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ftai-20200630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-37386

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

(Exact name of registrant as specified in its charter)

Delaware

32-0434238

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1345 Avenue of the Americas, 45th Floor

New York

10105

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code) (212) 798-6100

(Former name, former address and former fiscal year, if changed since last report) N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol:

Name of exchange on which registered:

Class A common shares, $0.01 par value per share

FTAI

New York Stock Exchange

8.25% Fixed-to-Floating Rate Series A Cumulative Perpetual Redeemable Preferred Shares

FTAI PR A

New York Stock Exchange

8.00% Fixed-to-Floating Rate Series B Cumulative Perpetual Redeemable Preferred Shares

FTAI PR B

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

There were 85,617,146 common shares representing limited liability company interests outstanding at July 28, 2020.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead are based on our present beliefs and assumptions and on information currently available to us. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:

•changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy, including, but not limited to, public health crises, such as the COVID-19 pandemic, and any actions taken by businesses and governments;

•reductions in cash flows received from our assets, as well as contractual limitations on the use of our aviation assets to secure debt for borrowed money;

•our ability to take advantage of acquisition opportunities at favorable prices;

•a lack of liquidity surrounding our assets, which could impede our ability to vary our portfolio in an appropriate manner;

•the relative spreads between the yield on the assets we acquire and the cost of financing;

•adverse changes in the financing markets we access affecting our ability to finance our acquisitions;

•customer defaults on their obligations;

•our ability to renew existing contracts and enter into new contracts with existing or potential customers;

•the availability and cost of capital for future acquisitions;

•concentration of a particular type of asset or in a particular sector;

•competition within the aviation, energy and intermodal transport sectors;

•the competitive market for acquisition opportunities;

•risks related to operating through joint ventures or partnerships or through consortium arrangements;

•obsolescence of our assets or our ability to sell, re-lease or re-charter our assets;

•exposure to uninsurable losses and force majeure events;

•infrastructure operations may require substantial capital expenditures;

•the legislative/regulatory environment and exposure to increased economic regulation;

•exposure to the oil and gas industry’s volatile oil and gas prices;

•difficulties in obtaining effective legal redress in jurisdictions in which we operate with less developed legal systems;

•our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the fact that maintaining such exemption imposes limits on our operations;

•our ability to successfully utilize leverage in connection with our investments;

•foreign currency risk and risk management activities;

•effectiveness of our internal control over financial reporting;

•exposure to environmental risks, including increasing environmental legislation and the broader impacts of climate change;

•changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;

•actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;

•our dependence on our Manager and its professionals and actual, potential or perceived conflicts of interest in our relationship with our Manager;

•effects of the merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;

•volatility in the market price of our shares;

•the inability to pay dividends to our shareholders in the future; and

•other risks described in the “Risk Factors” section of this report.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

INDEX TO FORM 10-Q


	PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements of Fortress Transportation and Infrastructure Investors LLC:	5
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	5
	Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	6
	Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2020 and 2019	7
	Consolidated Statement of Changes in Equity for the three and six months ended June 30, 2020 and 2019	8
	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	9
	Notes to Consolidated Financial Statements	11
	Note 1: Organization	11
	Note 2: Summary of Significant Accounting Policies	11
	Note 3: Discontinued Operations	15
	Note 4: Leasing Equipment, net	16
	Note 5: Finance Leases, net	16
	Note 6: Property, Plant and Equipment, net	17
	Note 7: Investments	17
	Note 8: Intangible Assets and Liabilities, net	19
	Note 9: Debt, net	20
	Note 10: Fair Value Measurements	22
	Note 11: Derivative Financial Instruments	23
	Note 12: Revenues	24
	Note 13: Leases	26
	Note 14: Equity-Based Compensation	27
	Note 15: Income Taxes	28
	Note 16: Management Agreement and Affiliate Transactions	28
	Note 17: Segment Information	31
	Note 18: Earnings per Share and Equity	43
	Note 19: Commitments and Contingencies	43
	Note 20: Subsequent Events	44
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	64

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3.	Defaults Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	87
Item 6.	Exhibits	87

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data)


		(Unaudited)
	Notes	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	2	$	50,870	$	226,512
Restricted cash	2	49,178		16,005
Accounts receivable, net		62,966		49,470
Leasing equipment, net	4	1,769,799		1,707,059
Operating lease right-of-use assets, net	13	62,816		37,466
Finance leases, net	5	7,657		8,315
Property, plant, and equipment, net	6	849,129		732,109
Investments	7	175,872		180,550
Intangible assets, net	8	23,720		27,692
Goodwill		122,735		122,639
Other assets	2	112,752		129,105
Total assets		$	3,287,494	$	3,236,922

Liabilities
Accounts payable and accrued liabilities		$	108,360	$	144,855
Debt, net	9	1,602,304		1,420,928
Maintenance deposits		185,332		208,944
Security deposits		38,795		45,252
Operating lease liabilities	13	62,436		36,968
Other liabilities		38,776		41,118
Total liabilities		$	2,036,003	$	1,898,065

Commitments and contingencies	19

Equity
Common shares ($0.01 par value per share; 2,000,000,000 shares authorized; 85,610,800 and 84,917,448 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively)		$	856	$	849
Preferred shares ($0.01 par value per share; 200,000,000 shares authorized; 8,050,000 and 8,050,000 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively)		81		81
Additional paid in capital		1,109,631		1,110,122
Retained earnings		115,113		190,453
Accumulated other comprehensive (loss) income		(2,982)		372
Shareholders' equity		1,222,699		1,301,877
Non-controlling interest in equity of consolidated subsidiaries		28,792		36,980
Total equity		1,251,491		1,338,857
Total liabilities and equity		$	3,287,494	$	3,236,922

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(Dollars in thousands, except share and per share data)


		Three Months Ended June 30,						Six Months Ended June 30,
	Notes	2020		2019		2020		2019
Revenues
Equipment leasing revenues		$	79,834	$	79,200	$	166,283	$	151,652
Infrastructure revenues		14,475		70,648		40,866		113,090
Total revenues	12	94,309		149,848		207,149		264,742
Expenses
Operating expenses		24,572		85,783		58,016		140,093
General and administrative		4,388		3,551		9,051		7,735
Acquisition and transaction expenses		3,661		2,308		6,855		3,782
Management fees and incentive allocation to affiliate	16	4,756		5,710		9,522		9,548
Depreciation and amortization	4, 6, 8	41,720		42,052		83,917		80,915
Asset impairment		10,476		—		10,476		—
Interest expense		21,794		25,394		44,655		46,128
Total expenses		111,367		164,798		222,492		288,201
Other (expense) income
Equity in losses of unconsolidated entities	7	(3,209)		(169)		(2,944)		(553)
Gain (loss) on sale of assets, net		768		22,622		(1,051)		24,340
Loss on extinguishment of debt	9	—		—		(4,724)		—
Interest income		22		240		63		331
Other (expense) income		(1)		4,937		32		2,334
Total other (expense) income		(2,420)		27,630		(8,624)		26,452
(Loss) income from continuing operations before income taxes		(19,478)		12,680		(23,967)		2,993
Benefit from income taxes	15	(3,750)		(2,328)		(3,848)		(2,061)
Net (loss) income from continuing operations		(15,728)		15,008		(20,119)		5,054
Net income from discontinued operations, net of income taxes		—		785		1,331		943
Net (loss) income		(15,728)		15,793		(18,788)		5,997
Less: Net (loss) income attributable to non-controlling interests in consolidated subsidiaries:
Continuing operations		(4,112)		(4,580)		(8,848)		(7,940)
Discontinued operations		—		41		—		(15)
Dividends on preferred shares		4,079		—		8,618		—
Net (loss) income attributable to shareholders		$	(15,695)	$	20,332	$	(18,558)	$	13,952

(Loss) earnings per share:	18
Basic
Continuing operations		$	(0.18)	$	0.23	$	(0.23)	$	0.15
Discontinued operations		$	—	$	0.01	$	0.02	$	0.01
Diluted
Continuing operations		$	(0.18)	$	0.23	$	(0.23)	$	0.15
Discontinued operations		$	—	$	0.01	$	0.02	$	0.01
Weighted average shares outstanding:
Basic		86,009,959		85,987,769		86,009,029		85,987,115
Diluted		86,009,959		85,989,029		86,009,029		85,987,115

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (unaudited)

(Dollars in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net (loss) income	$	(15,728)	$	15,793	$	(18,788)	$	5,997
Other comprehensive (loss) income:
Other comprehensive (loss) income related to equity method investees, net ⁽¹⁾	(12,112)		77,070		(3,354)		34,058

Comprehensive (loss) income	(27,840)		92,863		(22,142)		40,055
Continuing operations	(4,112)		(4,580)		(8,848)		(7,940)
Discontinued operations	—		41		—		(15)
Comprehensive (loss) income attributable to shareholders	$	(23,728)	$	97,402	$	(13,294)	$	48,010

________________________________________________________

⁽¹⁾ Net of deferred tax (benefit) expense of $(3,220) and $6,186 for the three months ended June 30, 2020 and 2019, respectively, and $(894) and $6,186 for the six months ended June 30, 2020 and 2019, respectively.

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

(Dollars in thousands)


	Three and Six Months Ended June 30, 2020
	Common Shares		Preferred Shares		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest in Equity of Consolidated Subsidiaries		Total Equity
Equity - December 31, 2019	$	849	$	81	$	1,110,122	$	190,453	$	372	$	36,980	$	1,338,857
Net income (loss)							1,676				(4,736)		(3,060)
Other comprehensive income							—		8,758		—		8,758
Total comprehensive income (loss)							1,676		8,758		(4,736)		5,698
Issuance of common shares	2				154								156
Conversion of participating securities					(2)								(2)
Dividends declared - common shares							(28,391)						(28,391)
Issuance costs of preferred shares					(246)								(246)
Dividends declared - preferred shares							(4,539)						(4,539)
Equity-based compensation											291		291
Equity - March 31, 2020	$	851	$	81	$	1,110,028	$	159,199	$	9,130	$	32,535	$	1,311,824
Net loss							(11,616)				(4,112)		(15,728)
Other comprehensive loss							—		(12,112)		—		(12,112)
Total comprehensive loss							(11,616)		(12,112)		(4,112)		(27,840)
Settlement of equity-based compensation											(42)		(42)
Issuance of common shares	5				150								155
Conversion of participating securities					(5)								(5)
Dividends declared - common shares							(28,391)						(28,391)
Issuance costs of preferred shares					(542)								(542)
Dividends declared - preferred shares							(4,079)						(4,079)
Equity-based compensation											411		411
Equity - June 30, 2020	$