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ftai-20210331

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 March 31, 2021


☐			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

8.25% Fixed-Rate Reset Series C Cumulative Perpetual Redeemable Preferred Shares

FTAI PR C

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 85,630,753 common shares representing limited liability company interests outstanding at April 27, 2021.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS SUMMARY

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. The following is a summary of the principal risk factors that make investing in our securities risky and may materially adversely affect our business, financial condition, results of operations and cash flows. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in Part II, Item 1A. “Risk Factors” of this report. 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, ongoing COVID-19 pandemic and other public health crises, and any related responses or actions 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, partnerships, consortium arrangements or other collaborations with third parties;

•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 and maintenance 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 natural disasters, 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 March 31, 2021 and December 31, 2020	5
	Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020	6
	Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2021 and 2020	7
	Consolidated Statement of Changes in Equity for the three months ended March 31, 2021 and 2020	8
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	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	15
	Note 5: Finance Leases, net	15
	Note 6: Property, Plant and Equipment, net	16
	Note 7: Investments	16
	Note 8: Intangible Assets and Liabilities, net	17
	Note 9: Debt, net	18
	Note 10: Fair Value Measurements	20
	Note 11: Derivative Financial Instruments	21
	Note 12: Revenues	22
	Note 13: Leases	23
	Note 14: Equity-Based Compensation	24
	Note 15: Income Taxes	25
	Note 16: Management Agreement and Affiliate Transactions	25
	Note 17: Segment Information	27
	Note 18: Earnings per Share and Equity	34
	Note 19: Commitments and Contingencies	35
	Note 20: Subsequent Events	35
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	75
Item 6.	Exhibits	75

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	March 31, 2021		December 31, 2020
Assets
Cash and cash equivalents	2	$	160,252	$	121,703
Restricted cash	2	33,224		39,715
Accounts receivable, net		111,898		91,691
Leasing equipment, net	4	1,684,816		1,635,259
Operating lease right-of-use assets, net	13	64,801		62,355
Finance leases, net	5	13,966		6,927
Property, plant, and equipment, net	6	1,000,988		964,363
Investments	7	161,767		146,515
Intangible assets, net	8	16,809		18,786
Goodwill		122,735		122,735
Other assets	2	220,791		177,928
Total assets		$	3,592,047	$	3,387,977

Liabilities
Accounts payable and accrued liabilities		$	101,155	$	113,185
Debt, net	9	2,077,402		1,904,762
Maintenance deposits		140,487		148,293
Security deposits		35,117		37,064
Operating lease liabilities	13	64,231		62,001
Other liabilities		30,003		23,351
Total liabilities		$	2,448,395	$	2,288,656

Commitments and contingencies	19

Equity
Common shares ($0.01 par value per share; 2,000,000,000 shares authorized; 85,630,753 and 85,617,146 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively)		$	856	$	856
Preferred shares ($0.01 par value per share; 200,000,000 shares authorized; 13,320,000 and 9,120,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively)		133		91
Additional paid in capital		1,198,386		1,130,106
Accumulated deficit		(58,073)		(28,158)
Accumulated other comprehensive loss		(16,283)		(26,237)
Shareholders' equity		1,125,019		1,076,658
Non-controlling interest in equity of consolidated subsidiaries		18,633		22,663
Total equity		1,143,652		1,099,321
Total liabilities and equity		$	3,592,047	$	3,387,977

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 March 31,
	Notes	2021		2020
Revenues
Equipment leasing revenues		$	56,607	$	86,449
Infrastructure revenues		20,542		26,391
Total revenues	12	77,149		112,840
Expenses
Operating expenses		24,997		33,444
General and administrative		4,252		4,663
Acquisition and transaction expenses		1,643		3,194
Management fees and incentive allocation to affiliate	16	3,990		4,766
Depreciation and amortization	4, 6, 8	44,535		42,197
Asset impairment		2,100		—
Interest expense		32,990		22,861
Total expenses		114,507		111,125
Other income (expense)
Equity in earnings of unconsolidated entities	7	1,374		265
Gain (loss) on sale of assets, net		811		(1,819)
Loss on extinguishment of debt	9	—		(4,724)
Interest income		285		41
Other income		181		33
Total other income (expense)		2,651		(6,204)
Loss from continuing operations before income taxes		(34,707)		(4,489)
Provision for (benefit from) income taxes	15	169		(98)
Net loss from continuing operations		(34,876)		(4,391)
Net income from discontinued operations, net of income taxes		—		1,331
Net loss		(34,876)		(3,060)

Less: Net loss attributable to non-controlling interests in consolidated subsidiaries		(4,961)		(4,736)

Less: Dividends on preferred shares		4,625		4,539
Net loss attributable to shareholders		$	(34,540)	$	(2,863)

(Loss) earnings per share:	18
Basic
Continuing operations		$	(0.40)	$	(0.05)
Discontinued operations		$	—	$	0.02
Diluted
Continuing operations		$	(0.40)	$	(0.05)
Discontinued operations		$	—	$	0.02
Weighted average shares outstanding:
Basic		86,027,944		86,008,099
Diluted		86,027,944		86,008,099

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 March 31,
	2021		2020
Net loss	$	(34,876)	$	(3,060)
Other comprehensive income:
Other comprehensive income related to equity method investees, net (1)	9,954		8,758

Comprehensive (loss) income	(24,922)		5,698

Comprehensive loss attributable to non-controlling interest	(4,961)		(4,736)

Comprehensive (loss) income attributable to shareholders	$	(19,961)	$	10,434

________________________________________________________

(1) Net of deferred tax expense of $2,646 and $2,326 for the three months ended March 31, 2021 and 2020, 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 Months Ended March 31, 2021
	Common Shares		Preferred Shares		Additional Paid In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Non-Controlling Interest in Equity of Consolidated Subsidiaries		Total Equity
Equity - December 31, 2020	$	856	$	91	$	1,130,106	$	(28,158)	$	(26,237)	$	22,663	$	1,099,321
Net loss							(29,915)				(4,961)		(34,876)
Other comprehensive income							—		9,954		—		9,954
Total comprehensive (loss) income							(29,915)		9,954		(4,961)		(24,922)
Settlement of equity-based compensation											(183)		(183)
Issuance of common shares					150								150

Dividends declared - common shares					(28,383)								(28,383)
Issuance of preferred shares			42		101,138								101,180
Dividends declared - preferred shares					(4,625)								(4,625)
Equity-based compensation											1,114		1,114
Equity - March 31, 2021	$	856	$	133	$	1,198,386	$	(58,073)	$	(16,283)	$	18,633	$	1,143,652


	Three Months Ended March 31, 2020
	Common Shares		Preferred Shares		Additional Paid In Capital		Retained Earnings		Accumulated Other Comprehensive Income		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

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(34,876)	$	(3,060)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in earnings of unconsolidated entities	(1,374)		(265)
Gain on sale of subsidiaries	—		(1,331)
(Gain) loss on sale of assets, net	(811)		1,819
Security deposits and maintenance claims included in earnings	(2,836)		8,844
Loss on extinguishment of debt	—		4,724
Equity-based compensation	1,114		291
Depreciation and amortization	44,535		42,197

Asset impairment	2,100		—
Change in deferred income taxes	—		3,822
Change in fair value of non-hedge derivative	(7,964)		181
Amortization of lease intangibles and incentives	8,108		6,867
Amortization of deferred financing costs	2,268		2,065
Bad debt expense	(547)		632
Other	(279)		363
Change in:
Accounts receivable	(19,786)		(10,780)

Other assets	(17,953)		7,063
Accounts payable and accrued liabilities	(19,707)		(46,316)
Management fees payable to affiliate	(602)		(20,865)
Other liabilities	(322)		(8,057)
Net cash used in operating activities	(48,932)		(11,806)

Cash flows from investing activities:

Investment in unconsolidated entities	(1,278)		(2,452)
Principal collections on finance leases	395		320
Acquisition of leasing equipment	(114,781)		(57,570)
Acquisition of property, plant and equipment	(39,302)		(60,402)
Acquisition of lease intangibles	(386)		1,161

Purchase deposits for acquisitions	(9,250)		(3,100)
Proceeds from sale of leasing equipment	4,574		28,568


Return of purchase deposit for aircraft and aircraft engines	4,600		—
Return of deposit on sale of engine	1,010		2,350
Net cash used in investing activities	$	(154,418)	$	(91,125)

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2021		2020
Cash flows from financing activities:
Proceeds from debt	$	171,600	$	303,980
Repayment of debt	—		(275,991)
Payment of deferred financing costs	(563)		(11,767)
Receipt of security deposits	70		130
Return of security deposits	(975)		(3,815)
Receipt of maintenance deposits	8,770		13,626
Release of maintenance deposits	(11,483)		(9,185)


Proceeds from issuance of preferred shares, net of underwriter's discount and issuance costs	101,180		(246)


Settlement of equity-based compensation	(183)		—
Cash dividends - common shares	(28,383)		(28,391)
Cash dividends - preferred shares	(4,625)		(4,539)
Net cash provided by (used in) financing activities	$	235,408	$	(16,198)

Net increase (decrease) in cash and cash equivalents and restricted cash	32,058		(119,129)
Cash and cash equivalents and restricted cash, beginning of period	161,418		242,517
Cash and cash equivalents and restricted cash, end of period	$	193,476	$	123,388





Supplemental disclosure of non-cash investing and financing activities:

Acquisition of leasing equipment	$	24,433	$	18,872
Acquisition of property, plant and equipment	(8,503)		(4,982)
Settled and assumed security deposits	(697)		1,050
Billed, assumed and settled maintenance deposits	(4,541)		(13,860)



Non-cash change in equity method investment	9,954		8,758
Issuance of common shares	150		154

See accompanying notes to consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

1. ORGANIZATION

Fortress Transportation and Infrastructure Investors LLC (“we”, “us”, “our” or the “Company”) is a Delaware limited liability company which, through its subsidiary, Fortress Worldwide Transportation and Infrastructure General Partnership (the “Partnership”), owns and leases aviation equipment and also owns and operates (i) a multi-modal crude oil and refined products terminal in Beaumont, Texas (“Jefferson Terminal”), (ii) a deep-water port located along the Delaware River with an underground storage cavern and multiple industrial development opportunities (“Repauno”) and (iii) an equity method investment in a multi-modal terminal located along the Ohio River with multiple industrial development opportunities, including a power plant under construction (“Long Ridge”). Additionally, we own and lease offshore energy equipment and shipping containers. We have three reportable segments, (i) Aviation Leasing, (ii) Jefferson Terminal and (iii) Ports and Terminals, which operate in two primary businesses, Equipment Leasing and Infrastructure (see Note 17).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting—The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of us and our subsidiaries.

Principles of Consolidation—We consolidate all entities in which we have a controlling financial interest and control over significant operating decisions, as well as variable interest entities (“VIEs”) in which we are the primary beneficiary. All significant intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The ownership interest of other investors in consolidated subsidiaries is recorded as non-controlling interest.

We use the equity method of accounting for investments in entities in which we exercise significant influence but which do not meet the requirements for consolidation. Under the equity method, we record our proportionate share of the underlying net income (loss) of these entities as well as the proportionate interest in adjustments to other comprehensive income (loss).

Use of Estimates—The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Risks and Uncertainties—In the normal course of business, we encounter several significant types of economic risk including credit, market, and capital market risks. Credit risk is the risk of the inability or unwillingness of a lessee, customer, or derivative counterparty to make contractually required payments or to fulfill its other contractual obligations. Market risk reflects the risk of a downturn or volatility in the underlying industry segments in which we operate, which could adversely impact the pricing of the services offered by us or a lessee’s or customer’s ability to make payments, increase the risk of unscheduled lease terminations and depress lease rates and the value of our leasing equipment or operating assets. Capital market risk is the risk that we are unable to obtain capital at reasonable rates to fund the growth of our business or to refinance existing debt facilities. We, through our subsidiaries, also conduct operations outside of the United States; such international operations are subject to the same risks as those associated with our United States operations as well as additional risks, including unexpected changes in regulatory requirements, heightened risk of political and economic instability, potentially adverse tax consequences and the burden of complying with foreign laws. We do not have significant exposure to foreign currency risk as all of our leasing arrangements and the majority of terminal services revenue are denominated in U.S. dollars.

Variable Interest Entities—The assessment of whether an entity is a VIE and the determination of whether to consolidate a VIE requires judgment. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, and only by its primary beneficiary, which is defined as the party who has the power to direct the activities of a VIE that most significantly impact its economic performance and who has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Delaware River Partners LLC

During 2016, through Delaware River Partners LLC (“DRP”), a consolidated subsidiary, we purchased the assets of Repauno, which consisted primarily of land, a storage cavern, and riparian rights for the acquired land, site improvements and rights. Upon acquisition there were no operational processes that could be applied to these assets that would result in outputs without significant green field development. We currently hold an approximately 98% economic interest, and a 100% voting interest in DRP. DRP is solely reliant on us to finance its activities and therefore is a VIE. We concluded that we were the primary beneficiary; and accordingly, DRP has been presented on a consolidated basis in the accompanying financial statements.

Cash and Cash Equivalents—We consider all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

Restricted Cash—Restricted cash consists of prepaid interest and principal pursuant to the requirements of certain of our debt agreements (see Note 9) and other qualifying construction projects at Jefferson Terminal.

Inventory—We hold aircraft engine modules, spare parts and used material inventory for trading and to support operations within our Aviation Leasing segment. Aviation inventory is carried at the lower of cost or net realizable value on our balance sheet. We had Aviation inventory of $64.7 million and $58.2 million as of March 31, 2021 and December 31, 2020, respectively, which is included in Other assets in the Consolidated Balance Sheets.

Commodities inventory is carried at the lower of cost or net realizable value on our balance sheet. Commodities are removed from inventory based on the average cost at the time of sale. We had commodities inventory of $0.1 million as of both March 31, 2021 and December 31, 2020, which is included in Other assets in the Consolidated Balance Sheets.

Deferred Financing Costs—Costs incurred in connection with obtaining long term financing are capitalized and amortized to interest expense over the term of the underlying loans. Unamortized deferred financing costs of $34.9 million and $36.2 million as of March 31, 2021 and December 31, 2020, respectively, are recorded as a component of debt in the Consolidated Balance Sheets.

We also have unamortized deferred revolver fees related to our revolving debt of $1.2 million and $1.6 million as of March 31, 2021 and December 31, 2020, respectively, which are included in Other assets in the Consolidated Balance Sheets.

Amortization expense was $2.3 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively, and is included in interest expense in the Consolidated Statements of Operations.

Revenue Recognition

Equipment Leasing Revenues

Operating Leases—We lease equipment pursuant to net operating leases. Operating leases with fixed rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no renewals. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.

Generally, under our aircraft lease and engine agreements, the lessee is required to make periodic maintenance payments calculated based on the lessee’s utilization of the leased asset or at the end of the lease. Typically, under our aircraft lease agreements, the lessee is responsible for maintenance, repairs and other operating expenses throughout the term of the lease. These periodic maintenance payments accumulate over the term of the lease to fund major maintenance events, and we are contractually obligated to return maintenance payments to the lessee up to the amount paid by the lessee. In the event the total cost of maintenance events over the term of a lease is less than the cumulative maintenance payments, we are not required to return any unused or excess maintenance payments to the lessee.

Maintenance payments received for which we expect to repay to the lessee are presented as Maintenance Deposits in our Consolidated Balance Sheets. All excess maintenance payments received that we do not expect to repay to the lessee are recorded as Maintenance revenues. Estimates in recognizing revenue include mean time between removal, projected costs for engine maintenance and forecasted utilization of aircraft which are affected by historical usage patterns and overall industry, market and economic conditions. Significant changes to these estimates could have a material effect on the amount of revenue recognized in the period.

For purchase and lease back transactions, we account for the transaction as a single arrangement. We allocate the consideration paid based on the fair value of the aircraft and lease. The fair value of the lease may include a lease premium or discount.

In April 2020, the FASB Staff issued a question-and-answer document (the “Q&A”) regarding accounting for lease concessions related to the effects of the COVID-19 pandemic. The Q&A permits an entity to elect to forgo the evaluation of the enforceable rights and obligations of a lease contract required under ASC 842, Leases, as long as the total rent payments after the lease concessions are substantially the same, or less than, the total rent payments in the existing lease. The impact of the COVID-19 related lease concessions granted above did not have a material impact on our results of operations during the three months ended March 31, 2021.

Finance Leases—From time to time we enter into finance lease arrangements that include a lessee obligation to purchase the leased equipment at the end of the lease term, a bargain purchase option, or provides for minimum lease payments with a present value that equals or exceeds substantially all of the fair value of the leased equipment at the date of lease inception. Net investment in finance leases represents the minimum lease payments due from lessee, net of unearned income. The lease payments are segregated into principal and interest components similar to a loan. Unearned income is recognized on an effective interest method over the lease term and is recorded as finance lease income. The principal component of the lease payment is reflected as a reduction to the net investment in finance leases. Revenue is not recognized when collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

Infrastructure Revenues

Terminal Services Revenues—Terminal services are provided to customers for the receipt and redelivery of various commodities. These revenues are recognized over time, i.e., as the services are rendered and the customer simultaneously receives and consumes the benefit over time.

Lease Income—Lease income consists of rental income from tenants for storage space. Lease income is recognized on a straight-line basis over the term of the relevant lease agreement.

Crude Marketing Revenues—Crude marketing revenues consist of marketing revenue related to Canadian crude oil. The revenues are recognized over time, i.e., as the services are rendered and the customer simultaneously receives and consumes the benefit over time.

Other Revenue—Other revenue primarily consists of revenue related to the handling, storage and sale of raw materials. Other revenue consists of two performance obligations: handling and storage of raw materials. The revenues are recognized over time, i.e., as the services are rendered and the customer simultaneously receives and consumes the benefit over time.

Additionally, other revenue consists of revenue related to derivative trading activities. See Commodity Derivatives below for additional information.

Payment terms for Infrastructure Revenues are generally short term in nature.

Leasing Arrangements—At contract inception, we evaluate whether an arrangement is or contains a lease for which we are the lessee (that is, arrangements which provide us with the right to control a physical asset for a period of time). Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized in Operating lease right-of-use assets, net and Operating lease liabilities in our Consolidated Balance Sheets, respectively. Finance lease ROU assets are recognized in Property, plant and equipment, net and lease liabilities are recognized in Other liabilities in our Consolidated Balance Sheets.

All lease liabilities are measured at the present value of the unpaid lease payments, discounted using our incremental borrowing rate based on the information available at commencement date of the lease. ROU assets, for both operating and finance leases, are initially measured based on the lease liability, adjusted for prepaid rent and lease incentives. ROU assets are subsequently measured at the carrying amount of the lease liability adjusted for prepaid or accrued lease payments and lease incentives. The finance lease ROU assets are subsequently amortized using the straight-line method.

Operating lease expenses are recognized on a straight-line basis over the lease term. With respect to finance leases, amortization of the ROU asset is presented separately from interest expense related to the finance lease liability. Variable lease payments, which are primarily based on usage, are recognized when the associated activity occurs.

We have elected to combine lease and non-lease components for all lease contracts where we are the lessee. Additionally, for arrangements with lease terms of 12 months or less, we do not recognize ROU assets, and lease liabilities and lease payments are recognized on a straight-line basis over the lease term with variable lease payments recognized in the period in which the obligation is incurred.

Concentration of Credit Risk—We are subject to concentrations of credit risk with respect to amounts due from customers on our finance leases and operating leases. We attempt to limit our credit risk by performing ongoing credit evaluations and, when deemed necessary, enter into collateral arrangements. During the three months ended March 31, 2021, one customer in the Aviation Leasing segment accounted for approximately 11% of total revenue. During the three months ended March 31, 2020, one customer in the Jefferson Terminal segment and one customer in the Aviation Leasing segment accounted for approximately 16% and 11% of total revenue, respectively.

As of March 31, 2021, there were two customers in the Aviation Leasing segment that represented 43% and 15% of total accounts receivable, net. As of December 31, 2020, accounts receivable from two customers in the Aviation Leasing segment represented 40% and 15% of total accounts receivable, net.

We maintain cash and restricted cash balances, which generally exceed federally insured limits, and subject us to credit risk, in high credit quality financial institutions. We monitor the financial condition of these institutions and have not experienced any losses associated with these accounts.

Allowance for Doubtful Accounts—We determine the allowance for doubtful accounts based on our assessment of the collectability of our receivables on a customer-by-customer basis. The allowance for doubtful accounts was $4.0 million and $4.6 million as of March 31, 2021 and December 31, 2020, respectively. There was a bad debt reversal of $0.5 million and bad debt expense of $0.6 million for the three months ended March 31, 2021 and 2020, respectively, and is included in operating expenses in the Consolidated Statements of Operations.

Comprehensive Income (Loss)—Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances, excluding those resulting from investments by and distributions to owners. Our comprehensive income (loss) represents net income (loss), as presented in the Consolidated Statements of Operations, adjusted for fair value changes related to other comprehensive income related to our equity method investees.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

Derivative Financial Instruments

Electricity Derivatives—Through our equity method investment in Long Ridge, we enter into derivative contracts as part of a risk management program to mitigate price risk associated with certain electricity price exposures. We primarily use swap derivative contracts, which are agreements to buy or sell a quantity of electricity at a predetermined future date and at a predetermined price.

Cash Flow Hedges

Certain of these derivative instruments are designated and qualify as cash flow hedges. Our share of the derivative's gain or loss is reported as Other comprehensive income (loss) related to equity method investees in our Consolidated Statements of Comprehensive (Loss) Income and recorded in Accumulated other comprehensive (loss) income in our Consolidated Balance Sheets.

Derivatives Not Designated As Hedging Instruments

Certain of these derivative instruments are not designated as hedging instruments for accounting purposes. The change in fair value of these contracts is recognized in Equity in earnings (losses) in unconsolidated entities in the Consolidated Statements of Operations. The cash flow impact of derivative contracts that are not designated as hedging instruments is recognized in Equity in earnings (losses) in unconsolidated entities in our Consolidated Statements of Cash Flows.

Commodity Derivatives—We also enter into short-term and long-term crude forward contracts. Gains and losses related to our crude sales and purchase derivatives are recorded on a gross basis and are included in Crude marketing revenues and Operating expenses, respectively, in our Consolidated Statements of Operations. The cash flow impact of these derivatives is recognized in Change in fair value of non-hedge derivatives in our Consolidated Statements of Cash Flows.

Additionally, depending on market conditions, we enter into short-term forward purchase and sales contracts for butane. Gains and losses related to our butane derivatives are recorded on a net basis and are included in Other revenue in our Consolidated Statements of Operations, as these contracts are considered part of central operating activities. The cash flow impact of these derivatives is recognized in Change in fair value of non-hedge derivatives in our Consolidated Statements of Cash Flows.

See Note 11 for additional details related to our commodity derivatives.

Some of our derivatives are used for speculative purposes. We record all derivative assets and liabilities on a gross basis at fair value, which are included in Other assets and Other liabilities, respectively, in our Consolidated Balance Sheets.

Other Assets—Other assets is primarily comprised of lease incentives of $52.6 million and $55.1 million, purchase deposits of $10.7 million and $6.1 million, prepaid expenses of $24.5 million and $10.1 million, notes receivable of $6.4 million and $2.4 million, maintenance right assets of $13.6 million and $6.4 million and aircraft engine modules, spare parts and used material inventory of $64.7 million and $58.2 million as of March 31, 2021 and December 31, 2020, respectively.

Dividends—Dividends are recorded if and when declared by the Board of Directors. For both the three months ended March 31, 2021 and 2020, the Board of Directors declared a cash dividend of $0.33 per common share.

Additionally, in the quarter ended March 31, 2021, the Board of Directors declared a cash dividend on the Series A Preferred Shares and Series B Preferred Shares of $0.52 and $0.50 per share, respectively.

Recent Accounting Pronouncements—In March 2020 and January 2021, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and ASU 2021-01, Reference Rate Reform: Scope, respectively. Together, the ASU’s temporarily simplify the accounting for contract modifications, including hedging relationships, due to the transition from LIBOR and other interbank offered rates to alternative reference interest rates. For example, entities can elect not to remeasure the contracts at the modification date or reassess a previous accounting determination if certain conditions are met. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. Adoption did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. We adopted this guidance in the first quarter of 2021, which did not have a material impact on our consolidated financial statements.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

3. DISCONTINUED OPERATIONS

In December 2019, we completed the sale of substantially all of our railroad business (“CMQR”), which was previously reported as our Railroad segment. Under ASC 205-20, this disposition met the criteria to be reported as discontinued operations. Accordingly, the results of operations of CMQR have been reported as discontinued operations for all periods presented. During the three months ended March 31, 2020, we recognized a gain on sale of $1.3 million which is reported in Net income from discontinued operations, net of income taxes in the Consolidated Statements of Operations. There were no non-cash items or capital expenditures during the three months ended March 31, 2020.

4. LEASING EQUIPMENT, NET

Leasing equipment, net is summarized as follows:




	March 31, 2021		December 31, 2020
Leasing equipment	$	2,114,590	$	2,042,404
Less: accumulated depreciation	(429,774)		(407,145)
Leasing equipment, net	$	1,684,816	$	1,635,259

During the three months ended March 31, 2021, we evaluated our leasing equipment portfolio and identified certain assets with indicators of impairment, including, but not limited to, the redelivery of unserviceable leasing equipment and a decline in market values due to the ongoing COVID-19 pandemic for leasing equipment we have decided to sell. For these assets, we performed a recoverability assessment at the individual asset level and determined that the carrying amounts exceeded the estimated future undiscounted net cash flows and these assets were impaired. To determine fair value, we used both a market approach, using quoted market prices for the same or similar assets, and an income approach, using discounted cash flows and an estimated discount rate. As a result, we adjusted the carrying value of these assets to fair value and recognized transactional impairment charges of $2.1 million, net of redelivery compensation.

The following table presents information related to our acquisitions and dispositions of aviation leasing equipment during the three months ended March 31, 2021:


Acquisitions:
Aircraft			6
Engines			23
Dispositions:
Aircraft			—
Engines			16

Depreciation expense for leasing equipment is summarized as follows:


	Three Months Ended March 31,
	2021		2020
Depreciation expense for leasing equipment	$	34,695	$	34,724

5. FINANCE LEASES, NET

Finance leases, net are summarized as follows:




	March 31, 2021		December 31, 2020
Finance leases	$	16,994	$	9,389
Unearned revenue	(3,028)		(2,462)
Finance leases, net	$	13,966	$	6,927

During the first quarter of 2021, we entered into 52-month sales-type lease arrangements for four airframes.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

6. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net is summarized as follows:




	March 31, 2021		December 31, 2020
Land, site improvements and rights	$	59,184	$	52,047
Construction in progress	118,916		425,261
Buildings and improvements	6,193		4,491
Terminal machinery and equipment	894,408		557,788

Track and track related assets	8,376		2,349
Railroad equipment	5,589		5,560

Computer hardware and software	5,127		5,101
Furniture and fixtures	2,597		2,449
Other	6,103		5,870
	1,106,493		1,060,916
Less: accumulated depreciation	(105,505)		(96,553)

Property, plant and equipment, net	$	1,000,988	$	964,363

During the three months ended March 31, 2021, we added property, plant and equipment of $45.6 million, which primarily consists of terminal machinery and equipment placed in service or under development at Jefferson Terminal and Repauno.

Depreciation expense for property, plant and equipment is summarized as follows:


	Three Months Ended March 31,
	2021		2020

Depreciation expense	$	8,952	$	6,585

7. INVESTMENTS

The following table presents the ownership interests and carrying values of our investments:


			Carrying Value
	Investment	Ownership Percentage	March 31, 2021		December 31, 2020
Advanced Engine Repair JV	Equity method	25%	$	22,381	$	22,721

Intermodal Finance I, Ltd.	Equity method	51%	—		—
Long Ridge Terminal LLC	Equity method	50%	138,131		122,539
FYX Trust Holdco LLC	Equity	14%	1,255		1,255
Investments			$	161,767	$	146,515

We did not recognize any other-than-temporary impairments for the three months ended March 31, 2021 or 2020.

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(Dollars in tables in thousands, unless otherwise noted)

The following table presents our proportionate share of equity in income (losses):


	Three Months Ended March 31,
	2021		2020
Advanced Engine Repair JV	$	(340)	$	(591)

Intermodal Finance I, Ltd.	172		(50)
Long Ridge Terminal LLC	1,542		906

Total	$	1,374	$	265

Equity Method Investments

Long Ridge Terminal LLC

In December 2019, Ohio River Shareholder LLC (“ORP”) contributed its equity interests in Long Ridge into Long Ridge Terminal LLC and sold a 49.9% interest (the “Long Ridge Transaction”) for $150 million in cash, plus an earn out. We no longer have a controlling interest in Long Ridge but still maintain significant influence through our retained interest and, therefore, now account for this investment in accordance with the equity method. Following the sale we deconsolidated ORP, which held the assets of Long Ridge.

Advanced Engine Repair JV

In December 2016, we invested $15 million for a 25% interest in an advanced engine repair joint venture. We focus on developing new costs savings programs for engine repairs. We exercise significant influence over this investment and account for this investment as an equity method investment.

In August 2019, we expanded the scope of our joint venture and invested an additional $13.5 million and maintained a 25% interest.

Equity Investments

FYX Trust Holdco LLC

In July 2020, we invested $1.3 million for a 14% interest in an operating company that provides roadside assistance services for the intermodal and over-the-road trucking industries. FYX Trust Holdco LLC (“FYX”) has developed a mobile and web-based application that connects fleet managers, owner-operators, and drivers with repair vendors to efficiently and reliably quote, dispatch, monitor, and bill roadside repair services.

8. INTANGIBLE ASSETS AND LIABILITIES, NET

Intangible assets and liabilities, net are summarized as follows: