy;
•potential cybersecurity attacks;
•significant governmental influence over many aspects of local economies;
•seizure, nationalization or expropriation of property or equipment;
•repudiation, nullification, modification or renegotiation of contracts;
•limitations on insurance coverage, such as war risk coverage, in certain areas;
•political unrest;
•foreign and U.S. monetary policy and foreign currency fluctuations and devaluations;
•the inability to repatriate income or capital;
•complications associated with repairing and replacing equipment in remote locations;
•import-export quotas, wage and price controls, imposition of trade barriers;
•U.S. and foreign sanctions or trade embargoes;
•restrictions on the transfer of funds into or out of countries in which we operate;
•compliance with U.S. Treasury sanctions regulations restricting doing business with certain nations or specially designated nationals;
•regulatory or financial requirements to comply with foreign bureaucratic actions;
•compliance with applicable anti-corruption laws and regulations;
•changing taxation policies, including confiscatory taxation;
•other forms of government regulation and economic conditions that are beyond our control; and
•governmental corruption.
Any of these or other risks could adversely impact our customers’ international operations which could materially adversely impact our operating results and growth opportunities.
We may make acquisitions in emerging markets throughout the world, and investments in emerging markets are subject to greater risks than developed markets and could adversely affect our business, prospects, financial condition, results of operations and cash flows.
To the extent that we acquire assets in emerging markets-which we may do throughout the world-additional risks may be encountered that could adversely affect our business. Emerging market countries have less developed economies and infrastructure and are often more vulnerable to economic and geopolitical challenges and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. In addition, the currencies in which investments are denominated may be unstable, may be subject to significant depreciation and may not be freely convertible or may be subject to the imposition of other monetary or fiscal controls and restrictions.
Emerging markets are still in relatively early stages of their development and accordingly may not be highly or efficiently regulated. Moreover, emerging markets tend to be shallower and less liquid than more established markets which may adversely affect our ability to realize profits from our assets in emerging markets when we desire to do so or receive what we perceive to be their fair value in the event of a realization. In some cases, a market for realizing profits from an investment may not exist locally. In addition, issuers based in emerging markets are not generally subject to uniform accounting and financial reporting standards, practices and requirements comparable to those applicable to issuers based in more developed countries, thereby potentially increasing the risk of fraud and other deceptive practices. Settlement of transactions may be subject to greater delay and administrative uncertainties than in developed markets and less complete and reliable financial and other information may be available to investors in emerging markets than in developed markets. In addition, economic instability in emerging markets could adversely affect the value of our assets subject to leases or charters in such countries, or the ability of our lessees or charters, which operate in these markets, to meet their contractual obligations. As a result, lessees or charterers that operate in emerging market countries may be more likely to default under their contractual obligations than those that operate in developed countries. Liquidity and volatility limitations in these markets may also adversely affect our ability to dispose of our assets at the best price available or in a timely manner.
As we have and may continue to acquire assets located in emerging markets throughout the world, we may be exposed to any one or a combination of these risks, which could adversely affect our operating results.
We are actively evaluating potential acquisitions of assets and operating companies in other transportation and infrastructureaviation sectors which could result in additional risks and uncertainties for our business and unexpected regulatory compliance costs.
While our existing portfolio primarily consists of assets in the aviation energy, intermodal transport and rail sectors,sector, we are actively evaluating potential acquisitions of assets and operating companies in other sectors of the transportation and transportation-related infrastructure and equipment marketsaviation market in which we do not currently operate and we plan to be flexible as other attractive opportunities arise over time. To the extent we make acquisitions in other sectors, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and other resources and with combining or integrating operational and management systems and controls. Entry into certain lines of business may subject us to new laws and regulations and may lead to increased litigation and regulatory risk. Many types of transportation assets, including certain rail, airport and seaportaviation assets, are subject to registration requirements by U.S. governmental agencies, as well as foreign governments if such assets are to be used outside of the United States. Failing to register the assets, or losing such registration, could result in substantial penalties, forced liquidation of the assets and/or the inability to operate and, if applicable, lease the assets. We may need to incur significant costs to comply with the laws and regulations applicable to any such new acquisition. The failure to comply with these laws and regulations could cause us to incur significant costs, fines or penalties or require the assets to be removed from service for a period of time resulting in reduced income from these assets. In addition, if our acquisitions in other sectors produce insufficient revenues, or produce investment losses, or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our reputation and business may be harmed.
We may acquire operating businesses, including businesses whose operations are not fully matured and stabilized. These businesses may be subject to significant operating and development risks, including increased competition, cost overruns and delays, and difficulties in obtaining approvals or financing. These factors could materially affect our business, financial condition, liquidity and results of operations.56
We have acquired, and may in the future acquire, operating businesses including businesses whose operations are not fully matured and stabilized (such as Jefferson Terminal). While we have deep experience in the construction and operation of these companies, we are nevertheless subject to significant risks and contingencies of an operating business, and these risks are greater where the operations of such businesses are not fully matured and stabilized. Key factors that may affect our operating businesses include, but are not limited to:
competition from market participants;
general economic and/or industry trends, including pricing for the products or services offered by our operating businesses;
the issuance and/or continued availability of necessary permits, licenses, approvals and agreements from governmental agencies and third parties as are required to construct and operate such businesses;
changes or deficiencies in the design or construction of development projects;
unforeseen engineering, environmental or geological problems;
potential increases in construction and operating costs due to changes in the cost and availability of fuel, power, materials and supplies;
the availability and cost of skilled labor and equipment;
our ability to enter into additional satisfactory agreements with contractors and to maintain good relationships with these contractors in order to construct development projects within our expected cost parameters and time frame, and the ability of those contractors to perform their obligations under the contracts and to maintain their creditworthiness;
potential liability for injury or casualty losses which are not covered by insurance;
potential opposition from non-governmental organizations, environmental groups, local or other groups which may delay or prevent development activities;
local and economic conditions;
changes in legal requirements; and
force majeure events, including catastrophes and adverse weather conditions.
Any of these factors could materially affect our business, financial condition, liquidity and results of operations.
The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.
The agreements governing our indebtedness, including, but not limited to, the indentureindentures governing our Senior Notes and the second amended and restated revolving credit facility entered into on September 20, 2022, as amended by Amendment No. 1, dated as of November 22, 2022 (the “Revolving Credit Facility”), contain covenants that place restrictions on us and our subsidiaries. The indentureindentures governing our Senior Notes restricts,and the Revolving Credit Facility restrict among other things, our and certain of our subsidiaries’ ability to:
•merge, consolidate or transfer all, or substantially all, of our assets;
•incur additional debt or issue preferred stock;shares;
•make certain investments or acquisitions;
•create liens on our or our subsidiaries’ assets;
•sell assets;
•make distributions on or repurchase our stock;shares;
•enter into transactions with affiliates; and
•create dividend restrictions and other payment restrictions that affect our subsidiaries.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities, pay dividends on our ordinary shares or successfully compete. A breach of any of these covenants could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders or holders thereof could elect to declare all outstanding debt under such agreements to be immediately due and payable.
Terrorist attacks or other hostilities could negatively impact our operations and our profitability and may expose us to liability and reputational damage.
Terrorist attacks may negatively affect our operations. Such attacks have contributed to economic instability in the United States and elsewhere, and further acts of terrorism, violence or war could similarly affect world trade and the industries in which we and our customers operate. In addition, terrorist attacks or hostilities may directly impact airports or aircraft ports where our containers and vessels travel, or our physical facilities or those of our customers. In addition, it is also possible that our assets could be involved in a terrorist attack.attack or other hostilities. The consequences of any terrorist attacks or hostilities are unpredictable, and we may not be able to foresee events that could have a material adverse effect on our operations. Although our lease and charter agreements generally require the counterparties to indemnify us against all damages arising out of the use of our assets, and we carry insurance to potentially offset any costs in the event that our customer indemnifications prove to be insufficient, our insurance does not cover certain types of terrorist attacks, and we may not be fully protected from liability or the reputational damage that could arise from a terrorist attack which utilizes our assets.
Because we are a recently formed company with a limited operating history, our historical financial and operating data may not be representative of our future results.
We are a recently formed limited liability company with a limited operating history. Our results of operations, financial condition and cash flows reflected in our consolidated financial statements may not be indicative of the results we would have achieved if we were a public company or results that may be achieved in future periods. Consequently, there can be no assurance that we will be able to generate sufficient income to pay our operating expenses and make satisfactory distributions to our shareholders, or any distributions at all. Further, we only make acquisitions identified by our Manager. As a result of this concentration of assets, our financial performance depends on the performance of our Manager in identifying target assets, the availability of opportunities falling within our asset acquisition strategy and the performance of those underlying assets.
Our leases and charters typically require payments in U.S. dollars, but many of our customers operate in other currencies; if foreign currencies devalue against the U.S. dollar, our lessees or charterers may be unable to meet their payment obligations to us in a timely manner.
Our current leases and charters typically require that payments be made in U.S. dollars. If the currency that our lessees or charterers typically use in operating their businesses devalues against the U.S. dollar, our lessees or charterers could encounter difficulties in making payments to us in U.S. dollars. Furthermore, many foreign countries have currency and exchange laws regulating international payments that may impede or prevent payments from being paid to us in U.S. dollars. Future leases or charters may provide for payments to be made in euros or other foreign currencies. Any change in the currency exchange rate that reduces the amount of U.S. dollars obtained by us upon conversion of future lease payments denominated in euros or other foreign currencies, may, if not appropriately hedged by us, have a material adverse effect on us and increase the volatility of our earnings.
Our inability to obtain sufficient capital would constrain our ability to grow our portfolio and to increase our revenues.
Our business is capital intensive, and we have used and may continue to employ leverage to finance our operations. Accordingly, our ability to successfully execute our business strategy and maintain our operations depends on the availability and cost of debt and equity capital. Additionally, our ability to borrow against our assets is dependent, in part, on the appraised value of such assets. If the appraised value of such assets declines, we may be required to reduce the principal outstanding under our debt facilities or otherwise be unable to incur new borrowings.
We can give no assurance that the capital we need will be available to us on favorable terms, or at all. Our inability to obtain sufficient capital, or to renew or expand our credit facilities, could result in increased funding costs and would limit our ability to:
•meet the terms and maturities of our existing and future debt facilities;
•purchase new assets or refinance existing assets;
•fund our working capital needs and maintain adequate liquidity; and
•finance other growth initiatives.
In addition, we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). As such, certain forms of financing such as finance leases may not be available to us. Please see “- If we are deemed an investment company“investment company” under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.”
The effects of various environmental regulations may negatively affect the industries in which we operate which could have a material adverse effect on our financial condition, results of operations and cash flows.
We are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and noise and emission levels. levels and greenhouse gas emissions. Legislative and regulatory measures currently under consideration or being implemented by government authorities to address climate change could require reductions in our greenhouse gas or other emissions, establish a carbon tax or increase fuel or energy taxes. These legal requirements are expected to result in increased capital expenditures and compliance costs, and could result in higher costs and may require us to acquire emission credits or carbon offsets. These costs and restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our operations. The inconsistent international, regional and/or national requirements associated with climate change regulations also create economic and regulatory uncertainty.
Under some environmental laws in the United States and certain other countries, strict liability may be imposed on the owners or operators of assets, which could render us liable for environmental and natural resource damages without regard to negligence or fault on our part. We could incur substantial costs, including cleanup costs, fines and third-party claims for property or natural resource damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessee’s or charterer’s current or historical operations, any of which could have a material adverse effect on our results of operations and financial condition. In addition, a variety of new legislation is being enacted, or considered for enactment, at the federal, state and local levels relating to greenhouse gas emissions and climate change. While there has historically been a lack of consistent climate change legislation, as climate change concerns continue to grow, further legislation and regulations are expected to continue in areas such as greenhouse gas emissions control, emission disclosure requirements and building codes or other infrastructure requirements that impose energy efficiency standards. Government mandates, standards or regulations intended to mitigate or reduce greenhouse gas emissions or projected climate change impacts could result in increased energy and transportation costs, and increased compliance expenses and other financial obligations to meet permitting or development requirements that we may be unable to fully recover (due to market conditions or other factors), any of which could result in reduced profits and adversely affect our results of operations. While we typically maintain liability insurance coverage and typically require our lessees to provide us with indemnity against certain losses, the insurance coverage is subject to large deductibles, limits on maximum coverage and significant exclusions and may not be sufficient or available to protect against any or all liabilities and such indemnities may not cover or be sufficient to protect us against losses arising from environmental damage. In addition, changes to environmental standards or regulations in the industries in which we operate could limit the economic life of the assets we acquire or reduce their value, and also require us to make significant additional investments in order to maintain compliance, which would negatively impact our cash flows and results of operations.
The discontinuation of the LIBOR benchmark interest rate may have an impact on our business.
On July 27, 2017, the U.K. Financial Conduct Authority (the "FCA"), which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021. On November 30, 2020, ICE Benchmark Administration, or the IBA, the administrator of LIBOR, with the support of the United States Federal Reserve and the FCA, announced plans to consult on ceasing publication of LIBOR on December 31, 2021, for only the one-week and two-month LIBOR tenors, and on June 30, 2023, for all other LIBOR tenors. The U.S. Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. The IBA ceased publication of one-week and two-month USD LIBOR settings after December 31, 2021, and the remaining USD LIBOR settings after June 30, 2023, other than certain USD LIBOR settings that are expected to continue to be published under a synthetic methodology until September 2024.
In the United States, the Alternative Reference Rate Committee (“ARRC”), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference rates to replace LIBOR. The Secured Overnight Finance Rate (“SOFR”) has emerged as the ARRC's preferred alternative rate for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates.
A cyberattack that bypasses our information technology (“IT”), security systems or the IT security systems of our third-party providers, causing an IT security breach, may lead to a disruption of our IT systems and the loss of business information which may hinder our ability to conduct our business effectively and may result in lost revenues and additional costs.
Parts of our business depend on the secure operation of our IT systems and the IT systems of our third-party providers to manage, process, store, and transmit information associated with aircraft leasing. We have, from time to time, experienced threats to our data and systems, including malware and computer virus attacks. A cyberattack that bypasses our IT security systems or the IT security systems of our third-party providers, causing an IT security breach, could adversely impact our daily
Our Repauno siteoperations and Hannibal property are subjectlead to environmental lawsthe loss of sensitive information, including our own proprietary information and regulations that may expose us to significantof our customers, suppliers and employees. Such losses could harm our reputation and result in competitive disadvantages, litigation, regulatory enforcement actions, lost revenues, additional costs and liabilities.
Our Repauno site is subject While we devote substantial resources to on-going environmental investigationmaintaining adequate levels of cyber-security, our resources and remediation by the former owner of the property related to historic industrial operations. The former owner is responsible for completion of this work, and we benefit from a related indemnity and insurance policy. If the former owner fails to fulfill its investigation and remediation, or indemnity obligations and the related insurance, which are subject to limits and conditions, fail to cover our costs, we could incur losses. Redevelopment of the property in those areas undergoing investigation and remediation must await state environmental agency confirmation that no further investigation or remediation is required before redevelopment activities can occur in such areas of the property. Therefore, any delay in the former owner’s completion of the environmental work or receipt of related approvals in an area of the property could delay our redevelopment activities. In addition, once received, permits and approvalstechnical sophistication may not be subject to litigation, and projects may be delayed or approvals reversed or modified in litigation. If there is a delay in obtaining any required regulatory approval, it could delay projects and cause us to incur costs.
In connection with our acquisition of Hannibal, the former owner of the property is obligated to perform certain post-closing demolition activities, remove specified containers, equipment and structures and conduct investigation, removal, cleanup and decontamination related thereto. In addition, the former owner is responsible for on-going environmental remediation related to historic industrial operations on and off Hannibal. Pursuant to an order issued by the Ohio Environmental Protection Agency (“Ohio EPA”), the former owner is responsible for completing the removal and off-site disposal of electrolytic pots associated with the former use of Hannibal as an aluminum reduction plant. In addition, Hannibal is located adjacent to the former Ormet Corporation Superfund site (the “Ormet site”), which is owned and operated by the former owner of Hannibal. Pursuant to an order with the United States Environmental Protection Agency (“US EPA”), the former owner is obligated to pump groundwater that has been impacted by the adjacent Ormet site beneath our site and discharge it to the Ohio River and monitor the groundwater annually. Hannibal is also subject to an environmental covenant related to the adjacent Ormet site that, inter alia, restricts the use of groundwater beneath our site and requires US EPA consent for activities on Hannibal that could disrupt the groundwater monitoring or pumping. The former owner is contractually obligated to complete its regulatory obligations on Hannibal and we benefit from a related indemnity and insurance policy. If the former owner fails to fulfill its demolition, removal, investigation, remediation or monitoring obligations, or indemnity obligations and the related insurance, which are subject to limits and conditions, fail to cover our costs, we could incur losses. Redevelopment of the property in those areas undergoing investigation and remediation pursuant to the Ohio EPA order must await state environmental agency confirmation that no further investigation or remediation is required before redevelopment activities can occur in such area of the property. Therefore, any delay in the former owner’s completion of the environmental work or receipt of related approvals or consents from Ohio EPA or US EPA could delay our redevelopment activities.
In addition, a portion of Hannibal is proposed for redevelopment as a combined cycle gas-fired electric generating facility. Although environmental investigations in that portion of the property have not identified material impacts to soils or groundwater that reasonably would be expectedadequate to prevent or delay redevelopment, impacted materials could be encountered during construction that require special handling and/or result in delays to the project. In addition, the constructionall types of an electric generating plant will require environmental permits and approvals from federal, state and local environmental agencies. Once received, permits and approvals may be subject to litigation, and projects may be delayed or approvals reversed or modified in litigation. If there is a delay in obtaining any required regulatory approval, it could delay projects and cause us to incur costs.
Moreover, new, stricter environmental laws, regulations or enforcement policies, including those imposed in response to climate change, could be implemented that significantly increase our compliance costs, or require us to adopt more costly methods of operation. If we are not able to transform Repauno or Hannibal into hubs for industrial and energy development in a timely manner, their future prospects could be materially and adversely affected, which may have a material adverse effect on our business, operating results and financial condition.
cyberattacks.
If we are deemed an “investment company” under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for certain privately-offered investment vehicles set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We are a holding company that is not an investment company because we are engaged in the business of holding securities of our wholly-owned and majority-owned subsidiaries, which are engaged in transportation and related businesses which lease assets pursuant to operating leases and finance leases. The Investment Company Act may limit our and our subsidiaries’ ability to enter into financing leases and engage in other types of financial activity because less than 40% of the value of our and our subsidiaries’ total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis can consist of “investment securities.”
If we or any of our subsidiaries were required to register as an investment company under the Investment Company Act, the registered entity would become subject to substantial regulation that would significantly change our operations, and we would not be able to conduct our business as described in this report. We have not obtained a formal determination from the SEC as to our status under the Investment Company Act and, consequently, any violation of the Investment Company Act would subject us to material adverse consequences.
Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited.
We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or officers, or enforce judgments obtained in the United States courts against our directors or officers.
Our corporate affairs are governed by our Articles, the Companies Act (As Revised) of the Cayman Islands (the ‘‘Cayman Companies Act’’) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a federal court of the United States.
We have been advised by Maples and Calder (Cayman) LLP, our Cayman Islands legal counsel, that the courts of the Cayman Islands are unlikely (1) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (2) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.
The Financial Action Task Force has increased monitoring of the Cayman Islands.
In February 2021, the Cayman Islands was added to the Financial Action Task Force (‘‘FATF’’) list of jurisdictions whose anti-money laundering/counter-terrorist and proliferation financing practices are under increased monitoring, commonly referred to as the ‘‘FATF grey list.’’ The FATF was established in July 1989 by a Group of Seven (G-7) Summit and is a task force composed of member governments who agree to fund the FATF on temporary basis with specific goals and projects– it is an international policy-making body that sets international anti-money laundering standards and counter-terrorist financing measures. The FATF monitors countries to ensure they implement the FATF Standards fully and effectively and holds countries to account that do not comply. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. In June 2023, the FATF confirmed that the Cayman Islands had satisfied all FATF recommended actions, recognizing that the jurisdiction has a robust and effective anti-money laundering / counter-terrorist financing regime. Following successful completion of an on-site inspection by the FATF, the Cayman Islands will be eligible to be removed from the FATF grey list at the FATF's October 2023 plenary.
The Cayman Islands are included in the EU AML High-Risk Third Countries List.
On March 13, 2022, the European Commission (‘‘EC’’) updated its list of ’high-risk third countries’ (‘‘EU AML List’’) identified as having strategic deficiencies in their anti-money laundering/counter-terrorist financing regimes to add nine countries, including the Cayman Islands. The EC has noted it is committed to there being a greater alignment between the EU AML List and the FATF listing process. The addition of the Cayman Islands to the EU AML List is a direct result of the inclusion of the Cayman Islands on the FATF grey list in February 2021. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company. Our assets are exposed to unplanned interruptions caused by events outside of our control which may disrupt our business and cause damage or losses that may not be adequately covered by insurance.
Projects in the aerospace products and services sector are exposed to a variety of unplanned interruptions which could cause our results of operations to suffer.
Projects in the aerospace products and services sector are exposed to unplanned interruptions caused by breakdown or failure of equipment, aging infrastructure, employee error or contractor or subcontractor failure, limitations that may be imposed by equipment conditions or environmental, safety or other regulatory requirements, fuel supply or fuel transportation reductions or interruptions, labor disputes, difficulties with the implementation or operation of information systems, power outages, pipeline or electricity line ruptures, catastrophic events, such as hurricanes, cyclones, earthquakes, landslides, floods, explosions, fires, or other disasters. Any equipment or system outage or constraint can, among other things, reduce sales, increase costs and affect the ability to meet regulatory service metrics, customer expectations and regulatory reliability and security requirements. Operational disruption, as well as supply disruption, and increased government oversight could adversely impact the cash flows available from these assets. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged interruption may result in temporary or permanent loss of customers, substantial litigation or penalties for regulatory or contractual non-compliance, and any loss from such events may not be recoverable under relevant insurance policies. Although we believe that we are adequately insured against these types of events, no assurance can be given that the occurrence of any such event will not materially adversely affect us.
Risks Related to Our Manager
We are dependent on our Manager and other key personnel at Fortress and may not find suitable replacements if our Manager terminates the Management Agreement or if other key personnel depart.
Our officers and other individuals who perform services for us (other than Jefferson and CMQR employees) are employees of our Manager or other Fortress entities. We are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies, to conduct our business. We are subject to the risk that our Manager will terminate the Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost, or at all. Furthermore, we are dependent on the services of certain key employees of our Manager and certain key employees of Fortress entities whose compensation is partially or entirely dependent upon the amount of management fees earned by our Manager or the incentive allocationspayments distributed to the General PartnerMaster GP and whose continued service is not guaranteed, and the loss of such personnel or services could materially adversely affect our operations. We do not have key man insurance for any of the personnel of the Manager or other Fortress entities that are key to us. An inability to find a suitable replacement for any departing employee of our Manager or Fortress entities on a timely basis could materially adversely affect our ability to operate and grow our business.
In addition, our Manager may assign our Management Agreement to an entity whose business and operations are managed or supervised by Mr. Wesley R. Edens, who is a principal and a Co-Chairmanmember of the board of directors of Fortress, an affiliate of our Manager, and a member of the management committee of Fortress since co-founding Fortress in May 1998. In the event of any such assignment to a non-affiliate of Fortress, the functions currently performed by our Manager’s current personnel may be performed by others. We can give you no assurance that such personnel would manage our operations in the same manner as our Manager currently does, and the failure by the personnel of any such entity to acquire assets generating attractive risk-adjusted returns could have a material adverse effect on our business, financial condition, results of operations and cash flows.
On February 14, 2017,May 22, 2023, Fortress and Mubadala announced that it hadthey have entered into the Merger Agreement with SoftBank Parent and an affiliate of SoftBank, and SoftBank Merger Sub,definitive agreements pursuant to which, SoftBank Merger Subamong other things, certain members of Fortress management and affiliates of Mubadala will merge with and intoacquire 100% of the equity of Fortress with Fortress surviving as a wholly owned subsidiary of SoftBank Parent.that is currently indirectly held by SoftBank. While Fortress’s senior investment professionals are expected to remain in place,at Fortress, including those individuals who perform services for us, there can be no assurance that the SoftBank mergertransaction will not have an impact on us or our relationship with theour Manager.
There are conflicts of interest in our relationship with our Manager.
Our Management Agreement and the PartnershipServices and Profit Sharing Agreement and our operating agreementArticles were negotiated prior to our IPO and among affiliated parties, and their terms, including fees and other amounts payable, may not be as favorable to us as if they had been negotiated after our IPO with an unaffiliated third-party.
There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates - including investment funds, private investment funds, or businesses managed by our Manager, including Seacastle Ships Holdings Inc., Trac Intermodal and Florida East Coast Railway, L.L.C. - invest in transportation and transportation-related infrastructureaviation assets and whose investment objectives overlap with our asset acquisition objectives. Certain opportunities appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our board of directors and employees of our Manager who are our officers also serve as officers and/or directors of these other entities. For example, we have some of the sameour directors and officers as Seacastle Ships Holdingsare also directors or officers of FTAI Infrastructure, Inc. and Trac Intermodal.(“FTAI Infrastructure”). Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress including Seacastle Ships Holdings Inc. and Trac Intermodal, for certain target assets. From time to time, affiliates ofentities affiliated with or managed by our Manager or Fortress may focus on investments in assets with a similar profile as our target assets that we may seek to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. Fortress has multiple existing and planned funds focused on investing in one or more of our target sectors, each with significant current or expected capital commitments. We have previously purchased and may in the future purchase assets from these funds, and have previously co-invested and may in the future co-invest with these funds in transportation and transportation-related infrastructureaviation assets. Fortress funds generally have a fee structure similar to ours, but the fees actually paid will vary depending on the size, terms and performance of each fund.
Our Management Agreement generally does not limit or restrict our Manager or its affiliates from engaging in any business or managing other operating companies similar to us or pooled investment vehicles that invest in assets that meet our asset acquisition objectives. Our Manager intends to engagehas also engaged in additional transportation and infrastructure related management with FTAI Infrastructure in our recent spin-off of our infrastructure assets, and transportation, infrastructure andmay be involved in other investment opportunities in the future, any of which may compete with us for investments or result in a change in our current investment strategy. In addition, our operating agreement providesArticles provide that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our shareholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of FTAI Aviation Ltd. and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.
The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we may engage (subject to our strategy) in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, including Seacastle Ships Holdings Inc., Trac Intermodal and Florida East Coast Railway, L.L.C., which may include, but are not limited to, certain acquisitions, financing arrangements, purchases of debt, co-investments, consumer loans, servicing advances and other assets that present an actual, potential or perceived conflict of interest. Our board of directors adopted a policy regarding the approval of any “related person transactions” pursuant to which certain of the material transactions described above may require disclosure to, and approval by, the independent members of our board of directors. Actual, potential or perceived conflicts have given, and may in the future give, rise to investor dissatisfaction, litigation or regulatory inquiries or enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.
The structure of our Manager’s and the General Partner’sMaster GP’s compensation arrangements may have unintended consequences for us. We have agreed to pay our Manager a management fee and the General PartnerMaster GP is entitled to receive incentive allocationspayments from Holdcothe Company or its subsidiaries that are each based on different measures of performance. Consequently, there may be conflicts in the incentives of our Manager to generate attractive risk-adjusted returns for us. In addition, because the General PartnerMaster GP and our Manager are both affiliates of Fortress, the Income Incentive Allocationincome incentive payment paid to the General PartnerMaster GP may cause our Manager to place undue emphasis on the maximization of earnings, including through the use of leverage, at the expense of other objectives, such as preservation of capital, to achieve higher incentive allocations.payments. Investments with higher yield potential are generally riskier or more speculative than investments with lower yield potential. This could result in increased risk to the value of our portfolio of assets and our commonordinary shares.
Our directors have approved a broad asset acquisition strategy for our Manager and dowill not approve each acquisition we make at the direction of our Manager. In addition, we may change our strategy without a shareholder vote, which may result in our acquiring assets that are different, riskier or less profitable than our current assets.
Our Manager is authorized to follow a broad asset acquisition strategy. We may pursue other types of acquisitions as market conditions evolve. Our Manager makes decisions about our investments in accordance with broad investment guidelines adopted by our board of directors. Accordingly, we may, without a shareholder vote, change our target sectors and acquire a variety of assets that differ from, and are possibly riskier than, our current asset portfolio. Consequently, our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in our existing portfolio. Our directors will periodically review our strategy and our portfolio of assets. However, our board doeswill not review or pre-approve each proposed acquisition or our related financing arrangements. In addition, in conducting periodic reviews, the directors will rely primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to reverse by the time they are reviewed by the directors even if the transactions contravene the terms of the Management Agreement. In addition, we may change our asset acquisition strategy, including our target asset classes, without a shareholder vote.
Our asset acquisition strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets we target and our ability to finance such assets on a short or long-term basis. Opportunities that present unattractive risk-return profiles relative to other available opportunities under particular market conditions may become relatively attractive under changed market conditions and changes in market conditions may therefore result in changes in the assets we target. Decisions to make acquisitions in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce or eliminate our ability to pay dividends on our commonordinary shares or have adverse effects on our liquidity or financial condition. A change in our asset acquisition strategy may also increase our exposure to interest rate, foreign currency or credit market fluctuations. In addition, a change in our asset acquisition strategy may increase our use of non-match-funded financing, increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.
Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our assets.
Pursuant to our Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, will not be liable to us or any of our subsidiaries, to our board of directors, or our or any subsidiary’s shareholders or partners for any acts or omissions by our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, except liability to the Company,us, our shareholders, directors, officers and employees and persons controlling us, by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We will, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees, sub-advisers and each other person, if any, controlling our Manager harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.
Our Manager’s due diligence of potential asset acquisitions or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.
Our Manager intends to conduct due diligence with respect to each asset acquisition opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the asset and will rely on information provided by the seller of the asset. In addition, if asset acquisition opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.
Risks Related to Taxation
ShareholdersWe expect the Company to be a passive foreign investment company (“PFIC”) and it could be a controlled foreign corporation (“CFC”) for U.S. federal income tax purposes, which may result in adverse tax considerations for U.S. shareholders.
We expect the Company to be treated as a PFIC and it could be treated as a CFC for U.S. federal income tax purposes. If you are a U.S. person and do not make a valid qualified electing fund (“QEF”) election with respect to us and each of our PFIC subsidiaries, then, unless we are a CFC and you own 10% or more of our shares (by vote or value), you would generally be subject to special deferred tax with respect to certain distributions on our shares, any gain realized on a disposition of our shares, and certain other events. The effect of this deferred tax could be materially adverse to you. Alternatively, if you are such a shareholder and make a valid QEF election for us and each of our PFIC subsidiaries, or if we are a CFC and you own 10% or more of our shares (by vote or value), you will generally not be subject to those taxes, but could recognize taxable income in a taxable year with respect to our shares in excess of any distributions that we make to you in that year, thus giving rise to so called “phantom income” and to a potential out-of-pocket tax liability. No assurances can be given that any given shareholder will be able to make a valid QEF election with respect to us or our PFIC subsidiaries. See “U.S. Federal Income Tax Considerations —Considerations for U.S. Holders—PFIC Status and Related Tax Considerations.”
Assuming we are a PFIC, distributions made by us to a U.S. person will generally not be eligible for taxation at reduced tax rates generally applicable to “qualified dividends” paid by certain U.S. corporations and “qualified foreign corporations” to individuals. The more favorable rates applicable to other corporate dividends could cause individuals to perceive investment in our shares to be relatively less attractive than investment in the shares of other corporations, which could adversely affect the value of our shares.
Investors should consult their tax advisors regarding the potential impact of these rules on their investment in us.
To the extent we recognize income treated as effectively connected with a trade or business in the United States, we would be subject to U.S. federal income taxation on a net income basis, which could adversely affect our business and result in decreased cash available for distribution to our shareholders.
If we are treated as engaged in a trade or business in the United States, the portion of our net income, if any, that is “effectively connected” with such trade or business would be subject to U.S. federal income taxation at maximum corporate rates, currently 21%. In addition, we may be subject to an additional U.S. federal branch profits tax on their shareour effectively connected earnings and profits at a rate of 30%. The imposition of such taxes could adversely affect our business and would result in decreased cash available for distribution to our shareholders. Although we (or one or more of our non-U.S. corporate subsidiaries) are expected to be treated as engaged in a U.S. trade or business, it is currently expected that only a small portion of our taxable income regardlesswill be treated as effectively connected with such U.S. trade or business. However, no assurance can be given that the amount of whether they receive any cash dividends from us.
So long as we wouldeffectively connected income will not be requiredgreater than currently expected, whether due to register as an investment company under the Investment Company Act of 1940a change in our operations or otherwise.
If there is not sufficient trading in our shares, or if we were a U.S. Corporation and 90%50% of our grossshares are held by certain 5% shareholders, we could lose our eligibility for an exemption from U.S. federal income taxation on rental income from our aircraft or ships used in “international traffic” and could be subject to U.S. federal income taxation which would adversely affect our business and result in decreased cash available for each taxable year constitutes “qualifying income” within the meaningdistribution to our shareholders.
We expect that we will be eligible for an exemption under Section 883 of the Internal Revenue Code of 1986, as amended (the “Code”), on a continuing basis, FTAI will be treated, forwhich provides an exemption from U.S. federal income tax purposes,taxation with respect to rental income derived from aircraft and ships used in international traffic by certain foreign corporations. No assurances can be given that we will continue to be eligible for this exemption as changes in our ownership or the amount of our shares that are traded could cause us to cease to be eligible for such exemption. To qualify for this exemption in respect of rental income, the lessor of the aircraft or ships must be organized in a partnershipcountry that grants a comparable exemption to U.S. lessors. The Cayman Islands and the Marshall Islands grant such exemptions. Additionally, certain other requirements must be satisfied. We can satisfy these requirements in any year if, for more than half the days of such year, our shares are primarily and regularly traded on a recognized exchange and certain shareholders, each of whom owns 5% or more of our shares (applying certain attribution rules), do not as an association or publiclycollectively own more than 50% of our shares. Our shares will be considered to be primarily and regularly traded partnershipon a recognized exchange in any year if: (i) the number of trades in our shares effected on such recognized stock exchanges exceed the number of our shares (or direct interests in our shares) that are traded during the year on all securities markets; (ii) trades in our shares are effected on such stock exchanges in more than de minimis quantities on at least 60 days during every calendar quarter in the year; and (iii) the aggregate number of our shares traded on such stock exchanges during the taxable as a corporation. Shareholders mayyear is at least 10% of the average number of our shares outstanding in that class during that year. If we were not eligible for the exemption under Section 883 of the Code, we expect that our U.S. source rental income would generally be subject to U.S. federal state, local and possibly, in some cases, non-U.S. income taxation, on their allocable share of our items of income, gain, loss, deduction and credit (including our allocable share of those items of Holdco or any other entity in which we invest that is treated as a partnership or is otherwise subject to tax on a flow through basis) for each of our taxable years ending with or within their taxable year, regardless of whether they receive cash dividends from us. Shareholders may not receive cash dividends equal to their allocable share of our net taxable income or even the tax liability that results from that income.
In addition, certain of our holdings, including holdings, if any, in a Controlled Foreign Corporation (“CFC”) or a Passive Foreign Investment Company (“PFIC”), may produce taxable income prior to our receipt of cash relating to such income, and shareholders subject to U.S. federal income tax will be required to take such income into account in determining their taxable income.
Under our operating agreement, in the event of an inadvertent partnership termination in which the Internal Revenue Service (“IRS”) has granted us limited relief, each shareholder also is obligated to make such adjustments as are required by the IRS to maintain our status as a partnership. Such adjustments may require shareholders to recognize additional amounts in income during the years in which they have held common shares. We may also be required to make payments to the IRS.
Tax gain or loss on a sale or other disposition of our common shares could be more or less than expected.
If a sale of our common shares by a shareholder is taxable in the United States, the shareholder will recognize gain or loss equal to the difference between the amount realized by such shareholder on such sale and such shareholder’s adjusted tax basis in those shares. Prior distributions to such shareholder in excess of the total net taxable income allocated to such shareholder, which will have decreased such shareholder’s adjusted tax basis in its shares, will effectively increase any gain recognized by such shareholder if the shares are sold at a price greater than such shareholder’s adjusted tax basis in those shares, even if the price is less than their original cost to such shareholder. A portion of the amount realized, whether or not representing gain, may be treated as ordinary income to such shareholder.
Our ability to make distributions depends on our receiving sufficient cash distributions from our subsidiaries, and we cannot assure our shareholders that we will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities.
Our subsidiaries may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, our funds available for distribution is indirectly reduced by such taxes, and the post-tax return to our shareholders is similarly reduced by such taxes.
In general, a shareholder that is subject to U.S. federal income tax must include in income its allocable share of FTAI’s items of income, gain, loss, deduction, and credit (including, so long as FTAI is treated as a partnership for tax purposes, FTAI’s allocable share of those items of Holdco and any pass-through subsidiaries of Holdco) for each of our taxable years ending with or within such shareholder’s taxable year. However, the cash distributed to a shareholder may not be sufficient to pay the full amount of such shareholder’s tax liability in respect of its investment in us, because each shareholder’s tax liability depends on such shareholder’s particular tax situation and the tax treatment of our underlying activities or assets.
If we are treated as a corporation for U.S. federal income tax purposes, the value of the shares could be adversely affected.
We have not requested, and do not plan to request, a ruling from the IRS on our treatment as a partnership for U.S. federal income tax purposes, or on any other matter affecting us. As of the date of the consummation of our initial public offering, under then current law and assuming full compliance with the terms of our operating agreement (and other relevant documents) and based upon factual statements and representations made by us, our outside counsel opined that we will be treated as a partnership, and not as an association or a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. However, opinions of counsel are not binding upon the IRS or any court, and the IRS may challenge this conclusion and a court may sustain such a challenge. The factual representations made by us upon which our outside counsel relied relate to our organization, operation, assets, activities, income, and present and future conduct of our operations. In general, if an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes is a “publicly traded partnership” (as defined in the Code) it will be nonetheless treated as a corporation for U.S. federal income tax purposes, unless the exception described below, and upon which we intend to rely, applies. A publicly traded partnership will, however, be treated as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of the Code and it is not required to register as an investment company under the Investment Company Act of 1940. We refer to this exception as the “Qualifying Income Exception.”
Qualifying income generally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms of investment income. We currently expect that a substantial portion of our income will constitute either “Subpart F” income (defined below) derived from CFCs or QEF Inclusions (as defined below). While we believe that such income constitutes qualifying income, no assurance can be given that the IRS will agree with such position. We also believe that our return from investments will include interest, dividends, capital gains and other types of qualifying income, but no assurance can be given as to the types of income that will be earned in any given year.
If we fail to satisfy the Qualifying Income Exception, we would be required to pay U.S. federal income tax at regular corporate rates on our worldwide income. In addition, we would likely be liable for state and local income and/or franchise taxes on such income. Dividends to shareholders would constitute ordinary dividend income taxable to such shareholders to the extent of our earnings and profits, and the payment of these dividends would not be deductible by us. Taxation of us as a publicly traded partnership taxable as a corporation could result in a material adverse effect on our cash flow and the after-tax returns for shareholders and thus could result in a substantial reduction in the value of our common shares.
Non-U.S. Holders (defined below) should anticipate being required to file U.S. tax returns and may be required to pay U.S. tax solely on account of owning and disposing of our common shares.
In light of our intended investment activities, we may be, or may become, engaged in a U.S. trade or business for U.S. federal income tax purposes, in which case some portion of our income would be treated as effectively connected income with respect to Non-U.S. Holders. Moreover, we anticipate that, in the future, we will sell interests in U.S. real holding property corporations (each a “USRPHC”) and therefore be deemed to be engaged in a U.S. trade or business for that reason at such time. If we were to realize gain from the sale or other disposition of a U.S. real property interest (including a USRPHC) or were otherwise engaged in a U.S. trade or business, Non-U.S. Holders generally would be required to file U.S. federal income tax returns and would be subject to U.S. federal withholding tax on their allocable share of the effectively connected income on gain at the highest marginal U.S. federal income tax rates applicable to ordinary income. Non-U.S. holders that are corporations may also be subject to a branch profits tax on their allocable share of such income. In addition, if we were treated as being engaged in a U.S. trade or business, a portion of any gain recognized by a Non-U.S. Holder on the sale or exchange of its common shares could be treated for U.S. federal income tax purposes as effectively connected income, and hence such Non-U.S. Holder could be subject to U.S. federal income tax on the sale or exchange. Accordingly, Non-U.S. Holders should anticipate being required to file U.S. tax returns and may be required to pay U.S. tax solely on account of owning our common shares.
Non-U.S. Holders that hold (or are deemed to hold) more than 5% of our common shares (or held, or were deemed to hold, more than 5% of our common shares) may be subject to U.S. federal income tax upon the disposition of some or all their common shares.
If a Non-U.S. Holder held more than 5% of our common shares at any time during the 5 year period preceding such Non-U.S. Holder’s disposition of our common shares, and we were considered a USRPHC (determined as if we were a U.S. corporation) at any time during such 5 year period because of our current or previous ownership of U.S. real property interests above a certain threshold, such Non-U.S. Holder may be subject to U.S. tax on such disposition of our common shares (and may have a U.S. tax return filing obligation).
Tax-exempt shareholders may face certain adverse U.S. tax consequences from owning our common shares.
We are not required to manage our operations in a manner that would minimize the likelihood of generating income that would constitute “unrelated business taxable income” (“UBTI”) to the extent allocated to a tax-exempt shareholder. Although we expect to invest through subsidiaries that are treated as corporations for U.S. federal income tax purposes and such corporate investments would generally not result in an allocation of UBTI to a shareholder on account of the activities of those subsidiaries, we may not invest through corporate subsidiaries in all cases. Moreover, UBTI includes income attributable to debt-financed property and we are not prohibited from debt financing our investments, including investments in subsidiaries. Furthermore, we are not prohibited from being (or causing a subsidiary to be) a guarantor of loans made to a subsidiary. If we (or certain of our subsidiaries) were treated as the borrower for U.S. tax purposes on account of those guarantees, some or all of our investments could be considered debt-financed property. The potential for income to be characterized as UBTI could make our common shares an unsuitable investment for a tax-exempt entity. Tax-exempt shareholders are urged to consult their tax advisors regarding the tax consequences of an investment in common shares.
We may hold or acquire certain investments through an entity classified as a PFIC or CFC for U.S. federal income tax purposes.
Certain of our investments may be in non-U.S. corporations or may be acquired through a non-U.S. subsidiary that would be classified as a corporation for U.S. federal income tax purposes. Such an entity may be a PFIC or a CFC for U.S. federal income tax purposes. U.S. Holders indirectly owning an interest in a PFIC or a CFC may experience adverse U.S. tax consequences.
If substantially all of the U.S. source rental income derived from aircraft or ships used to transport passengers or cargo in international traffic (“U.S. source international transport rental income”) of any of our non-U.S. corporate subsidiaries is attributable to activities of personnel based in the United States, such subsidiary could be subject to U.S. federal income tax on a net income basis at regular tax rates, rather than at a rate of 4% on gross income, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
We expect that the U.S. source international transport rental income of our non-U.S. subsidiaries generally will be subject to U.S. federal income tax, on a gross income basis, at a rate of not in excess of 4% as provided in Section 887 of the Code. If, contrary to expectations, anywe or certain of our non-U.S. subsidiaries that is treated as a corporation for U.S. federal income tax purposes did not comply with certain administrative guidelines of the IRS,U.S. Internal Revenue Service (the “IRS”), such that 90% or more of such subsidiary’sthe U.S. source international transport rental income of the Company or any of such subsidiaries were attributable to the activities of personnel based in the United States (in the case of bareboat leases), or from “regularly scheduled transportation” as defined isin such administrative guidelines (in the case of time-chartertime charter leases), our, or such subsidiary’s, U.S. source rental income would be treated as income effectively connected with the conduct of a trade or business in the United States. In such case, such subsidiary’s U.S. source international transport rental income would be subject to U.S. federal income taxtaxation at athe maximum corporate rate of 35%.as well as state and local taxation. In addition, the Company or such subsidiary would be subject to the U.S. federal branch profits tax on its effectively
connected earnings and profits at a rate of 30%. The imposition of such taxes wouldcould adversely affect our business and would result in decreased fundscash available for distribution to our shareholders.
OurWe or our subsidiaries may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
OurSome of our subsidiaries may beare subject to income, withholding or other taxes in certain non-U.S. jurisdictions by reason of their jurisdiction of incorporation, activities and operations, where their assets are used or where the lessees of their assets (or others in possession of their assets) are located, and it is also possible that taxing authorities in any such jurisdictions could assert that we or our subsidiaries are subject to greater taxation than we currently anticipate. For example,Further, the Organisation for Economic Co-operation and Development (the “OECD”) is conducting a project focused on base erosion and profit shifting in international structures, which seeks to establish certain international standards for taxing the worldwide income of multinational companies. In addition, the OECD is working on a “BEPS 2.0” initiative, which is aimed at (i) shifting taxing rights to the jurisdiction of the consumer and (ii) ensuring all companies pay a global minimum tax. On October 8, 2021, the OECD announced an agreement among over 140 countries delineating an implementation plan, on December 20, 2021, the OECD released model rules for the domestic implementation of a 15% global minimum tax, on December 15, 2022, the member states of the European Union unanimously voted to adopt the OECD’s minimum tax rules and phase them into national law, and on February 2, 2023 the OECD released technical guidance on the global minimum tax which was agreed by consensus of the BEPS 2.0 signatory jurisdictions. Legislatures in multiple countries outside of the EU have also drafted legislation consistent with the OECD’s minimum tax proposal. As a result of these developments, the tax laws of certain countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and therefore could harm our business, cash flows, results of operations and financial position. In addition, a portion of certain of our or our non-U.S. corporate subsidiaries’ income is treated as effectively connected with a U.S. trade or business and is accordingly subject to U.S. federal income tax or may be subject to gross-basis U.S. withholding tax. It is possible that the IRS could assert that a greater portion of our or any such non-U.S. subsidiaries’ income is effectively connected income that should be subject to U.S. federal income tax.
Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.withholding tax.
The U.S. federal income tax treatment of our shareholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Prospective investors should be aware that the U.S. federal income tax rules are constantly under review by persons involved in the legislative process, the IRS, and the U.S. Treasury Department, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations. The IRS pays close attention to the proper application of tax laws to partnerships. The present U.S. federal income tax treatment of an investment in our common shares may be modified by administrative, legislative or judicial interpretation at any time, possibly on a retroactive basis, and any such action may affect our investments and commitments that were previously made, and could adversely affect the value of our shares or cause us to change the way we conduct our business.
Our organizational documents and agreements permit the board of directors to modify our operating agreement from time to time, without the consent of shareholders, in order to address certain changes in Treasury regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all shareholders. Moreover, we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to shareholders in a manner that reflects such shareholders’ beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of the Code and/or Treasury regulations and could require that items of income, gain, deduction, loss or credit, including interest deductions, be adjusted, reallocated, or disallowed, in a manner that adversely affects shareholders.
We could incur a significant tax liability if the IRS successfully asserts that the “anti-stapling” rules apply to our investments in our non-U.S. and U.S. subsidiaries, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
If we were subject to the “anti-stapling” rules of Section 269B of the Code, we would incur a significant tax liability as a result of owning more than 50% of the value of both U.S. and non-U.S. corporate subsidiaries, whose equity interests constitute “stapled interests” that may only be transferred together. If the “anti-stapling” rules applied, our non-U.S. corporate subsidiaries that are treated as corporations for U.S. federal income tax purposes would be treated as U.S. corporations, which would cause those entities to be subject to U.S. federal corporate income tax on their worldwide income. Because we intend to separately manage and operate our non-U.S. and U.S. corporate subsidiaries and structure their business activities in a manner that would allow us to dispose of such subsidiaries separately, we do not expect that the “anti-stapling” rules will apply. However, there can be no assurance that the IRS would not successfully assert a contrary position, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
We cannot match transferors and transferees of our shares, and we have therefore adopted certain income tax accounting positions that may not conform with all aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect the value of our shares.
Because we cannot match transferors and transferees of our shares, we have adopted depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our shareholders. It also could affect the timing of these tax benefits or the amount of gain on the sale of our common shares and could have a negative impact on the value of our common shares or result in audits of and adjustments to our shareholders’ tax returns.
We may allocate items of income, gain, loss, and deduction using a monthly or other convention, whereby any such items we recognize in a given month are allocated to our shareholders as of a specified date of such month. As a result, if a shareholder transfers its common shares, it might be allocated income, gain, loss, and deduction realized by us after the date of the transfer. Similarly, if a shareholder acquires additional common shares, it might be allocated income, gain, loss, and deduction realized by us prior to its ownership of such common shares. Consequently, our shareholders may recognize income in excess of cash distributions received from us, and any income so included by a shareholder would increase the basis such shareholder has in it common shares and would offset any gain (or increase the amount of loss) realized by such shareholder on a subsequent disposition of its common shares.
The sale or exchange of 50% or more of our common shares within a 12-month period will result in our termination for U.S. federal income tax purposes.
We will be considered to have terminated as a partnership for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of our common shares within a 12-month period. Our termination would, among other things, result in the closing of our taxable year for all shareholders and could result in a deferral of depreciation and amortization deductions allowable in computing our taxable income.
Recently enacted legislation regarding U.S. federal income tax liability arising from IRS audits could adversely affect our shareholders.
For taxable years beginning on or after January 1, 2018, we will be liable for U.S. federal income tax liability arising from an IRS audit, unless certain alternative methods are available and we elect to use them. Under the new rules, it is possible that certain shareholders or we may be liable for taxes attributable to adjustments to our taxable income with respect to tax years that closed before such shareholders owned our shares. Accordingly, this new legislation may adversely affect certain shareholders in certain cases. This differs from the existing rules, which generally provide that tax adjustments only affect the persons who were shareholders in the tax year in which the item was reported on our tax return. The changes created by the new legislation are uncertain and in many respects depend on the promulgation of future regulations or other guidance by the U.S. Treasury Department or the IRS.
Risks Related to Our Common Shares
The market price and trading volume of our commonordinary and preferred shares may be volatile, which could result in rapid and substantial losses for our shareholders.
The market price of our commonordinary and preferred shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our commonordinary and preferred shares may fluctuate and cause significant price variations to occur. If the market price of our commonordinary or preferred shares declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our commonordinary and preferred shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common shares include:
•a shift in our investor base;
•our quarterly or annual earnings, or those of other comparable companies;
•actual or anticipated fluctuations in our operating results;
•changes in accounting standards, policies, guidance, interpretations or principles;
•announcements by us or our competitors of significant investments, acquisitions or dispositions;
•the failure of securities analysts to cover our commonordinary shares;
•changes in earnings estimates by securities analysts or our ability to meet those estimates;
•the operating and share price performance of other comparable companies;
•prevailing interest rates or rates of return being paid by other comparable companies and the market for securities similar to our preferred shares;
•additional issuances of preferred shares;
•whether we declare distributions on our preferred shares;
•overall market fluctuations;
•general economic conditions; and
•developments in the markets and market sectors in which we participate.
Stock markets in the United States have experienced extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions, such as acts of terrorism, prolonged economic uncertainty, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our commonordinary and preferred shares.
We areAn increase in market interest rates may have an emerging growth company withinadverse effect on the meaningmarket price of our shares.
One of the JOBS Act,factors that investors may consider in deciding whether to buy or sell our shares is our distribution rate as a percentage of our share price relative to market interest rates. If the market price of our shares is based primarily on the earnings and duereturn that we derive from our investments and income with respect to our taking advantage of certain exemptionsinvestments and our related distributions to shareholders, and not from various reporting requirements applicable to emerging growth companies, our common shares could be less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act. As such, we have taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, our shareholders may not have access to certain information they may deem important. We will remain an emerging growth company until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the last day of the fiscal year following the fifth anniversary of our initial public offering, (c) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that are held by non-affiliates exceeds $700 million as of the last business dayinvestments themselves, then interest rate fluctuations and capital market
conditions will likely affect the market price of our most recently completed second fiscal quarter or (d)shares. For instance, if market interest rates rise without an increase in our distribution rate, the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period. Because we have taken advantagemarket price of each of these exemptions,our shares could decrease, as potential investors may findrequire a higher distribution yield on our common shares less attractive as a result. Theor seek other securities paying higher distributions or interest. In addition, rising interest rates would result may be a less active trading market forin increased interest expense on our common sharesoutstanding and future (variable and fixed) rate debt, thereby adversely affecting cash flows and our share price may be more volatile.
ability to service our indebtedness and pay distributions.
We are required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls, and the outcome of that effort may adversely affect our results of operations, financial condition and liquidity.
As a public company, we are required to comply with Section 404 (“Section 404”) of the Sarbanes-Oxley Act (the timing of when to comply with the auditor attestation requirements will be determined based on whether we take advantage of certain JOBS Act provisions applicable to emerging growth companies).Act. Section 404 requires that we evaluate the effectiveness of our internal control over financial reporting at the end of each fiscal year and to enableinclude a management to report onassessing the effectiveness of those controls. We have undertaken a review of our internal controls over financial reporting in our Annual Report on Form 10-K for that fiscal year. Section 404 also requires an independent registered public accounting firm to attest to, and procedures.report on, management’s assessment of our internal controls over financial reporting. The outcome of our review and the report of our independent registered public accounting firm may adversely affect our results of operations, financial condition and liquidity. During the course of our review, we may identify control deficiencies of varying degrees of severity, and we may incur significant costs to remediate those deficiencies or otherwise improve our internal controls. As a public company, we are required to report control deficiencies that constitute a “material weakness” in our internal control over financial reporting. Furthermore, ifIf we discover a material weakness in our internal control over financial reporting, our share price could decline and our ability to raise capital could be impaired.
Your percentage ownership in us may be diluted in the future.
Your percentage ownership in FTAI Aviation Ltd. may be diluted in the future because of equity awards thatgranted and may be granted to our Manager pursuant to the Management Agreement and the Incentive Plan. Since 2015, we granted our Management Agreement. UponManager an option to acquire 3,903,010 ordinary shares in connection with equity offerings. In the future, upon the successful completion of an offeringadditional offerings of our commonordinary shares or other equity securities (including securities issued as consideration in an acquisition), we will grant to our Manager options to purchase commonordinary shares in an amount equal to 10% of the number of commonordinary shares being sold in such offeringofferings (or if the issuance relates to equity securities other than our commonordinary shares, options to purchase a number of commonordinary shares equal to 10% of the gross capital raised in the equity issuance divided by the fair market value of a commonan ordinary share as of the date of the issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a commonan ordinary share as of the date of the equity issuance if it relates to equity securities other than our commonordinary shares), and any such offering or the exercise of the option in connection with such offering would cause dilution.
Our board of directors has adopted the Fortress Transportation and Infrastructure Investors Nonqualified Stock Option and Incentive Award Plan, (the “Incentive Plan”) which provides for the grant of equity-based awards, including restricted stock,shares, stock options, stock appreciation rights, performance awards, restricted stockshare units, tandem awards and other equity-based and non-equity based awards, in each case to our Manager, to the directors, officers, employees, service providers, consultants and advisors of our Manager who perform services for us, and to our directors, officers, employees, service providers, consultants and advisors. We have initially reserved 30,000,000 commonordinary shares for issuance under the Incentive Plan;Plan. As of June 30, 2023, rights relating to 1,964,263 of our ordinary shares were outstanding under the Incentive Plan. In the future on the date of any equity issuance by us during the Company duringremaining portion of the ten-year term of the Incentive Plan (including in respect of securities issued as consideration in an acquisition), the maximum number of shares available for issuance under the Plan will be increased to include an additional number of commonordinary shares equal to ten percent (10%) of either (i) the total number of commonordinary shares newly issued by the Companyus in such equity issuance or (ii) if such equity issuance relates to equity securities other than our commonordinary shares, a number of our commonordinary shares equal to 10% of (i)(A) the gross capital raised in an equity issuance of equity securities other than commonordinary shares during the ten-year term of the Incentive Plan, divided by (ii)(B) the fair market value of a commonan ordinary share as of the date of such equity issuance.
Sales or issuances of shares of our commonordinary shares could adversely affect the market price of our commonordinary shares.
Sales of substantial amounts of shares of our commonordinary shares in the public market, or the perception that such sales might occur, could adversely affect the market price of our commonordinary shares. The issuance of our commonordinary shares in connection with property, portfolio or business acquisitions or the exercise of outstanding options or otherwise could also have an adverse effect on the market price of our commonordinary shares.
The incurrence or issuance of debt, which ranks senior to our commonordinary shares upon our liquidation, and future issuances of equity or equity-related securities, which would dilute the holdings of our existing commonordinary shareholders and may be senior to our commonordinary shares for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our commonordinary shares.
We have incurred and may in the future incur or issue debt or issue equity or equity-related securities to finance our operations.operations, acquisitions or investments. Upon our liquidation, lenders and holders of our debt and holders of our preferred shares (if any) would receive a distribution of our available assets before commonordinary shareholders. Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash flows. We are not required to offer any additional equity securities to existing commonordinary shareholders on a preemptive basis. Therefore, additional issuances of commonordinary shares, directly or through convertible or exchangeable securities (including limited partnership interests in our operating partnership), warrants or options, will dilute the holdings of our existing commonordinary shareholders and such issuances, or the perception of such issuances, may reduce the market price of our commonordinary shares. Any preferred shares issued by us would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to commonordinary shareholders. Because our decision to incur or issue debt or issue equity or equity-related securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, commonordinary shareholders bear the risk that our future incurrence or issuance of debt or issuance of equity or equity-related securities will adversely affect the market price of our commonordinary shares.
Our determination of how much leverage to use to finance our acquisitions may adversely affect our return on our assets and may reduce funds available for distribution.
We utilize leverage to finance many of our asset acquisitions, which entitles certain lenders to cash flows prior to retaining a return on our assets. While our Manager targets using only what we believe to be reasonable leverage, our strategy does not limit the amount of leverage we may incur with respect to any specific asset. The return we are able to earn on our assets and funds available for distribution to our shareholders may be significantly reduced due to changes in market conditions, which may cause the cost of our financing to increase relative to the income that can be derived from our assets.
While we currently intend to pay regular quarterly dividends to our shareholders, we may change our dividend policy at any time.
Although we currently intend to pay regular quarterly dividends to holders of our commonordinary shares, we may change our dividend policy at any time. Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. The declaration and payment of dividends to holders of our commonordinary shares will beare at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including actual results of operations, liquidity and financial condition, net cash provided by operating activities, restrictions imposed by applicable law, our taxable income, our operating expenses and other factors our board of directors deem relevant. Our long term goal is to maintain a payout ratio of between 50-60% of funds available for distribution, with remaining amounts used primarily to fund our future acquisitions and opportunities. There can be no assurance that we will continue to pay dividends in amounts or on a basis consistent with prior distributions to our investors, if at all. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries and our ability to receive distributions from our subsidiaries may be limited by the financing agreements to which they are subject. In addition, our existing indebtedness does, and our future indebtedness may, limit our ability to pay dividends on our ordinary and preferred shares. Moreover, pursuant to the PartnershipServices and Profit Sharing Agreement, the General Partner will beMaster GP is entitled to receive incentive allocationspayments before any amounts are distributed by the Companyus based both on our consolidated net income and capital gains income in each fiscal quarter and for each fiscal year, respectively. Furthermore, the terms of our preferred shares generally prevent us from declaring or paying dividends on or repurchasing our ordinary shares or other junior capital unless all accrued distributions on such preferred shares have been paid in full.
Anti-takeover provisions in our operating agreement and Delaware lawArticles could delay or prevent a change in control.
Provisions in our operating agreementArticles may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our operating agreementArticles provides for a staggered board, requires advance notice for proposals by shareholders and nominations, places limitations on convening shareholder meetings, and authorizes the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. In addition, certain provisions of Delaware law may delay or prevent a transaction that could cause a change in our control. The market price of our shares could be adversely affected to the extent that provisions of our operating agreement discourage potential takeover attempts that our shareholders may favor.
There are certain provisions in our operating agreement regarding exculpation and indemnification of our officers and directors that differ from the Delaware General Corporation Law (the “DGCL”) in a manner that may be less protective of the interests of our shareholders.
Our operating agreement provides that to the fullest extent permitted by applicable law our directors or officers will not be liable to us. Under the DGCL, a director or officer would be liable to us for (i) breach of duty of loyalty to us or our shareholders, (ii) intentional misconduct or knowing violations of the law that are not done in good faith, (iii) improper redemption of shares or declaration of dividend, or (iv) a transaction from which the director derived an improper personal benefit. In addition, our operating agreement provides that we indemnify our directors and officers for acts or omissions to the fullest extent provided by law. Under the DGCL, a corporation can only indemnify directors and officers for acts or omissions if the director or officer acted in good faith, in a manner he reasonably believed to be in the best interests of the corporation, and, in criminal action, if the officer or director had no reasonable cause to believe his conduct was unlawful. Accordingly, our operating agreement may be less protective of the interests of our shareholders, when compared to the DGCL, insofar as it relates to the exculpation and indemnification of our officers and directors.
As a public company, we will incur additional costs and face increased demands on our management.
As a relatively new public company with shares listed on the NYSE, we need to comply with an extensive body of regulations that did not apply to us previously, including certain provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulations of the SEC and requirements of the NYSE. We expect these rules and regulations will increase our legal and financial compliance costs and make some activities to our board of directors more time-consuming and costly. For example, as a result of becoming a public company, we have independent directors and board committees. In addition, we may incur additional costs associated with our public company reporting requirements and maintaining directors’ and officers’ liability insurance. We are currently evaluating and monitoring developments with respect to these rules, which may impose additional costs on us and have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our commonordinary shares, our share price and trading volume could decline.
The trading market for our commonordinary shares are influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our commonordinary units or publishes inaccurate or unfavorable research about our business, our commonordinary share price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our commonordinary share price or trading volume to decline and our commonordinary shares to be less liquid.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits | | | | | | | | | | | |
| Exhibit No. | | Description |
| | | Agreement and Plan of Merger, dated as of August 12, 2022, by and among, FTAI, the Company and FTAI Aviation Merger Sub LLC (incorporated by reference to Annex A to FTAI’s Registration Statement on Form S-4, filed on October 11, 2022). |
| | | Separation and Distribution Agreement, dated as of August 1, 2022, between FTAI Infrastructure Inc. and the Company (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on August 1, 2022). |
| | | Amended and Restated Memorandum and Articles of Association of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
| | | Share Designation with respect to the 8.25% Fixed-to-Floating Series A Cumulative Perpetual Redeemable Preferred Shares (included as part of Exhibit 3.1 hereto). |
| | | Share Designation with respect to the 8.00% Fixed-to-Floating Series B Cumulative Perpetual Redeemable Preferred Shares (included as part of Exhibit 3.1 hereto). |
| | | Share Designation with respect to the 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Shares (included as part of Exhibit 3.1 hereto). |
| | | Share Designation with respect to the 9.500% Fixed-Rate Reset Series D Cumulative Perpetual Redeemable Preferred Shares of FTAI Aviation Ltd. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A, filed on March 15, 2023). |
| | | Form of Certificate representing the 8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Shares of FTAI Aviation Ltd. (included as part of Exhibit 3.1 hereto). |
| | | Form of Certificate representing the 8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Shares of FTAI Aviation Ltd. (included as part of Exhibit 3.1 hereto). |
| | | Form of Certificate representing the 8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Shares of FTAI Aviation Ltd. (included as part of Exhibit 3.1 hereto). |
| | | Form of certificate representing the 9.500% Fixed-Rate Reset Series D Cumulative Perpetual Redeemable Preferred Shares of FTAI Aviation Ltd. (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form 8-A, filed on March 15, 2023). |
| | | Indenture, dated September 18, 2018, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 6.50% senior unsecured notes due 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on September 18, 2018). |
| | | Form of global note representing the Company’s 6.50% senior unsecured notes due 2025 (included in Exhibit 4.1). |
| | | First Supplemental Indenture, dated May 21, 2019, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 6.50% senior unsecured notes due 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on May 21, 2019). |
| | | Second Supplemental Indenture, dated December 23, 2020, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 6.50% senior unsecured notes due 2025 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on December 23, 2020). |
| | | 2025 Notes Guarantee, dated November 10, 2022 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
| | | Indenture, dated April 12, 2021, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 5.50% senior unsecured notes due 2028 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K, filed April 12, 2021). |
| | | Form of global note representing the Company’s 5.50% senior unsecured notes due 2028 (included in Exhibit 4.6). |
| | | First Supplemental Indenture, dated as of September 24, 2021, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 5.50% senior unsecured notes due 2028 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on September 24, 2021). |
| | | 2028 Notes Guarantee, dated November 10, 2022 (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
| | | Indenture, dated July 28, 2020, between the Company and U.S. Bank National Association, as trustee, relating to the Company’s 9.75% senior unsecured notes due 2027 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on July 28, 2020). |
| | | Form of global note representing the Company’s 9.75% senior unsecured notes due 2027 (included in Exhibit 4.10). |
| | | 2027 Notes Guarantee, dated November 10, 2022 (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
| | | Revolver Guarantee, dated November 10, 2022 (incorporated by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
| | | Description of Securities Registered under Section 12 of the Exchange Act. |
† | | | Management and Advisory Agreement, dated as of July 31, 2022, between the Company, FTAI Aviation Ltd., the Subsidiaries that are party thereto and FIG LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on August 1, 2022). |
| | | Services and Profit Sharing Agreement, dated November 10, 2022, by and among FTAI Aviation Holdco Ltd., the Company and Fortress Worldwide Transportation and Infrastructure Master GP LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
† | | | Amended and Restated Registration Rights Agreement, dated November 10, 2022, by and among FTAI Aviation Ltd., the Company, Fortress Worldwide Transportation and Infrastructure Master GP LLC and FIG LLC (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on November 14, 2022). |
† | | | FTAI Aviation Ltd. Nonqualified Stock Option and Incentive Award Plan, dated as of February 23, 2023. |
See Index to Exhibits immediately following the signature page of this Form 10-Q.
| | | | | | | | | | | |
| Exhibit No. | | Description |
† | | | Form of FTAI Aviation Ltd. Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-4, filed on October 4, 2022). |
† | | | Form of Director Award Agreement pursuant to the FTAI Aviation Ltd. Nonqualified Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-4, filed on October 4, 2022). |
† | | | Form of Award Agreement under the FTAI Aviation Ltd. Nonqualified Stock Option and Incentive Award Plan (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4, filed on October 4, 2022). |
| | | Trademark License Agreement, dated as of August 1, 2022, between Fortress Transportation and Infrastructure Investors LLC and FTAI Infrastructure Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed August 1, 2022). |
| | | Second Amended and Restated Credit Agreement, dated as of September 20, 2022, between the Company, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed September 21, 2022). |
| | | Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated as of November 22, 2022, between the Company, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K, filed February 27, 2023). |
| | | Amendment No. 2 to the Second Amended and Restated Credit Agreement, dated as of April 10, 2023, between the Company, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent. |
| | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101 | | | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements. |
| 104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
† | Management contracts and compensatory plans or arrangements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
FTAI Aviation Ltd. |
| | | | | | | | | | | | | |
By: | /s/ Joseph P. Adams, Jr. | | Date: | November 3, 2017July 27, 2023 |
| Joseph P. Adams, Jr. | | | |
| Chairman and Chief Executive Officer | | | |
| | | | |
|
| | | | | | | | | | | | | |
By: | /s/ Scott ChristopherEun (Angela) Nam | | Date: | November 3, 2017July 27, 2023 |
| Scott Christopher | | | |
| Chief Financial Officer and | | | |
| Chief Accounting Officer | | | |
INDEX TO EXHIBITS
|
Eun (Angela) Nam | | | |
| Exhibit No. | | Description |
| | | Certificate of Formation (incorporated by reference to Exhibit 3.1 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed on April 30, 2015). |
| | | Amended and Restated Limited Liability Company Agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K, filed on May 21, 2015). |
| | | First Amendment to Amended and Restated Limited Liability Company Agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Indenture, dated March 15, 2017, between Fortress Transportation and Infrastructure Investors LLC and U.S. Bank National
Association, as trustee, relating to the Company’s 6.75% senior unsecured notes due 2022 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on March 15, 2017).
|
| | | Form of global note representing the Company’s 6.75% senior unsecured notes due 2022 (included in Exhibit 4.1). |
| | | Second Supplemental Indenture, dated August 23, 2017, between Fortress Transportation and Infrastructure Investors LLC and U.S. Bank National Association, as trustee, relating to the Company’s 6.75% senior unsecured notes due 2022 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on August 23, 2017).
|
| | | Fourth Amended and Restated Partnership Agreement of Fortress Worldwide Transportation and Infrastructure General Partnership (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on May 21, 2015). |
† | | | Management and Advisory Agreement, dated as of May 20, 2015, between Fortress Transportation and Infrastructure Investors LLC and FIG LLC (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on May 21, 2015). |
† | | | Registration Rights Agreement, dated as of May 20, 2015, among Fortress Transportation and Infrastructure Investors LLC, FIG LLC and Fortress Transportation and Infrastructure Master GP LLC (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on May 21, 2015). |
| | | Fortress Transportation and Infrastructure Investors LLC Nonqualified Stock Option and Incentive Award Plan (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K, filed on May 21, 2015). |
| | | Form of director and officer indemnification agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 10.5 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed April 30, 2015). |
| | | Credit Agreement, dated as of August 27, 2014, among Morgan Stanley Senior Funding, Inc., as administrative agent, Jefferson Gulf Coast Energy Partners LLC and the other lenders party thereto (incorporated by reference to Exhibit 10.6 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed April 30, 2015). |
| | | Trust Indenture and Security Agreement between the District and The Bank of New York Mellon Trust Company, National Association, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Standby Bond Purchase Agreement among the Port of Beaumont Navigation District of Jefferson County, Texas, The Bank of New York Mellon Trust Company, National Association, Jefferson Railport Terminal II Holdings LLC and Jefferson Railport Terminal II LLC dated as of February 1, 2016 (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Capital Call Agreement, by and among Fortress Transportation and Infrastructure Investors LLC, FTAI Energy Holdings LLC, FTAI Partner Holdings LLC, FTAI Midstream GP Holdings LLC, FTAI Midstream GP LLC, FTAI Midstream Holdings LLC, FTAI Energy Partners LLC and Jefferson Railport Terminal II Holdings LLC, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Fee and Support Agreement, among FTAI Energy Holdings LLC, FEP Terminal Holdings LLC, FTAI Energy Partners LLC and Jefferson Railport Terminal II LLC, dated as of March 7, 2016 (incorporated by reference to Exhibit 10.10 of the Company's Amended Annual Report on Form 10-K/A, filed on April 29, 2016). |
| | | Lease and Development Agreement (Facilities Lease), dated as of February 1, 2016, by and between the Port of Beaumont Navigation District of Jefferson County, Texas and Jefferson Railport Terminal II LLC (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Deed of Trust of Jefferson Railport Terminal II LLC, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K, filed on March 10, 2016). |
| | | Credit Agreement, dated January 23, 2017, among Fortress Transportation and Infrastructure Investors LLC, as holdings, Fortress Worldwide Transportation and Infrastructure General Partnership, as IntermediateCo, WWTAI Finance Ltd., as Borrower, the Subsidiary Guarantors from time to time party thereto, the lenders from time to time party thereto and Morgan Stanley Senior Funding, Inc., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on January 27, 2017). |
| | | Credit Agreement, dated June 16, 2017, among Fortress Transportation and Infrastructure Investors LLC, as Borrower, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on June 22, 2017). |
| | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | Certification ofand Chief ExecutiveAccounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | | XBRL Instance Document. |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
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| | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
† | Management contracts and compensatory plans or arrangements. |