FTAI Aviation Ltd. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand Fortress Transportation and Infrastructure Investors LLC (the “Company,” “we,” “our” or “us”). Our MD&A should be read in conjunction with our unaudited consolidated financial statements and the accompanying notes, and with Part II, Item 1A, “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. Overview We own and acquire high quality infrastructure and related equipment that is essential for the transportation of goods and people globally. We target assets that, on a combined basis, generate strong cash flows with potential for earnings growth and asset appreciation. We believe that there is a large number of acquisition opportunities in our markets and that our Manager’s expertise and business and financing relationships, together with our access to capital, will allow us to take advantage of these opportunities. We are externally managed by FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC (“Fortress”), which has a dedicated team of experienced professionals focused on the acquisition of transportation and infrastructure assets since 2002. As of March 31, 2022, we had total consolidated assets of $4.8 billion and total equity of $0.8 billion. Transfer of Stock Exchange Listing to Nasdaq Effective on April 26, 2022, the listings of our common shares and preferred shares were transferred to The Nasdaq Global Select Market from the New York Stock Exchange. Our common shares continue to trade under the ticker symbol “FTAI,” and our preferred shares will trade under the ticker symbols “FTAIP,” “FTAIO” and “FTAIN,” respectively. Impact of Russia’s Invasion of Ukraine Due to Russia’s invasion of Ukraine during the first quarter of 2022, the United States, European Union, United Kingdom, and others have imposed economic sanctions and export controls against Russia and Russia’s aviation industry. The sanctions include but are not limited to the ban on the export and sale or lease of all aircraft, engines, and equipment and on all related repair and maintenance services to Russia and Russian airlines. We have complied, and will continue to comply, with all applicable sanctions and we have terminated the leases of all our aircraft and engines with Russian airlines. As a result of the sanctions imposed on Russian airlines and related lease terminations, we recognized approximately $47.9 million in bad debt expense during the three months ended March 31, 2022. We continue to pursue efforts to remove and repossess all of our aircraft and engines from Russia and Ukraine. As of March 31, 2022, we had detained six of our aircraft and four of our engines outside of Russia. As of March 31, 2022, four aircraft and two engines were still located in Ukraine and eight aircraft and 18 engines were still located in Russia. We determined that it is unlikely that we will regain possession of the aircraft that have not yet been recovered from Ukraine and Russia. As a result, we recognized an impairment charge totaling $122.8 million, net of maintenance deposits, to write-off the carrying value of leasing equipment assets that we have not recovered from Ukraine and Russia. Our lessees are required to provide insurance coverage with respect to leased aircraft and engines, and we are named as insureds under those policies in the event of a total loss of an aircraft or engine. We also purchase insurance which provides us with coverage when our aircraft or engines are not subject to a lease or where a lessee’s policy fails to indemnify us. The insured value of the aircraft and engines that remain in Ukraine and Russia is approximately $294.0 million. We intend to pursue all our claims under these policies. However, the timing and amount of any recoveries under these policies are uncertain. The extent of the impact of Russia’s invasion of Ukraine and the related sanctions on our operational and financial performance, including the ability for us to recover our leasing equipment in the region, will depend on future developments, including the duration of the conflict, sanctions and restrictions imposed by Russian and international governments, all of which remain uncertain. Impact of COVID-19 Due to the outbreak of COVID-19, we have taken measures to protect the health and safety of our employees, including having employees work remotely, where possible. Market conditions due to the outbreak of COVID-19 resulted in asset impairment charges and a decline in our equipment leasing revenues during the years ended December 31, 2021 and 2020. However, our equipment leasing revenues have continued to recover during the three months ended March 31, 2022. A number of our lessees continue to experience increased financial stress due to the significant decline in travel demand, particularly as various regions experience spikes in COVID-19 cases. A number of these lessees have been placed on non-accrual status as of March 31, 2022; however, we believe our overall portfolio exposure is limited by maintenance reserves and security deposits which are secured against lessee defaults. The value of these deposits was $103.8 million as of March 31, 2022. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, as well as additional waves of COVID-19 infections and the ultimate impact of related restrictions imposed by the U.S. and international governments, all of which remain uncertain. For additional detail, see Liquidity and Capital Resources and Part II, Item 1A. Risk Factors—“The COVID-19 pandemic has severely disrupted the global 36 economy and may have, and the emergence of similar crises could have, material adverse effects on our business, results of operations or financial condition.” Operating Segments Our operations consist of two primary strategic business units – Infrastructure and Equipment Leasing. Our Infrastructure Business acquires long-lived assets that provide mission-critical services or functions to transportation networks and typically have high barriers to entry. We target or develop operating businesses with strong margins, stable cash flows and upside from earnings growth and asset appreciation driven by increased use and inflation. Our Equipment Leasing Business acquires assets that are designed to carry cargo or people or provide functionality to transportation infrastructure. Transportation equipment assets are typically long-lived, moveable and leased by us on either operating leases or finance leases to companies that provide transportation services. Our leases generally provide for long-term contractual cash flow with high cash-on-cash yields and include structural protections to mitigate credit risk. Our reportable segments are comprised of interests in different types of infrastructure and equipment leasing assets. We currently conduct our business through the following four reportable segments: (i) Aviation Leasing, which is within the Equipment Leasing Business, and (ii) Jefferson Terminal, (iii) Ports and Terminals and (iv) Transtar, which together comprise our Infrastructure Business. The Aviation Leasing segment consists of aircraft and aircraft engines held for lease and are typically held long-term. The Jefferson Terminal segment consists of a multi-modal crude and refined products terminal and other related assets. The Ports and Terminals segment consists of Repauno, which is a 1,630-acre deep-water port located along the Delaware River with an underground storage cavern, a new multipurpose dock, a rail-to-ship transloading system and multiple industrial development opportunities, and an equity method investment (“Long Ridge”), which is a 1,660-acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities, including a power plant in operation. In July 2021, we acquired Transtar and it operates as a separate reportable segment within our Infrastructure business. Transtar is comprised of five freight railroads and one switching company that provide rail service to certain manufacturing and production facilities. Corporate and Other primarily consists of debt, unallocated corporate general and administrative expenses, and management fees. Additionally, Corporate and Other includes (i) offshore energy related assets which consist of vessels and equipment that support offshore oil and gas activities and are typically subject to operating leases, (ii) an investment in an unconsolidated entity engaged in the leasing of shipping containers and (iii) railroad assets which consist of equipment that support a railcar cleaning business and (iv) various clean technology and sustainability investments. Our reportable segments are comprised of investments in different types of transportation infrastructure and equipment. Each segment requires different investment strategies. The accounting policies of the segments are the same as those described in Note 2 to the consolidated financial statements; however, financial information presented by segment includes the impact of intercompany eliminations. Spin-Off of FTAI Infrastructure On April 28, 2022, the Board of Directors unanimously approved the previously announced spin-off of FTAI’s infrastructure business (“FTAI Infrastructure”). FTAI Infrastructure publicly filed Form 10 with the SEC on April 29, 2022. FTAI Infrastructure will be spun out in an entity taxed as a corporation for U.S. federal income tax purposes and will hold, among other things, FTAI’s (i) Jefferson Terminal business, (ii) Repauno business, (iii) Long Ridge investment, and (iv) Transtar business. FTAI Infrastructure will retain all related project-level debt of those entities. In connection with the closing of the spin-off, FTAI Infrastructure intends to issue up to $300.0 million of preferred stock and warrants and incur up to $500.0 million of senior secured indebtedness, the net proceeds of which will be remitted to FTAI as part of the separation. FTAI expects to use the proceeds received from FTAI Infrastructure to repay all outstanding borrowings under its 2021 bridge loans and its revolving credit facility with the remaining proceeds to repay a portion of its 6.50% senior unsecured notes due 2025. FTAI expects to retain the aviation business and certain other assets and FTAI’s remaining outstanding corporate indebtedness. FTAI Infrastructure will be externally managed by the Manager. In connection with the spin-off, the Company and the Manager have agreed to assign the Company’s existing management agreement to FTAI Infrastructure, and FTAI Infrastructure and the Manager have agreed to amend and restate the agreement effective upon on the closing of the spin. The amended and restated management agreement will have an initial term of six years. Similar to the Company’s existing management arrangements, the Manager will be entitled to a management fee, incentive allocations (comprised of income incentive allocation and capital gains incentive allocation) and reimbursement of certain expenses on substantially similar terms as the existing arrangements with the Manager, except that all fees will be paid pursuant to the amended and restated management agreement rather than by one of FTAI Infrastructure’s subsidiaries. FTAI and certain of its subsidiaries will enter into a new management agreement with the Manager. The new management agreement will have an initial term of six years. The Manager will be entitled to a management fee and reimbursement of certain expenses on substantially similar terms as the existing arrangements with the Manager. Prior to the merger described below, our Manager will remain entitled to incentive allocations (comprised of income incentive allocation and capital gains incentive allocation) on the same terms as they exist today. Following the merger, FTAI will enter into a Services and Profit Sharing Agreement (the “Services Agreement”), with a subsidiary of FTAI and Fortress Worldwide Transportation and Infrastructure 37 Master GP LLC (“Master GP”), pursuant to which Master GP will be entitled to incentive allocations on substantially similar terms as the existing arrangements. Our Manager On December 27, 2017, SoftBank Group Corp. (“SoftBank”) completed its acquisition of Fortress (the “SoftBank Merger”). In connection with the Softbank Merger, Fortress operates within SoftBank as an independent business headquartered in New York. Results of Operations Adjusted EBITDA (Non-GAAP) The chief operating decision maker (“CODM”) utilizes Adjusted EBITDA as the key performance measure. Adjusted EBITDA is not a financial measure in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). This performance measure provides the CODM with the information necessary to assess operational performance, as well as make resource and allocation decisions. We believe Adjusted EBITDA is a useful metric for investors and analysts for similar purposes of assessing our operational performance. Adjusted EBITDA is defined as net income (loss) attributable to shareholders, adjusted (a) to exclude the impact of provision for (benefit from) income taxes, equity-based compensation expense, acquisition and transaction expenses, losses on the modification or extinguishment of debt and capital lease obligations, changes in fair value of non-hedge derivative instruments, asset impairment charges, incentive allocations, depreciation and amortization expense, and interest expense, (b) to include the impact of our pro-rata share of Adjusted EBITDA from unconsolidated entities, and (c) to exclude the impact of equity in earnings (losses) of unconsolidated entities and the non-controlling share of Adjusted EBITDA. 38 Comparison of the three months ended March 31, 2022 and 2021 The following table presents our consolidated results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Revenues Equipment leasing revenues Lease income $ 39,214 $ 40,227 $ (1,013) Maintenance revenue 36,732 15,508 21,224 Finance lease income 111 403 (292) Other revenue 15,634 469 15,165 Total equipment leasing revenues 91,691 56,607 35,084 Infrastructure revenues Lease income 840 430 410 Rail revenues 33,668 — 33,668 Terminal services revenues 12,784 10,421 2,363 Other revenue (1,144) 9,691 (10,835) Total infrastructure revenues 46,148 20,542 25,606 Total revenues 137,839 77,149 60,690 Expenses Operating expenses 108,916 24,997 83,919 General and administrative 5,691 4,252 1,439 Acquisition and transaction expenses 6,024 1,643 4,381 Management fees and incentive allocation to affiliate 4,164 3,990 174 Depreciation and amortization 58,301 44,535 13,766 Asset impairment 122,790 2,100 120,690 Interest expense 50,598 32,990 17,608 Total expenses 356,484 114,507 241,977 Other (expense) income Equity in (losses) earnings of unconsolidated entities (24,013) 1,374 (25,387) Gain on sale of assets, net 16,288 811 15,477 Interest income 656 285 371 Other (expense) income (459) 181 (640) Total other (expense) income (7,528) 2,651 (10,179) Loss from before income taxes (226,173) (34,707) (191,466) Provision for income taxes 3,486 169 3,317 Net loss (229,659) (34,876) (194,783) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (7,466) (4,961) (2,505) Less: Dividends on preferred shares 6,791 4,625 2,166 Net loss attributable to shareholders $ (228,984) $ (34,540) $ (194,444) 39 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net loss attributable to shareholders $ (228,984) $ (34,540) $ (194,444) Add: Provision for income taxes 3,486 169 3,317 Add: Equity-based compensation expense 709 1,114 (405) Add: Acquisition and transaction expenses 6,024 1,643 4,381 Add: Losses on the modification or extinguishment of debt and capital lease obligations — — — Add: Changes in fair value of non-hedge derivative instruments 766 (7,964) 8,730 Add: Asset impairment charges 122,790 2,100 120,690 Add: Incentive allocations — — — Add: Depreciation and amortization expense (1) 70,314 52,643 17,671 Add: Interest expense 50,598 32,990 17,608 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) 5,661 2,402 3,259 Less: Equity in losses (earnings) of unconsolidated entities 24,013 (1,374) 25,387 Less: Non-controlling share of Adjusted EBITDA (3) (3,816) (2,029) (1,787) Adjusted EBITDA (non-GAAP) $ 51,561 $ 47,154 $ 4,407 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2022 and 2021: (i) depreciation and amortization expense of $58,301 and $44,535, (ii) lease intangible amortization of $3,658 and $752 and (iii) amortization for lease incentives of $8,355 and $7,356, respectively. (2) Includes the following items for the three months ended March 31, 2022 and 2021: (i) net (loss) income of $(21,890) and $1,180, (ii) interest expense of $6,463 and $187, (iii) depreciation and amortization expense of $6,340 and $1,912, (iv) acquisition and transaction expenses of $3 and $0, (v) changes in fair value of non-hedge derivative instruments of $14,615 and $(877), (vi) equity-based compensation of $98 and $0 and (vii) asset impairment of $32 and $0, respectively. (3) Includes the following items for the three months ended March 31, 2022 and 2021: (i) equity-based compensation of $127 and $198, (ii) provision for income taxes of $15 and $13, (iii) interest expense of $1,384 and $281, (iv) depreciation and amortization expense of $2,263 and $1,811 and (v) changes in fair value of non-hedge derivative instruments of $27 and $(274), respectively. Comparison of the three months ended March 31, 2022 and 2021 Total revenues increased $60.7 million primarily due to higher revenues of $34.1 million in the Transtar segment and $28.9 million in the Aviation Leasing segment, partially offset by lower revenues of $10.1 million in the Ports and Terminals segment. Equipment Leasing Maintenance revenue increased $21.2 million, primarily due to an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and the recognition of maintenance deposits due to the early lease termination. Other revenue increased $15.2 million, which primarily reflects an increase of $13.9 million in the Aviation Leasing segment primarily due to an increase in engine modules, spare parts and used material inventory sales. Lease income decreased $1.0 million, which primarily reflects (i) a decrease of $5.9 million in the Aviation Leasing segment primarily due to the early termination of aircraft and engine leases as a result of the sanctions imposed on Russian airlines, partially offset by an increase in the number of aircraft and engines placed on lease, partially offset by (ii) an increase of $4.9 million in the offshore energy business as one of our vessels was on-hire longer in 2022 compared to 2021. Infrastructure Rail revenues increased $33.7 million due to our acquisition of Transtar in July 2021. Other revenue decreased $10.8 million, primarily due to a loss on butane forward purchase contracts at Repauno. Expenses Comparison of the three months ended March 31, 2022 and 2021 Total expenses increased $242.0 million, primarily due to higher (i) asset impairment charges, (ii) operating expenses, (iii) interest expense, (iv) depreciation and amortization and (v) acquisition and transaction expenses. Asset impairment increased $120.7 million due to impairment charges related to assets held in Ukraine and Russia. Operating expenses increased $83.9 million which primarily reflects: 40 • an increase in bad debt of $48.5 million which reflects the write-off of receivables related to assets in Russia and Ukraine; • an increase in compensation and benefits of $12.1 million primarily due to the acquisition of Transtar in July 2021; • an increase of $9.9 million in costs associated with the sale of inventory in the Aviation Leasing segment; and • an increase of $9.0 million in facility operating expense which primarily reflects (i) an increase of $4.4 million due to the acquisition of Transtar in July 2021, (ii) an increase of $1.4 million in the Jefferson Terminal segment due to increased activity, (iii) an increase of $1.8 million in the offshore energy business due to higher vessel utilization and (iv) an increase of $1.4 million in the Aviation Leasing segment primarily due to shipping and storage costs. Interest expense increased $17.6 million, primarily due to: • an increase of $12.6 million in Corporate and Other which reflects an increase in the average outstanding debt of approximately $956.1 million due to increases in (i) the Senior Notes due 2028 of $1.0 billion, (ii) the 2021 Bridge Loans of $260.0 million and (iii) the Revolving Credit Facility of $93.5 million, partially offset by a decrease in (iv) the Senior Notes due 2022 of $400.0 million, which was redeemed in full in May 2021; and • an increase of $4.9 million at Jefferson Terminal due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB-5 Loan Agreement. Depreciation and amortization increased $13.8 million primarily due to (i) additional assets acquired in the Aviation Leasing segment, (ii) the acquisition of Transtar in July 2021 and (ii) assets placed into service at Jefferson Terminal. Acquisition and transaction expenses increased $4.4 million primarily due to professional fees related to strategic transactions. Other income (expense) Total other income decreased $10.2 million which primarily reflects (i) an increase of $25.4 million in equity in losses of unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge and (ii) an increase of $15.5 million in gain on sale of assets, net in the Aviation Leasing segment. Net loss Net loss increased $194.8 million primarily due to the changes noted above. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased $4.4 million primarily due to the changes noted above. 41 Aviation Leasing Segment As of March 31, 2022, in our Aviation Leasing segment, we own and manage 343 aviation assets, consisting of 117 commercial aircraft and 226 engines, including four aircraft and two engines that were still located in Ukraine and eight aircraft and 18 engines that were still located in Russia. As of March 31, 2022, 81 of our commercial aircraft and 126 of our engines were leased to operators or other third parties. Aviation assets currently off lease are either undergoing repair and/or maintenance, being prepared to go on lease or held in short term storage awaiting a future lease. Our aviation equipment was approximately 77% utilized during the three months ended March 31, 2022, based on the percent of days on-lease in the quarter weighted by the monthly average equity value of our aviation leasing equipment, excluding airframes. Our aircraft currently have a weighted average remaining lease term of 45 months, and our engines currently on-lease have an average remaining lease term of 16 months. The table below provides additional information on the assets in our Aviation Leasing segment: Aviation Assets Widebody Narrowbody Total Aircraft Assets at January 1, 2022 13 95 108 Purchases 1 16 17 Sales — — — Transfers (2) (6) (8) Assets at March 31, 2022 12 105 117 Engines Assets at January 1, 2022 68 139 207 Purchases 1 18 19 Sales (2) (12) (14) Transfers 4 10 14 Assets at March 31, 2022 71 155 226 42 The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Equipment leasing revenues Lease income $ 33,847 $ 39,789 $ (5,942) Maintenance revenue 36,732 15,508 21,224 Finance lease income 111 403 (292) Other revenue 14,335 401 13,934 Total revenues 85,025 56,101 28,924 Expenses Operating expenses 66,202 4,250 61,952 Acquisition and transaction expenses 1,030 1,196 (166) Depreciation and amortization 39,329 32,563 6,766 Asset impairment 122,790 2,100 120,690 Total expenses 229,351 40,109 189,242 Other income (expense) Equity in earnings (losses) of unconsolidated entities 198 (340) 538 Gain on sale of assets, net 16,288 811 15,477 Interest income 165 267 (102) Total other income 16,651 738 15,913 (Loss) income before income taxes (127,675) 16,730 (144,405) Provision for (benefit from) income taxes 1,057 (42) 1,099 Net (loss) income (128,732) 16,772 (145,504) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Net (loss) income attributable to shareholders $ (128,732) $ 16,772 $ (145,504) 43 The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net (loss) income attributable to shareholders $ (128,732) $ 16,772 $ (145,504) Add: Provision for (benefit from) income taxes 1,057 (42) 1,099 Add: Equity-based compensation expense — — — Add: Acquisition and transaction expenses 1,030 1,196 (166) 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 122,790 2,100 120,690 Add: Incentive allocations — — — Add: Depreciation and amortization expense (1) 51,342 40,671 10,671 Add: Interest expense — — — Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2) 254 (308) 562 Less: Equity in (earnings) losses of unconsolidated entities (198) 340 (538) Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ 47,543 $ 60,729 $ (13,186) ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2022 and 2021: (i) depreciation expense of $39,329 and $32,563, (ii) lease intangible amortization of $3,658 and $752 and (iii) amortization for lease incentives of $8,355 and $7,356, respectively. (2) Includes the following items for the three months ended March 31, 2022 and 2021: (i) net income (loss) of $198 and $(340) and (ii) depreciation and amortization of $56 and $32, respectively. Revenues Comparison of the three months ended March 31, 2022 and 2021 Total revenue increased $28.9 million driven by higher maintenance revenue and other revenue, partially offset by lower lease income. • Maintenance revenue increased $21.2 million primarily due to an increase in the number of aircraft and engines placed on lease, higher aircraft and engine utilization and the recognition of maintenance deposits due to the early termination of aircraft leases with Russian airlines as a result of the sanctions imposed on Russian airlines; • Other revenue increased $13.9 million primarily due to an increase in engine modules, spare parts and used material inventory sales; and • Lease income decreased $5.9 million primarily due to the early termination of aircraft and engine leases as a result of the sanctions imposed on Russian airlines. Basic lease revenues from our owned aircraft and engines leased to Russian airlines would have been approximately $10.8 million for the three months ended March 31, 2022. This decrease is partially offset by an increase in the number of aircraft and engines placed on lease. 44 Expenses Comparison of the three months ended March 31, 2022 and 2021 Total expenses increased $189.2 million primarily due to an increase in asset impairment expense, operating expenses and depreciation and amortization expense. • Asset impairment increased $120.7 million for the adjustment of the carrying value of leasing equipment to fair value, primarily due to the write down of aircraft and engines located in Ukraine and Russia that may not be recoverable. See Note 3 to the consolidated financial statements for additional information; • Operating expenses increased $62.0 million primarily as a result of an increase in bad debt expense as a result of the sanctions imposed on Russian airlines, an increase in costs associated with the sale of engine modules, spare parts and used material inventory and an increase other operating expenses; and • Depreciation and amortization expense increased $6.8 million driven by an increase in the number of assets owned and on lease, partially offset by an increase in the number of aircraft redelivered and parted out into our engine leasing pool. Other income (expense) Total other income increased $15.9 million primarily due to an increase of $15.5 million in gain on the sale of leasing equipment in 2022 and an increase of $0.5 million in Aviation Leasing’s proportionate share of unconsolidated entities’ net income. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA decreased $13.2 million primarily due to the changes noted above. Jefferson Terminal Segment The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Infrastructure revenues Lease income $ 352 $ 430 $ (78) Terminal services revenues 12,694 10,289 2,405 Total revenues 13,046 10,719 2,327 Expenses Operating expenses 13,123 11,721 1,402 Depreciation and amortization 9,700 7,718 1,982 Interest expense 6,110 1,203 4,907 Total expenses 28,933 20,642 8,291 Other (expense) income Other (expense) income (99) 181 (280) Total other (expense) income (99) 181 (280) Loss before income taxes (15,986) (9,742) (6,244) Provision for income taxes 69 57 12 Net loss (16,055) (9,799) (6,256) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries (7,136) (5,016) (2,120) Net loss attributable to shareholders $ (8,919) $ (4,783) $ (4,136) 45 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net loss attributable to shareholders $ (8,919) $ (4,783) $ (4,136) Add: Provision for income taxes 69 57 12 Add: Equity-based compensation expense 538 841 (303) 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: Incentive allocations — — — Add: Depreciation and amortization expense 9,700 7,718 1,982 Add: Interest expense 6,110 1,203 4,907 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) (3,692) (2,208) (1,484) Adjusted EBITDA (non-GAAP) $ 3,806 $ 2,828 $ 978 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2022 and 2021: (i) equity-based compensation of $121 and $189, (ii) provision for income taxes of $15 and $13, (iii) interest expense of $1,374 and $271 and (iv) depreciation and amortization expense of $2,182 and $1,735, respectively. Comparison of the three months ended March 31, 2022 and 2021 Revenues Total revenues increased $2.3 million which reflects an increase in terminal services revenue of $2.4 million primarily due to higher volumes. Expenses Total expenses increased $8.3 million which reflects: • an increase in interest expense of $4.9 million due to the issuance of the Series 2021 Bonds in August 2021 and additional borrowings related to the EB-5 Loan Agreement; • an increase in operating expenses of $1.4 million primarily due to increased terminal activity; and • an increase in depreciation and amortization of $2.0 million due to additional assets being placed into service. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $1.0 million primarily due to the changes noted above. 46 Ports and Terminals The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Infrastructure revenues Rail revenues $ 86 $ — $ 86 Terminal services revenues 90 132 (42) Other revenue (2,162) 7,964 (10,126) Total revenues (1,986) 8,096 (10,082) Expenses Operating expenses 3,883 3,102 781 Depreciation and amortization 2,369 2,211 158 Interest expense 287 279 8 Total expenses 6,539 5,592 947 Other (expense) income Equity in (losses) earnings of unconsolidated entities (23,549) 1,542 (25,091) Total other (expense) income (23,549) 1,542 (25,091) (Loss) income before income taxes (32,074) 4,046 (36,120) Provision for income taxes — 154 (154) Net (loss) income (32,074) 3,892 (35,966) Less: Net (loss) income attributable to non-controlling interest in consolidated subsidiaries (330) 55 (385) Net (loss) income attributable to shareholders $ (31,744) $ 3,837 $ (35,581) The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net (loss) income attributable to shareholders $ (31,744) $ 3,837 $ (35,581) Add: Provision for income taxes — 154 (154) Add: Equity-based compensation expense 171 273 (102) 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 766 (7,964) 8,730 Add: Asset impairment charges — — — Add: Incentive allocations — — — Add: Depreciation and amortization expense 2,369 2,211 158 Add: Interest expense 287 279 8 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) 6,095 2,705 3,390 Less: Equity in losses of unconsolidated entities 23,549 (1,542) 25,091 Less: Non-controlling share of Adjusted EBITDA (2) (124) 179 (303) Adjusted EBITDA (non-GAAP) $ 1,369 $ 132 $ 1,237 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2022 and 2021: (i) net (loss) income of $(21,380) and $1,542, (ii) interest expense of $6,443 and $160, (iii) depreciation and amortization expense of $6,284 and $1,880, (iv) acquisition and transaction expenses of $3 and $0, (v) changes in fair value of non-hedge derivative instruments of $14,615 and $(877), (vi) equity-based compensation of $98 and $0 and (vii) asset impairment of $32 and $0, respectively. (2) Includes the following items for the three months ended March 31, 2022 and 2021: (i) equity-based compensation of $6 and $9, (ii) interest expense of $10 and $10, (iii) depreciation and amortization expense of $81 and $76 and (iv) changes in fair value of non-hedge derivative instruments of $27 and $(274), respectively. 47 Comparison of the three months ended March 31, 2022 and 2021 Revenues Total revenue decreased $10.1 million primarily due to a loss on butane forward purchase contracts at Repauno. Expenses Total expenses increased $0.9 million which reflects higher operating expenses of $0.8 million due to increased activit y at Repauno. Other expense Total other expense increased $25.1 million which reflects an increase in equity in losses in unconsolidated entities primarily due to unrealized losses on power swaps at Long Ridge. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $1.2 million primarily due to the changes noted above. Transtar The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Infrastructure revenues Lease income $ 488 $ — $ 488 Rail revenues 33,582 — 33,582 Total revenues 34,070 — 34,070 Expenses Operating expenses 19,063 — 19,063 Acquisition and transaction expenses 206 — 206 Depreciation and amortization 4,759 — 4,759 Interest expense 60 — 60 Total expenses 24,088 — 24,088 Other expense Other expense (360) — (360) Total other expense (360) — (360) Income before income taxes 9,622 — 9,622 Provision for income taxes 2,079 — 2,079 Net income 7,543 — 7,543 Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Net income attributable to shareholders $ 7,543 $ — $ 7,543 48 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net income attributable to shareholders $ 7,543 $ — $ 7,543 Add: Provision for income taxes 2,079 — 2,079 Add: Equity-based compensation expense — — — Add: Acquisition and transaction expenses 206 — 206 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 4,759 — 4,759 Add: Interest expense 60 — 60 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 $ 14,647 $ — $ 14,647 Financial results for the three months ended March 31, 2022 Revenues Total revenues were $34.1 million, which primarily consists of switching, interline, and ancillary rail services. Expenses Total expenses were $24.1 million, which primarily consists of (i) operating expenses of $19.1 million which primarily includes compensation and benefits of $11.8 million and facility operating expense of $5.2 million and (ii) depreciation and amortization of $4.8 million. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA was $14.6 million primarily due to the activity noted above. 49 Corporate and Other The following table presents our results of operations: Three Months Ended March 31, Change (in thousands) 2022 2021 Revenues Equipment leasing revenues Lease income $ 5,367 $ 438 $ 4,929 Other revenue 1,299 68 1,231 Total equipment leasing revenues 6,666 506 6,160 Infrastructure revenues Other revenue 1,018 1,727 (709) Total infrastructure revenues 1,018 1,727 (709) Total revenues 7,684 2,233 5,451 Expenses Operating expenses 6,645 5,924 721 General and administrative 5,691 4,252 1,439 Acquisition and transaction expenses 4,788 447 4,341 Management fees and incentive allocation to affiliate 4,164 3,990 174 Depreciation and amortization 2,144 2,043 101 Interest expense 44,141 31,508 12,633 Total expenses 67,573 48,164 19,409 Other (expense) income Equity in (losses) earnings of unconsolidated entities (662) 172 (834) Interest income 491 18 473 Total other (expense) income (171) 190 (361) Loss before income taxes (60,060) (45,741) (14,319) Provision for income taxes 281 — 281 Net loss (60,341) (45,741) (14,600) Less: Net loss attributable to non-controlling interest in consolidated subsidiaries — — — Less: Dividends on preferred shares 6,791 4,625 2,166 Net loss attributable to shareholders $ (67,132) $ (50,366) $ (16,766) 50 The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA: Three Months Ended March 31, Change (in thousands) 2022 2021 Net loss attributable to shareholders $ (67,132) $ (50,366) $ (16,766) Add: Provision for income taxes 281 — 281 Add: Equity-based compensation expense — — — Add: Acquisition and transaction expenses 4,788 447 4,341 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 2,144 2,043 101 Add: Interest expense 44,141 31,508 12,633 Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (1) (688) 5 (693) Less: Equity in losses (earnings) of unconsolidated entities 662 (172) 834 Less: Non-controlling share of Adjusted EBITDA — — — Adjusted EBITDA (non-GAAP) $ (15,804) $ (16,535) $ 731 ________________________________________________________ (1) Includes the following items for the three months ended March 31, 2022 and 2021: (i) net loss of $(708) and $(22) and (ii) interest expense of $20 and $27, respectively. Comparison of the three months ended March 31, 2022 and 2021 Revenues Total revenues increased $5.5 million primarily due to (i) an increase of $6.2 million in the offshore energy business as one of our vessels was on-hire in 2022 while it was off-hire in 2021 and (ii) a decrease of $0.7 million in our railcar cleaning business due to lower volumes. Expenses Total expenses increased $19.4 million primarily due to higher (i) interest expense and (ii) acquisition and transaction expenses. Interest expense increased $12.6 million, which reflects an increase in the average outstanding debt of approximately $956.1 million due to increases in (i) the Senior Notes due 2028 of $1.0 billion, (ii) the 2021 Bridge Loans of $260.0 million and (iii) the Revolving Credit Facility of $93.5 million, partially offset by a decrease in (iv) the Senior Notes due 2022 of $400.0 million, which was redeemed in full in May 2021. Acquisition and transaction expense increased $4.3 million primarily due to professional fees related to strategic transactions. Other expense Total other expense increased $0.4 million primarily due to (i) an increase of $0.8 million in equity in losses of unconsolidated entities, partially offset by (ii) an increase of $0.5 million in interest income related to certain outstanding notes. Adjusted EBITDA (Non-GAAP) Adjusted EBITDA increased $0.7 million primarily due to the changes noted above. Liquidity and Capital Resources On April 28, 2022, the Board of Directors unanimously approved the spin-off of FTAI Infrastructure. See “Spin-off of FTAI Infrastructure” above for more information related to our liquidity plans. 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 capital projects amid the COVID-19 pandemic. 51 Our principal uses of liquidity have been and continue to be (i) acquisitions of transportation infrastructure and equipment, (ii) dividends to our shareholders and holders of eligible participating securities, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments. • Cash used for the purpose of making investments was $284.4 million and $165.0 million during the three months ended March 31, 2022 and 2021, respectively. • Dividends to shareholders and holders of eligible participating securities were $39.5 million and $33.0 million during the three months ended March 31, 2022 and 2021, 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 equipment assets (including finance lease collections and maintenance reserve collections) net of operating expenses, (ii) proceeds from borrowings or the issuance of securities and (iii) proceeds from asset sales. • Cash flows provided from operating activities, plus the principal collections on finance leases and maintenance reserve collections were $12.8 million and $(39.8) million during the three months ended March 31, 2022 and 2021, respectively. • During the three months ended March 31, 2022, additional borrowings were obtained in connection with the (i) 2021 Bridge Loans of $239.5 million, (ii) Revolving Credit Facility of $160.0 million and (iii) EB-5 Loan Agreement of $9.5 million. We made total principal repayments of $224.5 million relating to the Revolving Credit Facility. During the three months ended March 31, 2021, additional borrowings were obtained in connection with the (i) Revolving Credit Facility of $150.0 million and (ii) EB-5 Loan Agreement of $21.6 million. • Proceeds from the sale of assets were $54.4 million and $4.6 million during the three months ended March 31, 2022 and 2021, respectively. • Proceeds from the issuance of preferred shares, net of underwriter’s discount and issuance costs were $0.0 million and $101.2 million during the three months ended March 31, 2022 and 2021, respectively. We are currently evaluating several potential Infrastructure and Equipment Leasing transactions, which could occur within the next 12 months. None of these transactions or negotiations are definitive or included within our planned liquidity needs. We cannot assure if or when any such transaction will be consummated or the terms of any such transaction. Historical Cash Flow Comparison of the three months ended March 31, 2022 and 2021 The following table compares the historical cash flow for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, (in thousands) 2022 2021 Cash Flow Data: Net cash provided by (used in) operating activities $ 1,923 $ (48,932) Net cash used in investing activities (228,127) (154,418) Net cash provided by financing activities 145,810 235,408 Net cash provided by operating activities increased $50.9 million, which primarily reflects (i) certain adjustments to reconcile net loss to cash provided by operating activities including, asset impairment of $120.7 million, bad debt expense of $48.5 million and equity in losses of unconsolidated entities of $25.4 million and (ii) changes in working capital of $43.4 million, partially offset by (iii) an increase in our net loss of $194.8 million. Net cash used in investing activities increased $73.7 million, primarily due to (i) an increase in acquisitions of leasing equipment of $104.7 million and (ii) an increase in acquisitions of property, plant and equipment of $15.4 million, partially offset by (iii) higher proceeds from the sale of leasing equipment of $46.9 million. Net cash provided by financing activities decreased $89.6 million, primarily due to (i) an increase in repayments of debt of $224.5 million and (ii) an decrease in proceeds from the issuance of preferred shares of $101.2 million, partially offset by (iii) an increase in proceeds from debt of $237.4 million. We use Funds Available for Distribution (“FAD”) in evaluating our ability to meet our 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. We believe FAD is a useful metric for investors and analysts for similar purposes. 52 We define 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 excludes changes in working capital. The following table sets forth a reconciliation of Net Cash (Used in) Provided by Operating Activities to FAD: Three Months Ended March 31, (in thousands) 2022 2021 Net Cash Provided by (Used in) Operating Activities $ 1,923 $ (48,932) Add: Principal Collections on Finance Leases 67 395 Add: Proceeds from Sale of Assets 54,401 4,574 Add: Return of Capital Distributions from Unconsolidated Entities — — Less: Required Payments on Debt Obligations (1) — — Less: Capital Distributions to Non-Controlling Interest — — Exclude: Changes in Working Capital 14,995 58,441 Funds Available for Distribution (FAD) $ 71,386 $ 14,478 ________________________________________________________ (1) Required payments on debt obligations for the three months ended March 31, 2022 exclude repayments of $224,473 for the Revolving Credit Facility. Limitations FAD is subject to a number of limitations and assumptions and there can be no assurance that we will generate FAD sufficient to meet our intended dividends. FAD has material limitations as a liquidity measure because such measure excludes items that are required elements of our net cash provided by operating activities as described below. FAD should not be considered in isolation nor as a substitute for analysis of our results of operations under GAAP, and it is not the only metric that should be considered in evaluating our ability to meet our stated dividend policy. Specifically: • FAD does not include equity capital called from our existing limited partners, proceeds from any debt issuance or future equity offering, historical cash and cash equivalents and expected investments in our 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 we rely on alternative sources of liquidity to fund such purchases. • FAD does not reflect expenditures related to capital expenditures, acquisitions and other investments as we have multiple sources of liquidity and intend 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 our distribution decisions. • Management has significant discretion to make distributions, and we are not bound by any contractual provision that requires us to use cash for distributions. If such factors were included in FAD, there can be no assurance that the results would be consistent with our presentation of FAD. Debt Obligations Refer to Note 7 of the Consolidated Financial Statements for additional information. Contractual Obligations Our material cash requirements include the following contractual and other obligations: Debt Obligations — As of March 31, 2022, we had outstanding principal and interest payment obligations of $3.5 billion and $1.1 billion, respectively, of which, $340.1 million and $188.5 million, respectively, are due in the next twelve months. See Note 7 to the consolidated financial statements for additional information about our debt obligations. Lease Obligations —As of March 31, 2022, we had outstanding operating and finance lease obligations of $180.5 million, of which, $10.1 million is due in the next twelve months. Other Obligations —As of March 31, 2022, in connection with a pipeline capacity agreement at Jefferson Terminal, we had an obligation to pay a minimum of $10.2 million in marketing fees in the next twelve months. Other Cash Requirements —In addition to our contractual obligations, we pay quarterly cash dividends on our common shares 53 and preferred shares, which are subject to change at the discretion of our Board of Directors. During the last twelve months, we declared cash dividends of $122.4 million and $26.9 million on our common 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. Critical Accounting Estimates and Policies Goodwill — Goodwill includes the excess of the purchase price over the fair value of the net tangible and intangible assets associated with the acquisition of Jefferson Terminal and Transtar. The carrying amount of goodwill was approximately $258.0 million and $257.1 million as of March 31, 2022 and December 31, 2021, respectively. We review 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, we review 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 goodwill impairment test is performed to identify potential goodwill impairment and measure an impairment loss. A qualitative analysis was not elected for the year ended December 31, 2021. A goodwill impairment assessment compares the fair value of the 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 our assumptions about operating results, business 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 goodwill impairment is recorded to the extent that the carrying value of the reporting unit exceeds its fair value. We estimate the fair value of the Jefferson and Transtar reporting units using an income approach, specifically a discounted cash flow analysis. This analysis requires us to make significant assumptions and estimates about the forecasted revenue growth rates, EBITDA margins, capital expenditures, the timing of future cash flows, and discount 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. In connection with our impairment analysis, although we believe 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 or other key inputs are negatively revised in the future, the estimated fair value of the reporting unit could be adversely impacted, potentially leading to an impairment in the future that could materially affect our operating results. Due to the acquisition of Transtar in 2021, the estimated fair value of that reporting unit approximates the book value. The Jefferson reporting unit had an estimated fair value that exceeded its carrying value by more than 10% but less than 20%. The Jefferson Terminal segment forecasted revenue is dependent on the ramp up of volumes under current and expected future contracts for storage and throughput of heavy and light crude and refined products and is subject to obtaining rail capacity for crude, expansion of refined product distribution to Mexico and movements in future oil spreads. At October 31, 2021, approximately 4.3 million barrels of storage was currently operational with 1.9 million barrels currently under construction for new contracts which will complete our storage development for our main terminal. Our discount rate for our 2021 goodwill impairment analysis was 9.0% and our assumed terminal growth rate was 2.0%. If our strategy changes from planned capacity downward due to an inability to source contracts or expand volumes, the fair value of the reporting unit would be negatively affected, which could lead to an impairment. 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. Although we do not have significant direct exposure to volatility of crude oil prices, changes in crude oil pricing that affect long term refining planned output could impact Jefferson Terminal operations. We expect the Jefferson Terminal segment to continue to generate positive Adjusted EBITDA in future years. Although certain of our anticipated contracts or expected volumes from existing contracts for Jefferson Terminal have been delayed, we continue to believe our projected revenues are achievable. Further delays in executing these contracts or achieving our projections could adversely affect the fair value of the reporting unit. The impact of the COVID-19 global pandemic during 2020 and 2021 negatively affected refining volumes and therefore Jefferson Terminal crude throughput but we have seen the activity starting to normalize and are expected to ramp back to normal during 2022. Furthermore, we anticipate strengthening macroeconomic demand for storage and the increasing spread between Western Canadian Crude and Western Texas Intermediate as Canadian crude pipeline apportionment increases. Also, as our pipeline connections became fully operational during 2021, we remain positive for the outlook of Jefferson Terminal's earnings potential. There was no impairment of goodwill for the year ended December 31, 2021. 54 Recent Accounting Pronouncements See Note 2 to our Consolidated Financial Statements for recent accounting pronouncements.