10-Q 1 ftai331201810-q.htm 10-Q Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
OR
 
 
¨ 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
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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,
New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant’s telephone number, including area code) (212) 798-6100
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ No ¨ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 þ  
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 82,779,232 common shares representing limited liability company interests outstanding at May 4, 2018.



FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact but instead are based on our present beliefs and assumptions and on information currently available to the Company. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this report are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
•
changes in economic conditions generally and specifically in our industry sectors, and other risks relating to the global economy;
•
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 win additional 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, intermodal transport and rail sectors;
•
the competitive market for acquisition opportunities;
•
risks related to operating through joint ventures or partnerships or through consortium arrangements;
•
obsolescence of our assets or our ability to sell, re-lease or re-charter our assets;
•
exposure to uninsurable losses and force majeure events;
•
infrastructure operations may require substantial capital expenditures;
•
the legislative/regulatory environment and exposure to increased economic regulation;
•
exposure to the oil and gas industry’s volatile oil and gas prices;
•
difficulties in obtaining effective legal redress in jurisdictions in which we operate with less developed legal systems;
•
our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the fact that maintaining such exemption imposes limits on our operations;
•
our ability to successfully utilize leverage in connection with our investments;
•
foreign currency risk and risk management activities;
•
effectiveness of our internal control over financial reporting;
•
exposure to environmental risks, including increasing environmental legislation and the broader impacts of climate change;
•
changes in interest rates and/or credit spreads, as well as the success of any hedging strategy we may undertake in relation to such changes;
•
actions taken by national, state, or provincial governments, including nationalization, or the imposition of new taxes, could materially impact the financial performance or value of our assets;
•
our dependence on our Manager and its professionals and actual, potential or perceived conflicts of interest in our relationship with our Manager;
•
effects of the recently completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;

2



•
volatility in the market price of our common 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.

3



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
INDEX TO FORM 10-Q
 
PART I - FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


4



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED BALANCE SHEETS
 
 
 
(Unaudited)
 
 

Notes

March 31,
 
December 31,
(Dollar amounts in thousands, except share and per share data)

2018

2017
Assets





Cash and cash equivalents
2

$
80,916


$
59,400

Restricted cash
2

25,823


33,406

Accounts receivable, net


36,847


31,076

Leasing equipment, net
3

1,128,493


1,074,130

Finance leases, net
4

9,115


9,244

Property, plant, and equipment, net
5

512,052


489,949

Investments
6

43,702


42,538

Intangible assets, net
7

37,978


40,043

Goodwill


116,584


116,584

Other assets
2

56,316


59,436

Total assets


$
2,047,826


$
1,955,806







Liabilities





Accounts payable and accrued liabilities


$
56,031


$
68,226

Debt, net
8

710,638


703,264

Maintenance deposits
 

107,444


103,464

Security deposits
 

28,921


27,257

Other liabilities


18,298


18,520

Total liabilities


$
921,332


$
920,731







Commitments and contingencies
16










Equity





Common shares ($0.01 par value per share; 2,000,000,000 shares authorized; 82,779,232 and 75,771,738 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively)


828


758

Additional paid in capital


1,085,492


985,009

Accumulated deficit

 
(39,271
)
 
(38,699
)
Accumulated other comprehensive income


—


—

Shareholders' equity


1,047,049


947,068

Non-controlling interest in equity of consolidated subsidiaries


79,445


88,007

Total equity


1,126,494


1,035,075

Total liabilities and equity


$
2,047,826


$
1,955,806






See accompanying notes to consolidated financial statements.

5



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollar amounts in thousands, except share and per share data)


Three Months Ended March 31,
Notes

2018
 
2017
Revenues





Equipment leasing revenues


$
55,784


$
31,388

Infrastructure revenues


13,060


13,285

Total revenues
10

68,844


44,673







Expenses





Operating expenses


27,579


21,013

General and administrative


3,586


3,835

Acquisition and transaction expenses


1,766


1,452

Management fees and incentive allocation to affiliate
13

3,739


3,893

Depreciation and amortization
3, 5, 7

29,587


17,377

Interest expense


11,871


4,694

Total expenses


78,128


52,264







Other income (expense)





Equity in earnings (losses) of unconsolidated entities
6

95


(1,266
)
(Loss) gain on sale of equipment, net


(5
)

2,018

Loss on extinguishment of debt
8

—


(2,456
)
Interest income


176


283

Other income


180


12

Total other income (expense)


446


(1,409
)






Loss before income taxes


(8,838
)

(9,000
)
Provision for income taxes
12

495


212

Net loss


(9,333
)

(9,212
)
Less: Net loss attributable to non-controlling interests in consolidated subsidiaries


(8,761
)

(4,798
)
Net loss attributable to shareholders


$
(572
)

$
(4,414
)








Loss per share
15

 

 
Basic and Diluted


$
(0.01
)
 
$
(0.06
)
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
Basic


81,534,454


75,762,283

Diluted
 
 
81,534,454

 
75,762,283













See accompanying notes to consolidated financial statements.

6



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)
 
 
Three Months Ended March 31,
(Dollar amounts in thousands)
 
2018
 
2017
Net loss
 
$
(9,333
)
 
$
(9,212
)
Other comprehensive loss:
 
 
 
 
Change in fair value of available-for-sale securities
 
—

 
4,859

Comprehensive loss
 
(9,333
)
 
(4,353
)
Comprehensive loss attributable to non-controlling interest
 
(8,761
)
 
(4,798
)
Comprehensive (loss) income attributable to shareholders
 
$
(572
)
 
$
445






















































See accompanying notes to consolidated financial statements.

7



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)
(Dollar amounts in thousands)
Common Shares
 
Additional Paid In Capital
 
Accumulated Deficit
 
 Accumulated Other Comprehensive Income
 
 Non-Controlling Interest in Equity of Consolidated Subsidiaries
 
Total Equity
Equity - December 31, 2017
$
758

 
$
985,009

 
$
(38,699
)
 
$
—

 
$
88,007

 
$
1,035,075

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net loss for the period
 
 
 
 
(572
)
 
 
 
(8,761
)
 
(9,333
)
Other comprehensive loss
 
 
 
 
—

 
—

 
—

 
—

Total comprehensive loss

 

 
(572
)
 
—

 
(8,761
)
 
(9,333
)
Dividends declared
 
 
(27,333
)
 
 
 
 
 
—

 
(27,333
)
Issuance of common shares
70

 
127,807

 
 
 
 
 
—

 
127,877

Equity-based compensation
 
 
9

 
 
 
 
 
199

 
208

Equity - March 31, 2018
$
828

 
$
1,085,492

 
$
(39,271
)
 
$
—

 
$
79,445

 
$
1,126,494












































See accompanying notes to consolidated financial statements.

8



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
Three Months Ended March 31,
(Dollar amounts in thousands)
2018
 
2017
 Cash flows from operating activities:
 
 
 
 Net loss
$
(9,333
)
 
$
(9,212
)
 Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Equity in (earnings) losses of unconsolidated entities
(95
)
 
1,266

Loss (gain) on sale of equipment, net
5

 
(2,018
)
Security deposits and maintenance claims included in earnings
(383
)
 
—

Loss on extinguishment of debt
—

 
2,456

Equity-based compensation
208

 
87

Depreciation and amortization
29,587

 
17,377

Change in current and deferred income taxes
504

 
209

Change in fair value of non-hedge derivative
(624
)
 
—

Amortization of lease intangibles and incentives
7,226

 
1,949

Amortization of deferred financing costs
1,151

 
1,133

Bad debt expense
1,441

 
31

Other
9

 
37

Change in:
 
 
 
 Accounts receivable
(7,387
)
 
(1,626
)
 Other assets
1,176

 
11,227

 Accounts payable and accrued liabilities
(9,768
)
 
(4,992
)
 Management fees payable to affiliate
(1,300
)
 
(347
)
 Other liabilities
(947
)
 
103

 Net cash provided by operating activities
11,470

 
17,680

 
 
 
 
 Cash flows from investing activities:
 
 
 
Investment in notes receivable
(912
)
 
—

Investment in unconsolidated entities and available for sale securities
(1,115
)
 
(14,654
)
Principal collections on finance leases
129

 
110

Acquisition of leasing equipment
(86,043
)
 
(67,695
)
Acquisition of property plant and equipment
(23,641
)
 
(14,796
)
Acquisition of lease intangibles
(1,029
)
 
—

Purchase deposits for acquisitions
(6,886
)
 
(1,120
)
Proceeds from sale of leasing equipment
6,136

 
9,834

Proceeds from sale of property, plant and equipment
38

 
52

Proceeds from deposit on sale of leasing equipment
240

 
60

Return of deposit on sale of engine
(400
)
 
—

 Net cash used in investing activities
$
(113,483
)
 
$
(88,209
)













See accompanying notes to consolidated financial statements.

9



FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
Three Months Ended March 31,
(Dollar amounts in thousands)
2018
 
2017
 Cash flows from financing activities:
 
 
 
Proceeds from debt
$
18,600

 
$
235,411

Repayment of debt
(12,612
)
 
(1,562
)
Payment of deferred financing costs
(71
)
 
(366
)
Receipt of security deposits
1,864

 
1,425

Return of security deposits
(700
)
 
(32
)
Receipt of maintenance deposits
9,720

 
4,424

Release of maintenance deposits
(1,840
)
 
—

Proceeds from issuance of common shares, net of underwriter's discount
128,450

 
—

Common shares issuance costs
(132
)
 
—

Cash dividends
(27,333
)
 
(25,013
)
 Net cash provided by financing activities
$
115,946

 
$
214,287

 
 
 
 
 Net increase in cash and cash equivalents and restricted cash
13,933

 
143,758

 Cash and cash equivalents and restricted cash, beginning of period
92,806

 
133,496

 Cash and cash equivalents and restricted cash, end of period
$
106,739

 
$
277,254

 
 
 
 
 Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Proceeds from borrowings of debt
$
511

 
$
108,089

Repayment and settlement of debt
—

 
(100,000
)
Acquisition of leasing equipment
(2,938
)
 
(18,324
)
Acquisition of property, plant and equipment
(5,849
)
 
(303
)
Settled and assumed security deposits
500

 
296

Billed, assumed and settled maintenance deposits
(3,517
)
 
2,398

Deferred financing costs
—

 
(9,117
)
Issuance of common shares
150

 
160

Common share issuance costs
(591
)
 
—
























See accompanying notes to consolidated financial statements.

10

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)


1.
ORGANIZATION
Fortress Transportation and Infrastructure Investors LLC (the “Company”) is a Delaware limited liability company which, through its subsidiary, Fortress Worldwide Transportation and Infrastructure General Partnership (the “Partnership”), is engaged in the ownership and leasing of aviation equipment, offshore energy equipment and shipping containers, and also owns and operates a short line railroad in North America, Central Maine and Québec Railway (“CMQR”), a multi-modal crude oil and refined products terminal in Beaumont, Texas (“Jefferson Terminal”), a deep-water port located along the Delaware River with an underground storage cavern and multiple industrial development opportunities (“Repauno”), and a multi-modal terminal located along the Ohio River with multiple industrial development opportunities (“Long Ridge”). The Company has six reportable segments, (i) Aviation Leasing, (ii) Offshore Energy, (iii) Shipping Containers, (iv) Jefferson Terminal, (v) Railroad, and (vi) Ports and Terminals, which operate in two primary businesses, Equipment Leasing and Infrastructure (Note 14).
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 the Company and its subsidiaries.
Principles of Consolidation—The Company consolidates all entities in which it has a controlling financial interest and in which it has control over significant operating decisions, as well as variable interest entities (“VIEs”) in which the Company is the primary beneficiary. All significant intercompany transactions and balances have been eliminated. The ownership interest of other investors in consolidated subsidiaries is recorded as non-controlling interest.
The Company uses the equity method of accounting for investments in entities in which the Company exercises significant influence but which do not meet the requirements for consolidation. Under the equity method, the Company records its proportionate share of the underlying net income (loss) of these entities.
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, the Company encounters 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 the Company operates which could adversely impact the pricing of the services offered by the Company 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 the Company’s leasing equipment or operating assets. Capital market risk is the risk that the Company is unable to obtain capital at reasonable rates to fund the growth of its business or to refinance existing debt facilities. The Company, through its subsidiaries, also conducts operations outside of the United States; such international operations are subject to the same risks as those associated with its 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. The Company does not have significant exposure to foreign currency risk as all of its leasing arrangements, terminal services revenue and the majority of freight rail 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.


11

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

JGP Energy Partners LLC
During the quarter ended September 30, 2016, the Company initiated activities in its 50% owned joint venture, JGP Energy Partners LLC (“JGP”). The other 50% member to the joint venture is a third party ethanol producer. The purpose of the venture is to build storage capacity with capabilities to receive and/or distribute ethanol via water, rail or truck. Each member agreed to contribute up to $27,000 (for a total of $54,000) for the development and construction of the ethanol terminal facilities. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a VIE. The Company concluded that it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and accounts for this investment in accordance with the equity method. Refer to Note 6 for details.
Delaware River Partners LLC
On July 1, 2016, the Company, through Delaware River Partners LLC (“DRP”), a consolidated subsidiary, 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. The Company currently holds a 90% economic interest and a 100% voting interest in DRP. DRP is solely reliant on the Company to finance its activities and therefore is a VIE. The Company concluded it was the primary beneficiary; and accordingly, DRP has been presented on a consolidated basis in the accompanying financial statements. The Company has the right to purchase an additional 8% economic interest from the non-controlling party after the second anniversary but prior to the fifth year anniversary of the acquisition of Repauno. At the time of the purchase, the Company concluded that 8% of the 10% interest held by the non-controlling party does not share in the risks or rewards of true equity.
Ohio River Partners LLC
On June 16, 2017, the Company, through Ohio River Partners LLC (“ORP”), a consolidated subsidiary, purchased the assets of Long Ridge which consisted primarily of land, buildings, railroad track, docks, water rights, site improvements and other rights. The Company purchased 100% of the interests in these assets. ORP is solely reliant on the Company to finance its activities and therefore is a VIE. The Company concluded it was the primary beneficiary; accordingly, ORP has been presented on a consolidated basis in the accompanying financial statements.
Cash and Cash Equivalents—The Company considers all highly liquid short-term investments with a maturity of 90 days or less when purchased to be cash equivalents.
Restricted Cash—Restricted cash of $25,823 and $33,406 as of March 31, 2018 and December 31, 2017, respectively, consists of prepaid interest and principal pursuant to the requirements of certain of the Company’s debt agreements (Note 8), and funds set aside for qualifying construction projects at Jefferson Terminal.
Available-For-Sale Securities—The Company considers listed equity securities as available-for-sale securities recorded at fair value with unrealized gains (losses) recorded in other comprehensive income (loss) and realized gains (losses) recorded in earnings. The Company’s basis on which the cost of the security sold or the amount reclassified out of other comprehensive income into earnings is determined using specific identification. Available-for-sale securities are included as a component of investments on the accompanying Consolidated Balance Sheets. At each balance sheet date, the Company evaluates its available for sale securities holdings with unrealized losses to determine if an other-than-temporary impairment has occurred. Refer to Note 6 and Note 9 for details.
Inventory—Crude oil is carried at the lower of cost or net realizable value on the Company’s balance sheet. Crude oil is removed from inventory based on the average cost at the time of sale. At March 31, 2018 and December 31, 2017, the Company had crude oil inventory of $4,892 and $8,877, respectively. The Company records its inventory as a component of other assets on the accompanying 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 $10,559 and $11,423 as of March 31, 2018 and December 31, 2017, respectively, are recorded as a component of debt in the accompanying Consolidated Balance Sheets. In connection with the Jefferson Revolver, the Company incurred $511 of deferred financing costs as of March 31, 2018 which are recorded as a component of other assets in the accompanying Consolidated Balance Sheet. Refer to Note 8 for details.
Amortization expense was $1,151 and $1,133 for the three months ended March 31, 2018 and 2017, respectively. Amortization expense is included as a component of interest expense in the accompanying Consolidated Statements of Operations.

12

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Revenue Recognition
Effective January 1, 2018, the Company adopted FASB ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) and related updates. The standard’s core principle is that a Company will recognize revenue when it transfers promised goods or services to customers in an amount that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The adoption of this standard is applied using the modified retrospective approach. See below for a detailed description of revenue recognition by our two strategic business units, Equipment Leasing and Infrastructure.
Lease contracts, within the scope of ASC 840, Leases, are specifically excluded from ASU 2014-09. Infrastructure revenues that do not qualify as leases or leases that are combined with other services are recognized as revenue only when the services have been performed or goods transferred and the Company expects to be entitled in exchange for the goods delivered or services performed in accordance with contractual obligations. See Note 11 for additional details regarding the disaggregation of our revenues by segment.
The adoption of the standard did not have a material impact on our consolidated financial statements and related disclosures.
Equipment Leasing Revenues
Operating Leases—The Company leases 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.
The Company also recognizes maintenance revenue related to the portion of maintenance payments received from lessees of aviation equipment that are not expected to be reimbursed in connection with major maintenance events.
Finance Lease—The Company owns one anchor handling tug supply vessel subject to a finance lease, as of March 31, 2018 and 2017. This lease generally includes 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 of 90% or more of the fair value of the leased equipment at the date of lease inception. Net investment in finance lease 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.
Infrastructure Revenues
Rail Revenues—Rail revenues are recognized proportionally as freight moves from origin to destination. Other miscellaneous revenues, such as unloading and switching revenue, are recognized as the service is performed or contractual obligations are met.
Terminal Services Revenues—Terminal services revenues are recognized when services have been provided to the customer, the product has been delivered, the price is considered to be fixed or determinable and collectability is reasonably assured. Prepayments for services are deferred until the period in which the above criteria are met. Terminal services fees include services provided to third-party customers related to receipt and redelivery of crude oil products.
Lease Revenues—Ports and Terminals revenue are recognized as various tenants lease out storage space including equipment, piping and frac sand. Lease revenue is recognized based on the terms of the lease agreement.
Concentration of Credit Risk—The Company is subject to concentrations of credit risk with respect to amounts due from customers on its finance lease and operating leases. The Company attempts to limit its credit risk by performing ongoing credit evaluations. During the three months ended March 31, 2018 and 2017, the Company had no revenue concentration over 10% of total revenue from any one customer.
As of March 31, 2018, accounts receivable from two customers in the Offshore Energy segment each represented 12% of total accounts receivable, net. As of December 31, 2017, accounts receivable from two customers in the Offshore Segment represented 17% and 10%, respectively, of total accounts receivable, net.
The Company maintains cash and restricted cash balances, which generally exceed federally insured limits, and subject the Company to credit risk, in high credit quality financial institutions. The Company monitors the financial condition of these institutions and has not experienced any losses associated with these accounts.
Provision for Doubtful Accounts—The Company determines the provision for doubtful accounts based on its assessment of the collectability of its receivables on a customer-by-customer basis. The provision for doubtful accounts at March 31, 2018 and December 31, 2017 was $2,084 and $983, respectively. Bad debt expense was $1,441 and $31 for the three months ended March 31, 2018 and 2017, respectively.

13

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

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. The Company’s comprehensive income (loss) represents net income (loss), as presented in the Consolidated Statements of Operations, adjusted for fair value changes related to the available-for-sale securities and derivatives accounted for as cash flow hedges.
Derivative Financial Instruments—In 2017 the Company entered into short-term crude forward contracts. The fair value of the short-term derivative asset at March 31, 2018 and December 31, 2017 was $398 and $1,022, respectively, recorded in other assets.
Other Assets—Other assets is primarily comprised of crude oil of $4,892 and $8,877, notes receivable of $3,367 and $2,623, purchase deposits for acquisitions of $13,535 and $12,299, lease incentives of $23,176 and $23,811, and prepaid expenses of $4,291 and $4,149 as of March 31, 2018 and December 31, 2017, respectively.
Dividends—Dividends are recorded if and when declared by the Board of Directors. For both the three months ended March 31, 2018 and 2017, the Board of Directors declared a cash dividend of $0.33 per share.
Recent Accounting Pronouncements—In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related parties. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-17 as of January 1, 2017 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) (“ASU 2017-01”). ASU 2017-01 clarifying the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses or assets. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2017-01 as of January 1, 2017 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB deferred the effective date of this standard by one year, which will be for fiscal years, and interim periods within those years, beginning after December 15, 2017. Additionally, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, ASU 2017-14, Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606) and ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting which clarify the guidance on reporting revenue as a principal versus agent, identifying and disclosing performance obligations, accounting for intellectual property licenses, and assessing collectibility, present sales tax, treating noncash consideration. The Company has identified and evaluated relevant revenue contracts within the scope of the guidance. The Company adopted ASU 2014-09 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 requires (i) equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income, (ii) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset. ASU 2016-01 also eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The pronouncement is effective for fiscal years, and interim

14

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-01 as of January 1, 2018 and the adoption of this guidance did not have any impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses the following eight specific cash flow issues: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies (COLIs); (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; (viii) and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-15 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the presentation of the Company’s Statements of Cash Flows.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). ASU 2016-16 prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. In addition, interpretations of this guidance have developed in practice for transfers of certain intangible and tangible assets. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. To more faithfully represent the economics of intra-entity asset transfers, the amendments ASU 2016-16 require that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in ASU 2016-16 do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory. ASU 2016-16 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-16 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 addresses the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230, Statement of Cash Flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this ASU apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU 2016-18 will be effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2016-18 as of January 1, 2018 and the adoption of this guidance included changes in restricted cash in the Company’s Statements of Cash Flows for all periods presented.
In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 amends the scope of the nonfinancial asset guidance in Subtopic 610-20. The amendments also clarify that the derecognition of all businesses and nonprofit activities (except those related to conveyances of oil and gas mineral rights or contracts with customers) should be accounted for in accordance with the derecognition and deconsolidation guidance in Subtopic 810-10. In addition, the amendments eliminate the exception in the financial asset guidance for transfers of investments (including equity method investments) in real estate entities and supersede the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest Subsection within Topic 845. The amendments in ASU 2017-05 also provide guidance on the accounting for what often are referred to as partial sales of nonfinancial assets within the scope of Subtopic 610-20 and contributions of nonfinancial assets to a joint venture or other noncontrolled investee. ASU 2017-05 will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2017-05 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted, including in an interim period. ASU 2017-09 is to be applied on a prospective basis to an award modified on or after the adoption date. The Company adopted ASU 2017-09 as of January 1, 2018 and the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

15

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Unadopted Accounting Pronouncements—In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019, with early adoption permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s evaluation of the impact of the new guidance on its consolidated financial statements is ongoing. The Company is currently identifying the lease arrangements within the scope of the new guidance, and evaluating the impact of the lease arrangements. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from contracts from customers (Topic 606), Leases (Topic 840) and Leases (Topic 842) (“ASU 2017-13”), which adds SEC paragraphs to the new revenue and lease sections of the codification on the announcement of the SEC observer made at the July 2017 EITF meeting.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). For assets held at amortized cost basis, ASU 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this ASU requires that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 addresses concerns over the cost and complexity of the two-step goodwill impairment test by removing the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. ASU 2017-01 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.
3.
LEASING EQUIPMENT, NET
Leasing equipment, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Leasing equipment
$
1,292,473

 
$
1,217,862

Less: accumulated depreciation
(163,980
)
 
(143,732
)
Leasing equipment, net
$
1,128,493

 
$
1,074,130

During the three months ended March 31, 2018, the Company acquired eight aircraft and three commercial jet engines, and sold four commercial jet engines. During the three months ended March 31, 2017, the Company acquired six aircraft and 12 commercial jet engines, and sold one aircraft.
Depreciation expense for leasing equipment is summarized as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Depreciation expense for leasing equipment
 
$
23,691

 
$
13,173


16

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

4.     FINANCE LEASES, NET
Finance leases, net are summarized as follows:
 
March 31, 2018
 
December 31, 2017
Finance leases
$
15,520

 
$
16,015

Unearned revenue
(6,405
)
 
(6,771
)
Finance leases, net
$
9,115

 
$
9,244

As of March 31, 2018, future minimum lease payments to be received under finance leases for the remainder of the lease terms are as follows:
 
Total
2018
$
1,513

2019
2,008

2020
2,013

2021
2,008

2022
2,008

Thereafter
5,970

Total
$
15,520

5.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Land, site improvements and rights
$
74,268

 
$
74,268

Construction in progress
86,844

 
100,420

Buildings and improvements
9,807

 
9,807

Terminal machinery and equipment
339,639

 
299,444

Track and track related assets
35,396

 
35,371

Railroad equipment
1,058

 
1,057

Railcars and locomotives
3,429

 
3,429

Computer hardware and software
3,490

 
3,105

Furniture and fixtures
544

 
544

Vehicles
1,480

 
1,480

 
555,955

 
528,925

Less: accumulated depreciation
(45,595
)
 
(40,605
)
Spare parts
1,692

 
1,629

Property, plant and equipment, net
$
512,052

 
$
489,949

During the three months ended March 31, 2018 and 2017, additional property, plant and equipment of $27,131 and $14,960 was acquired, respectively. Acquisitions primarily consist of terminal machinery and equipment, and computer hardware and software due to the ongoing development of Jefferson Terminal and Repauno.
During the three months ended March 31, 2018 and 2017, disposals of property, plant and equipment totaled $38 and $52, respectively.
Depreciation expense for property, plant and equipment is summarized as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Depreciation expense for property, plant and equipment
 
$
4,996

 
$
3,304


17

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

6.
INVESTMENTS
The following table presents the ownership interests and carrying values of the Company’s investments:
 
 
 
 
 
Carrying Value
 
Investment
 
Ownership Percentage
 
March 31, 2018
 
December 31, 2017
Advanced Engine Repair JV
Equity method
 
25%
 
$
13,500

 
$
13,724

JGP Energy Partners LLC
Equity method
 
50%
 
26,184

 
24,920

Intermodal Finance I, Ltd.
Equity method
 
51%
 
4,018

 
3,894

Investments
 
 
 
 
$
43,702

 
$
42,538

The Company did not recognize any other-than-temporary impairments for the three months ended March 31, 2018 and 2017.
Equity Method Investments
Advanced Engine Repair JV
In December 2016, the Company invested $15,000 for 25% interest in an advanced engine repair joint venture. The Company will initially focus on developing new costs savings programs for engine repairs. The Company exercises significant influence over this investment and accounts for this investment as an equity method investment. The Company’s proportionate share of equity in losses was $224 and $736 for the three months ended March 31, 2018 and 2017, respectively.
JGP
In 2016, the Company initiated activities in a 50% non-controlling interest in JGP, a joint venture. JGP is governed by a designated operating committee selected by the members in proportion to their equity interests. JGP is solely reliant on its members to finance its activities and therefore is a variable interest entity. The Company concluded it is not the primary beneficiary of JGP as the members share equally in the risks and rewards and decision making authority of the entity; therefore, the Company does not consolidate JGP and instead accounts for this investment in accordance with the equity method. The Company’s proportionate share of equity in earnings (losses) was $148 and $(65) for the three months ended March 31, 2018 and 2017, respectively.
Intermodal Finance I, Ltd.
In 2012, the Company acquired a 51% non-controlling interest in Intermodal Finance I, Ltd. (“Intermodal”), a joint venture. Intermodal is governed by a board of directors, and its shareholders have voting rights through their equity interests. As such, Intermodal is not within the scope of ASC 810-20 and should be evaluated for consolidation under the voting interest model. Due to the existence of substantive participating rights of the 49% equity investor, including the joint approval of material operating and capital decisions, such as material contracts and capital expenditures consistent with ASC 810-10-25-11, the Company does not have unilateral rights over this investment; therefore, the Company does not consolidate Intermodal but accounts for this investment in accordance with the equity method. The Company does not have a variable interest in this investment as none of the criteria of ASC 810-10-15-14 were met.
As of March 31, 2018, Intermodal owns a portfolio of multiple finance leases, representing five customers and comprising approximately 24,000 shipping containers, as well as a portfolio of approximately 8,000 shipping containers subject to multiple operating leases. The Company’s proportionate share of equity in earnings (losses) was $171 and $(465) for the three months ended March 31, 2018 and 2017, respectively.

18

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The table below presents summarized financial information for the Company’s equity method investments:
 
 
 
Three Months Ended
Income Statement
 
March 31, 2018
 
March 31, 2017
Revenue
 
$
4,100

 
$
1,621

Total Revenue
 
4,100

 
1,621

Expenses
 
 
 
 
 
Total Expenses
 
$
4,454

 
$
5,709

 
 
 
 
 
 
Net loss
 
$
(354
)
 
$
(4,088
)
Company’s portion
 
$
95

 
$
(1,266
)

7.
INTANGIBLE ASSETS AND LIABILITIES, NET
The Company’s intangible assets and liabilities, net are summarized as follows:
 
March 31, 2018
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
37,775

 
$
—

 
$
—

 
$
37,775

Less: Accumulated amortization
(22,645
)
 
—

 
—

 
(22,645
)
Acquired favorable lease intangibles, net
15,130

 
—

 
—

 
15,130

Customer relationships
—

 
35,513

 
225

 
35,738

Less: Accumulated amortization
—

 
(12,714
)
 
(176
)
 
(12,890
)
Acquired customer relationships, net
—

 
22,799

 
49

 
22,848

Total intangible assets, net
$
15,130

 
$
22,799

 
$
49

 
$
37,978

 
 
 
 
 
 
 
 
Intangible liabilities
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
2,732

 
$
—

 
$
—

 
$
2,732

Less: Accumulated amortization
(1,576
)
 
—

 
—

 
(1,576
)
Acquired unfavorable lease intangibles, net
$
1,156

 
$
—

 
$
—

 
$
1,156


19

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
December 31, 2017
 
Aviation Leasing
 
Jefferson Terminal
 
Railroad
 
Total
Intangible assets
 
 
 
 
 
 
 
Acquired favorable lease intangibles
$
36,747

 
$
—

 
$
—

 
$
36,747

Less: Accumulated amortization
(20,452
)
 
—

 
—

 
(20,452
)
Acquired favorable lease intangibles, net
16,295

 
—

 
—

 
16,295

Customer relationships
—

 
35,513

 
225

 
35,738

Less: Accumulated amortization
—

 
(11,825
)
 
(165
)
 
(11,990
)
Acquired customer relationships, net
—

 
23,688

 
60

 
23,748

Total intangible assets, net
$
16,295

 
$
23,688

 
$
60

 
$
40,043

 
 
 
 
 
 
 
 
Intangible liabilities
 
 
 
 
 
 
 
Acquired unfavorable lease intangibles
$
2,732

 
$
—

 
$
—

 
$
2,732

Less: Accumulated amortization
(1,374
)
 
—

 
—

 
(1,374
)
Acquired unfavorable lease intangibles, net
$
1,358

 
$
—

 
$
—

 
$
1,358

Intangible liabilities relate to unfavorable lease intangibles and are included as a component of other liabilities in the accompanying Consolidated Balance Sheets.
Amortization of intangible assets and liabilities is recorded in the Consolidated Statements of Operations as follows:
 
Classification in Consolidated Statements of Operations
 
 
Three Months Ended March 31,
 
 
 
 
2018
 
2017
Lease intangibles
Equipment leasing revenues
 
 
$
1,992

 
$
1,282

Customer relationships
Depreciation and amortization
 
 
900

 
900

Total
 
 
 
$
2,892

 
$
2,182

As of March 31, 2018, estimated net annual amortization of intangibles is as follows:
 
Total
2018
$
8,176

2019
7,733

2020
6,383

2021
5,003

2022
3,596

Thereafter
5,931

Total
$
36,822


20

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

8.
DEBT, NET
The Company’s debt, net is summarized as follows:
 
March 31, 2018
 
December 31, 2017
Loans payable
 
 
 
FTAI Pride Credit Agreement
$
52,431

 
$
53,993

CMQR Credit Agreement
17,350

 
22,800

Revolving Credit Facility
—

 
—

Jefferson Revolver
13,511

 
—

Total loans payable
83,292

 
76,793

Bonds payable
 
 
 
Series 2012 Bonds(1)
44,389

 
44,404

Series 2016 Bonds
144,200

 
144,200

Senior Notes(2)
449,316

 
449,290

Total bonds payable
637,905

 
637,894


 
 
 
Debt
721,197

 
714,687

Less: Debt issuance costs
(10,559
)
 
(11,423
)
Total debt, net
$
710,638

 
$
703,264

 
 
 
 
Total debt due within one year
$
7,795

 
$
7,795

(1) Includes unamortized premium of $1,624 and $1,639 at March 31, 2018 and December 31, 2017, respectively.
(2) Includes unamortized discount of $6,177 and $6,506 at March 31, 2018 and December 31, 2017, respectively and an unamortized premium of $5,493 and $5,796 at March 31, 2018 and December 31, 2017, respectively.
FTAI Pride Credit Agreement—On September 15, 2014, FTAI Pride, LLC, (“FTAI Pride”) a subsidiary of the Company entered into a credit agreement (the “FTAI Pride Credit Agreement”) with a financial institution for a term loan in an aggregate amount of $75,000. The loan proceeds were used in connection with the acquisition of an offshore construction vessel. The FTAI Pride Credit Agreement requires quarterly payments of interest and scheduled principal payments of $1,562 beginning in the quarter ending December 31, 2015, through its maturity in September 2019 and can be prepaid without penalty at any time. The FTAI Pride Credit Agreement is secured on a first priority basis by the offshore construction vessel. Borrowings under the FTAI Pride Credit Agreement bear interest at the LIBOR rate plus a spread of 4.50%.
The FTAI Pride Credit Agreement contains affirmative and negative covenants which limit certain actions of the borrower and a financial covenant requiring the borrower to maintain a Fixed Charges Coverage Ratio, as defined, of not less than 1.15:1.00 in any twelve month period ending December 31, 2014, or later.
CMQR Credit Agreement—On June 30, 2017, CMQR amended its credit agreement (the “CMQR Credit Agreement”) with a financial institution for a revolving line of credit to increase the aggregate amount from $20,000 to $25,000 and to extend the maturity date to September 18, 2019. Borrowings under the CMQR Credit Agreement bear interest at either (i) Adjusted LIBOR plus a spread of 2.50% or 4.50%, (ii) the U.S. or Canadian Base Rate plus a spread of 1.50% or 3.50%, or (iii) the Canadian Fixed Rate plus a spread of 2.50% or 4.50%, as defined by the CMQR Credit Agreement. The weighted-average effective interest rate as of March 31, 2018 and December 31, 2017 was 4.28% and 3.95%, respectively.
The CMQR Credit Agreement is also indirectly supported by Fortress Transportation and Infrastructure Investors LLC (the “Sponsor”). In the event of a default under the credit agreement, CMQR’s lenders can cause CMQR to call up to a total of $29,000 in capital from the Sponsor, and in the event of CMQR’s bankruptcy, the lenders can put the debt back to the Sponsor. The CMQR Credit Agreement contains affirmative and negative covenants which limit certain actions of CMQR.
Series 2012 Bonds—On August 1, 2012, Jefferson County Development Corporation issued $46,875 of tax-exempt industrial bonds (“Series 2012 Bonds”), to specifically fund construction and operation of an intermodal transfer facility for crude oil and refined petroleum products. The proceeds of this issuance were loaned to Jefferson Terminal, to be held in trust, as restricted cash, to ensure adherence to the restrictions of use of the funds. Use of the proceeds requires approval from a trustee prior to release of funds. Such restricted cash may only be released to us after payment of applicable reserves, including a six-month interest reserve, and expenses, as determined by the trustee. The Series 2012 Bonds have a stated maturity of July 1, 2032, bear interest at 8.25%, and require scheduled principal payments. The principal of the Series 2012 Bonds is payable annually at varying amounts.

21

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

In connection with the Company’s acquisition of Jefferson Terminal, the Series 2012 Bonds were recorded at a fair value of $48,554, which represented a premium of $1,823 as compared to their face value at the date of acquisition; such premium is being amortized using the effective interest method over the remaining contractual term of the Series 2012 Bonds.
The Series 2012 Bond agreement contains a financial covenant requiring a subsidiary of the Company to maintain a long-term debt service coverage ratio, as defined in the agreement, of 1.25 to 1, in each fiscal year, beginning with December 31, 2014.
Series 2016 Bonds—On March 7, 2016, the Port of Beaumont Navigation District of Jefferson County, Texas (the “District”) issued $144,200 of Dock and Wharf Facility Revenue Bonds, Series 2016 (Jefferson Energy Companies Project) (the “Series 2016 Bonds”). Proceeds from the issuance of the Series 2016 Bonds were used, in part, to reimburse Jefferson Railport Terminal II, LLC (“Jefferson Railport II”) for certain costs related to the development, construction and acquisition of certain facilities for the transport, loading, unloading, and storage of petroleum products (the “Facilities”) on behalf of the District, and settle the Jefferson Terminal Credit Agreement. Construction of the Facilities has occurred, and will occur, on property leased by the District to Jefferson Railport II pursuant to a First Amended and Restated Ground Lease between Jefferson Railport II, as lessee, and the District, as lessor. All such Facilities will be leased by the District to Jefferson Railport II pursuant to a Lease and Development Agreement between the District and Jefferson Railport II.
The transaction described above did not qualify for sale-leaseback accounting due to the continuing involvement of the Company resulting from the mandatory tender feature and, as a result, the leases were classified as a financing transaction in the Company’s consolidated financial statements. Under the financing method, the assets constructed or to be constructed will remain on the consolidated balance sheet and the net proceeds received by the Company are recorded as financial debt. Payments under these leases are recorded as interest expense and reduction of principal in accordance with the terms of the bond agreement with annual interest payments and a principal repayment at February 13, 2020 barring a remarketing of the bond on new terms. 
Under a Capital Call Agreement, the Company has agreed to make funds available to Jefferson Holdings in order to satisfy its obligation under the Standby Bond Purchase Agreement. The Capital Call Agreement contains certain covenants applicable to the Company, including a negative lien covenant regarding Aviation Assets, as defined therein, as well as maintenance of a minimum total asset value of Aviation Assets and minimum total equity of the Company. In connection with the above, and related to the Series 2016 Bonds, a subsidiary of the Company and an affiliate of its Manager entered into a Fee and Support Agreement with FTAI Energy Partners LLC and certain of its subsidiaries. The Fee and Support Agreement provides that both such subsidiary of the Company and affiliate of the Manager will effectively guarantee a pro rata portion of the obligations under the Standby Bond Purchase Agreement in return for a guarantee fee of $6,873 (shared on the same pro rata basis). This fee will be amortized as interest expense to the earlier of the redemption date or February 13, 2020.
The Series 2016 Bonds bear interest at an initial rate of 7.25% and require scheduled interest payments. The Series 2016 Bonds have a stated maturity of February 1, 2036 but are subject to mandatory tender for purchase at par on February 13, 2020 if they have not been repurchased from proceeds of a remarketing of the Series 2016 Bonds or redeemed prior to such date. In the event all of the Series 2016 Bonds are not repurchased from proceeds of a remarketing or redeemed at February 13, 2020, Jefferson Railport and Jefferson Railport Terminal II Holdings LLC (“Jefferson Holdings”), a Delaware limited liability company and parent of Jefferson Railport II, have agreed to purchase the Series 2016 Bonds from the Holders thereof at par pursuant to a Standby Bond Purchase Agreement. In addition, pursuant to the Standby Purchase Agreement, Jefferson Holdings will guarantee the payment of all Rent (as defined in the Facilities Lease), and all principal of and premium and interest on the Series 2016 Bonds payable prior to repurchase or redemption at February 13, 2020.
Term Loan—On January 23, 2017, the Company entered into an unsecured credit agreement under which the Company, through its wholly owned subsidiaries, including the Partnership and WWTAI Finance Ltd., an exempted company incorporated with limited liability under the laws of Bermuda, borrowed $100,000 in term loans denominated in U.S. dollars (the “Term Loans”). The proceeds of the Term Loan are to be used for general corporate purposes, including future acquisitions by the Company and its subsidiaries of certain aviation and infrastructure assets. The Term Loans bear interest at the Base Rate (determined in accordance with the agreement) plus 2.75% per annum, or at the Adjusted Eurodollar Rate (determined in accordance with the agreement) plus 3.75% per annum, if the Company chooses to make Eurodollar Rate borrowings. The Term Loans mature on January 22, 2018, subject to the Company’s right to elect a one year extension, and require amortization payments in the amount of $250 on the last day of each fiscal quarter beginning on March 31, 2017. On March 15, 2017, all amounts outstanding under the Term Loan were repaid in full and the agreement was terminated. Accordingly, during the three months ended March 31, 2017, the Company recorded a loss on extinguishment of debt of $2,456.
Senior Notes—On March 15, 2017, the Company issued $250,000 aggregate principal amount of 6.75% senior unsecured notes due 2022 (the “Senior Notes”). The Senior Notes were issued pursuant to an indenture, dated as of March 15, 2017, between the Company and U.S. Bank National Association, as trustee. On August 23, 2017, the Company issued an additional $100,000 of Senior Notes. The additional notes were issued at an offering price of 102.75% of the principal amount plus accrued interest from March 15, 2017 to the date of issuance. On December 20, 2017, the Company issued an additional $100,000 of Senior Notes. The additional notes issued on December 20, 2017 were issued at an offering price of 103.25% of the principal amount plus accrued interest from September 15, 2017.

22

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The Senior Notes bear interest at a rate of 6.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2017, to persons who are registered holders of the Senior Notes on the immediately preceding March 1 and September 1, respectively.
The Senior Notes mature on March 15, 2022. Prior to March 15, 2020, the Company may redeem some or all of the Senior Notes at a redemption price equal to 100.00% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, plus a “make-whole” premium. On or after March 15, 2020, the Company may redeem some or all of the Senior Notes at any time at declining redemption prices equal to (i) 105.063% beginning on March 15, 2020, and (ii) 100.000% beginning on March 15, 2021 and thereafter, plus, in each case, accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, at any time on or prior to March 15, 2020, the Company may at any time redeem up to 40% of the aggregate principal amount of the Senior Notes using net proceeds from certain equity offerings at a redemption price equal to 106.75% of the principal amount of the Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date.
The Company used a portion of the proceeds to fully repay all outstanding indebtedness under the Company’s Term Loan in the amount of $100,000, payment of fees related to the issuance of Senior Notes, and to fund the purchase of additional investments. The Company intends to use the remainder of the proceeds for general corporate purposes, including the funding of future investments.
Revolving Credit Facility—On June 16, 2017, the Company entered into a revolving credit facility (the “Revolving Credit Facility”) with certain lenders. The Revolving Credit Facility provides for revolving loans in the aggregate principal amount of up to $75,000, of which $25,000 may be utilized for the issuance of letters of credit. The proceeds drawn on this facility will be used for working capital and general corporate purposes, including, without limitation, permitted acquisitions and other investments. The Revolving Credit Facility is secured by the capital stock of certain direct subsidiaries of the Company as defined in the related credit agreement.
Borrowings outstanding under the Revolving Credit Facility bear interest at the Adjusted Eurodollar Rate (determined in accordance with the credit agreement) plus 3.00% per annum, if the Company chooses to make Eurodollar Rate borrowings, or at the Base Rate (determined in accordance with the credit agreement) plus 2.00% per annum. The Company will also be required to pay a quarterly commitment fee at a rate per annum equal to 0.50% on the average daily unused portion of the Revolving Credit Facility, as well as customary letter of credit fees and agency fees.
The Revolving Credit Facility will mature, and commitments in respect of the Revolving Credit Facility will terminate, on June 16, 2020. Any amount borrowed under the Revolving Credit Facility may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of Eurodollar Rate borrowings.
The Revolving Credit Facility includes financial covenants requiring the maintenance of (1) a minimum ratio of the appraised value of certain aviation assets to the aggregate commitments under the revolving credit facility of 3.00 to 1.00 and (2) a maximum ratio of debt to total equity (before reduction for minority interests) for the Company and its subsidiaries of 1.65 to 1.00 per the terms of the credit agreement.
At March 31, 2018 and December 31, 2017, the Company had no borrowings outstanding under the Revolving Credit Facility.
Jefferson Revolving Credit Facility—On March 7, 2018, a subsidiary of the Company entered into a revolving credit facility (the “Jefferson Revolver”) with certain lenders. The Jefferson Revolver provides for revolving loans in the aggregate principal amount of up to $50,000. The proceeds drawn on this facility will be used for working capital and general purposes. The Jefferson Revolver is secured by the capital stock of certain direct subsidiaries of the Company as defined in the related credit agreement.
Borrowings outstanding under the Jefferson Revolver bear interest at the Base Rate (determined in accordance with the credit agreement) plus 1.50% per annum, or if the Company chooses to make Eurodollar Rate borrowings, at the Base Rate (determined in accordance with the credit agreement) plus 2.50% per annum. The Company will also be required to pay a quarterly commitment fee at a rate per annum equal to 0.50% on the average daily unused portion of the Jefferson Revolver, as well as customary letter of credit fees and agency fees.
The Jefferson Revolver will mature, and commitments in respect to the Jefferson Revolver will terminate, on March 7, 2021. Any amount borrowed under the Jefferson Revolver may be voluntarily prepaid without penalty or premium, other than customary breakage costs related to prepayments of Eurodollar Rate borrowings.
The Jefferson Revolver includes financial covenants requiring the maintenance of a maximum ratio of debt to total equity (before reduction for minority interests) for the Company and its subsidiaries of 1.65 to 1.00.
At March 31, 2018, the Company had $13,511 in borrowings outstanding under the Jefferson Revolver.
The Company was in compliance with all debt covenants as of March 31, 2018.

23

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

9.
FAIR VALUE MEASUREMENTS
Fair value measurements and disclosures require the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize use of unobservable inputs. These inputs are prioritized as follows:
•
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs.
•
Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop its own assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
•
Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
•
Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts.
•
Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The following tables set forth the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017, by level within the fair value hierarchy. Assets measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
 
Fair Value as of
 
Fair Value Measurements Using Fair Value Hierarchy as of
 
 
 
March 31, 2018
 
March 31, 2018
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
80,916

 
$
80,916

 
$
—

 
$
—

 
Market
Restricted cash
25,823

 
25,823

 
—

 
—

 
Market
Total
$
106,739

 
$
106,739

 
$
—

 
$
—

 

 
 
 
 
 
 
 
 
 
 
 
Fair Value as of
 
Fair Value Measurements Using Fair Value Hierarchy as of
 
 
 
December 31, 2017
 
December 31, 2017
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Valuation Technique
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
59,400

 
$
59,400

 
$
—

 
$
—

 
Market
Restricted cash
33,406

 
33,406

 
—

 
—

 
Market
Total
$
92,806

 
$
92,806

 
$
—

 
$
—

 

At March 31, 2018 and December 31, 2017, the Company had no liabilities that were measured at fair value on a recurring basis.
The Company’s cash and cash equivalents and restricted cash consist largely of demand deposit accounts with maturities of 90 days or less when purchased that are considered to be highly liquid. These instruments are valued using inputs observable in active markets for identical instruments and are therefore classified as Level 1 within the fair value hierarchy.
Except as discussed below, the Company’s financial instruments other than cash and cash equivalents and restricted cash consist principally of accounts receivable, accounts payable and accrued liabilities, loans payable, bonds payable, security deposits, maintenance deposits and management fees payable, whose fair value approximates their carrying value based on an evaluation of pricing data, vendor quotes, and historical trading activity or due to their short maturity profiles.

24

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

As of March 31, 2018 and December 31, 2017, the Company recorded a derivative asset related to short-term forward crude contracts in other assets. The fair value of the short-term derivative asset was $398 and $1,022 at March 31, 2018 and December 31, 2017, respectively, and was classified as Level 3 within the fair value hierarchy.
The fair value of the Company’s bonds and notes payable reported as debt, net in the Consolidated Balance Sheet are presented in the table below:
 
Fair Value as of
 
March 31, 2018
 
December 31, 2017
Series 2012 Bonds(1)
$
44,670

 
$
45,691

Series 2016 Bonds(1)
$
149,545

 
$
150,329

Senior Notes(2)
$
449,316

 
$
449,290

______________________________________________________________________________________ 
(1) Fair value is based upon market prices for similar municipal securities
(2) Carrying value approximates the market prices
The fair value of all other items reported as debt, net in the Consolidated Balance Sheet approximate their carrying values due to their bearing market rates of interest, and are classified as Level 2 within the fair value hierarchy.
The Company measures the fair value of certain assets and liabilities on a non-recurring basis when GAAP requires the application of fair value, including events or changes in circumstances that indicate that the carrying amounts of assets may not be recoverable. Assets subject to these measurements include goodwill, intangible assets, property, plant and equipment and leasing equipment. The Company records such assets at fair value when it is determined the carrying value may not be recoverable. Fair value measurements for assets subject to impairment tests are based on an income approach which uses Level 3 inputs, which include the Company’s assumptions as to future cash flows from operation of the underlying businesses and the leasing and eventual sale of assets.


25

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

10. REVENUES
Components of revenue are as follows:
 
Three Months Ended March 31, 2018
 
Equipment Leasing

Infrastructure
 

Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
29,308

 
$
2,249

 
$
—

 
$
—

 
$
—

 
$
—

 
$
31,557

Maintenance revenue
23,427

 
—

 
—

 
—

 
—

 
—

 
23,427

Finance lease income
—

 
367

 
—

 
—

 
—

 
—

 
367

Other revenue
—

 
408

 
25

 
—

 
—

 
—

 
433

Total equipment leasing revenues
52,735

 
3,024

 
25

 
—

 
—

 
—

 
55,784

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
—

 
—

 
—

 
—

 
—

 
382

 
382

Rail revenues
—

 
—

 
—

 
—

 
11,047

 
—

 
11,047

Terminal services revenues
—

 
—

 
—

 
1,253

 
—

 
—

 
1,253

Other revenue
—

 
—

 
—

 
—

 
—

 
378

 
378

Total infrastructure revenues
—

 
—

 
—

 
1,253

 
11,047

 
760

 
13,060

Total revenues
$
52,735

 
$
3,024

 
$
25

 
$
1,253

 
$
11,047

 
$
760

 
$
68,844

 
Three Months Ended March 31, 2017
 
Equipment Leasing
 
Infrastructure
 
 
Revenues
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Equipment leasing revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Lease income
$
17,635

 
$
611

 
$
—

 
$
—

 
$
—

 
$
—

 
$
18,246

Maintenance revenue
12,669

 
—

 
—

 
—

 
—

 
—

 
12,669

Finance lease income
—

 
386

 
—

 
—

 
—

 
—

 
386

Other revenue
2

 
60

 
25

 
—

 
—

 
—

 
87

Total equipment leasing revenues
30,306

 
1,057

 
25

 
—

 
—

 
—

 
31,388

Infrastructure revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 Lease income
—

 
—

 
—

 
—

 
—

 
16

 
16

 Rail revenues
—

 
—

 
—

 
—

 
8,403

 
—

 
8,403

 Terminal services revenues
—

 
—

 
—

 
4,866

 
—

 
—

 
4,866

Total infrastructure revenues
—

 
—

 
—

 
4,866

 
8,403

 
16

 
13,285

Total revenues
$
30,306

 
$
1,057

 
$
25

 
$
4,866

 
$
8,403

 
$
16

 
$
44,673


26

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

Presented below are the contracted minimum future annual revenues to be received under existing operating leases across several market sectors as of March 31, 2018:
 
Total
2018
$
103,657

2019
89,129

2020
58,598

2021
37,443

2022
19,437

Thereafter
8,617

Total
$
316,881

11. EQUITY-BASED COMPENSATION
In 2015, the Company established a Nonqualified Stock Option and Incentive Award Plan (“Incentive Plan”) which provides for the ability to award equity compensation awards in the form of stock options, stock appreciation rights, restricted stock, and performance awards to eligible employees, consultants, directors, and other individuals who provide services to the Company, each as determined by the Compensation Committee of the Board of Directors.
As of March 31, 2018, the Incentive Plan provides for the issuance of up to 30 million shares. The Company accounts for equity-based compensation expense in accordance with Accounting Standards Codification 718 Compensation-Stock Compensation (“ASC 718”) and is reported within operating expenses and general and administrative in the Consolidated Statements of Operations.
The Consolidated Statements of Operations includes the following expense related to its stock-based compensation arrangements:
 
 
Three Months Ended March 31,
 
Remaining Expense To Be Recognized, If All Vesting Conditions Are Met
Weighted Average Remaining Contractual Term, (in years)
 
 
2018
 
2017
 
Stock Options
 
$
9

 
$
—

 
$
—

8.22
Restricted Shares
 
90

 
59

 
416

3.10
Common Units
 
109

 
28

 
485

1.45
Total
 
$
208

 
$
87

 
$
901

 
Stock Options
In the three months ended March 31, 2018, the Company granted equity-based compensation awards of 10,000 stock options to its two new independent directors (5,000 options each) pursuant to the Incentive Plan with a grant date fair value of $9 which immediately vested upon grant and expire after 10 years. The fair value of each option was estimated on the grant date using a Black-Scholes option valuation model using the following weighted average assumptions:
Expected volatility
The expected stock volatility is based on an assessment of the stock volatility of the Company’s publicly traded stock over the preceding 12-month period
19.3
%
Risk free interest rate
The risk-free rate is determined using the implied yield currently available on U.S. government bonds with a term consistent with the expected term on the date of grant
2.7
%
Expected dividend yield
The expected dividend yield is based on management’s currently expected dividend rate
7.2
%
Expected term
Expected term used represents the period of time the options granted are expected to be outstanding
5 years


27

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

12. INCOME TAXES
The current and deferred components of the income tax provision included in the Consolidated Statements of Operations are as follows: 
 
Three Months Ended March 31,
 
2018
 
2017
Current:
 
 
 
Federal
$
129

 
$
121

State and local
19

 
53

Foreign
17

 
21

Total current provision
165

 
195

 
 
 
 
Deferred:
 
 
 
Federal
288

 
4

State and local
42

 
—

Foreign
—

 
13

Total deferred provision
330

 
17

 
 
 
 
Total provision for income taxes
$
495

 
$
212

The Company is taxed as a flow-through entity for U.S. income tax purposes and its taxable income or loss generated is the responsibility of its owners. Taxable income or loss generated by the Company’s corporate subsidiaries is subject to U.S. federal, state and foreign corporate income tax in locations where they conduct business.
The Company’s effective tax rate differs from the U.S. federal tax rate of 21% primarily due to a significant portion of its income not being subject to U.S. corporate tax rates, or being deemed to be foreign sourced and thus either not taxable or taxable at effectively lower tax rates.
As of and for the three month period ended March 31, 2018, the Company had not established a liability for uncertain tax positions as no such positions existed. In general, the Company’s tax returns and the tax returns of its corporate subsidiaries are subject to U.S. federal, state, local and foreign income tax examinations by tax authorities. Generally, the Company is not subject to examination by taxing authorities for tax years prior to 2014. The Company does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date of March 31, 2018.
On December 22, 2017, legislation referred to as the “Tax Cuts and Jobs Act” (the “TCJA”) was signed into law. The TCJA significantly revises the U.S. corporate income tax regime by, among other things, lowering corporate income tax rates. The Company has accounted for the effects of the TCJA for the year ended December 31, 2017 which relates to the remeasurement of deferred tax assets and liabilities due to the reduction in the corporate income tax rate. Due to the significant portion of the Company’s income that is not subject to entity level tax and the presence of a significant valuation allowance, the effects of the TCJA have had a minimal impact on the income tax provision for the year ended December 31, 2017.
13. MANAGEMENT AGREEMENT AND AFFILIATE TRANSACTIONS
The Manager is paid annual fees in exchange for advising the Company on various aspects of its business, formulating its investment strategies, arranging for the acquisition and disposition of assets, arranging for financing, monitoring performance, and managing its day-to-day operations, inclusive of all costs incidental thereto. In addition, the Manager may be reimbursed for various expenses incurred by the Manager on the Company’s behalf, including the costs of legal, accounting and other administrative activities. Additionally, the Company has entered into certain incentive allocation arrangements with Master GP, which owns 0.05% of the Partnership and is the general partner of the Partnership.
The Manager is entitled to a management fee, incentive allocations (comprised of income incentive allocation and capital gains incentive allocation, defined below) and reimbursement of certain expenses. The management fee is determined by taking the average value of total equity (excluding non-controlling interests) determined on a consolidated basis in accordance with GAAP at the end of the two most recently completed months multiplied by an annual rate of 1.50%, and is payable monthly in arrears in cash. The total management fees for the three months ended March 31, 2018 and 2017 were $3,739 and $3,893, respectively.

28

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The income incentive allocation is calculated and distributable quarterly in arrears based on the pre-incentive allocation net income for the immediately preceding calendar quarter (the “Income Incentive Allocation”). For this purpose, pre-incentive allocation net income means, with respect to a calendar quarter, net income attributable to shareholders during such quarter calculated in accordance with GAAP excluding the Company’s pro rata share of (1) realized or unrealized gains and losses, and (2) certain non-cash or one-time items, and (3) any other adjustments as may be approved by the Company’s independent directors. Pre-incentive allocation net income does not include any Income Incentive Allocation or Capital Gains Incentive Allocation (described below) paid to the Master GP during the relevant quarter.
A subsidiary of the Company allocates and distributes to the Master GP an Income Incentive Allocation with respect to its pre-incentive allocation net income in each calendar quarter as follows: (1) no Income Incentive Allocation in any calendar quarter in which pre-incentive allocation net income, expressed as a rate of return on the average value of the Company’s net equity capital (excluding non-controlling interests) at the end of the two most recently completed calendar quarters, does not exceed 2% for such quarter (8% annualized); (2) 100% of pre-incentive allocation net income with respect to that portion of such pre-incentive allocation net income, if any, that is equal to or exceeds 2% but does not exceed 2.2223% for such quarter; and (3) 10% of the amount of pre-incentive allocation net income, if any, that exceeds 2.2223% for such quarter. These calculations will be prorated for any period of less than three months. No Income Incentive Allocation was due to the Master GP for the three months ended March 31, 2018 and 2017.
Capital Gains Incentive Allocation is calculated and distributable in arrears as of the end of each calendar year and is equal to 10% of the Company’s pro rata share of cumulative realized gains from the date of the IPO through the end of the applicable calendar year, net of the Company’s pro rata share of cumulative realized or unrealized losses, the cumulative non-cash portion of equity-based compensation expenses and all realized gains upon which prior performance-based Capital Gains Incentive Allocation payments were made to the Master GP. No Capital Gains Incentive Allocation was due to the Master GP for the three months ended March 31, 2018 and 2017.
The Company will pay all of its operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. The expenses required to be paid by the Company include, but are not limited to, issuance and transaction costs incident to the acquisition, disposition and financing of the company’s assets, legal and auditing fees and expenses, the compensation and expenses of the Company’s independent directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of the Company (including commitment fees, legal fees, closing costs, etc.), expenses associated with other securities offerings of the Company, costs and expenses incurred in contracting with third parties (including affiliates of the Manager), the costs of printing and mailing proxies and reports to the Company’s shareholders, costs incurred by the Manager or its affiliates for travel on the Company’s behalf, costs associated with any computer software or hardware that is used for the Company, costs to obtain liability insurance to indemnify the Company’s directors and officers and the compensation and expenses of the Company’s transfer agent.
The Company will pay or reimburse the Manager and its affiliates for performing certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants. The Manager is responsible for all of its other costs incident to the performance of its duties under the Management Agreement, including compensation of the Manager’s employees, rent for facilities and other “overhead” expenses; the Company will not reimburse the Manager for these expenses. During the three months ended March 31, 2018 and 2017, expense reimbursement of $2,181 and $2,204 was recorded in general and administrative expenses, respectively, and $1,604 and $1,150 was recorded in acquisition and transaction expenses, respectively, in the Consolidated Statements of Operations.
If the Company terminates the Management Agreement, it will generally be required to pay the Manager a termination fee. The termination fee is equal to the amount of the management fee during the 12 months immediately preceding the date of the termination. In addition, an Incentive Allocation Fair Value Amount will be distributable to the Master GP if the Master GP is removed due to the termination of the Management Agreement in certain specified circumstances. The Incentive Allocation Fair Value Amount is an amount equal to the Income Incentive Allocation and the Capital Gains Incentive Allocation that would be paid to the Master GP if the Company’s assets were sold for cash at their then current fair market value (as determined by an appraisal, taking into account, among other things, the expected future value of the underlying investments).
Upon the successful completion of a post-IPO offering of the Company’s common shares or other equity securities (including securities issued as consideration in an acquisition), the Company will grant the Manager options to purchase common shares in an amount equal to 10% of the number of common shares being sold in the offering (or if the issuance relates to equity securities other than the Company’s common shares, options to purchase a number of common shares equal to 10% of the gross capital raised in the equity issuance divided by the fair market value of a common share as of the date of issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a common share as of the date of the equity issuance if it relates to equity securities other than our common shares). Any ultimate purchaser of common shares for which such options are granted may be an affiliate of Fortress. The Manager was granted 700,000 options as part of the equity offering in the first quarter of 2018 as discussed in Note 15.

29

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

As of March 31, 2018 and December 31, 2017, no amounts were recorded as a receivable from the Manager. As of March 31, 2018 and December 31, 2017, amounts due to the Manager or its affiliates of $1,155 and $2,073, respectively, excluding accrued management fees, are included within accounts payable and accrued liabilities on the Consolidated Balance Sheets. As of March 31, 2018 and December 31, 2017, amounts due to the Manager or its affiliates of $1,360 and $1,228, respectively, related to accrued management fees, are included within accounts payable and accrued liabilities on the Consolidated Balance Sheets.
Other Affiliate Transactions
As of March 31, 2018 and December 31, 2017 an affiliate of the Company’s Manager owns an approximately 20% interest in Jefferson Terminal which has been accounted for as a component of non-controlling interest in consolidated subsidiaries in the accompanying consolidated financial statements. The carrying amount of this non-controlling interest at March 31, 2018 and December 31, 2017 was $59,811 and $66,242, respectively. For the three months ended March 31, 2018 and 2017, the amount of this non-controlling interest share of net loss was $4,764 and $2,558, respectively.
In connection with the Capital Call Agreement related to the Series 2016 Bonds discussed in Note 8, the Company and an affiliate of its Manager entered into a Fee and Support Agreement. The Fee and Support Agreement provides that the affiliate of the Manager is compensated for its guarantee of a portion of the obligations under the Standby Bond Purchase Agreement. This affiliate of the Manager received fees of $1,740, which are amortized as interest expense to the earlier of the redemption date or February 13, 2020.
14. SEGMENT INFORMATION
The Company’s reportable segments represent strategic business units comprised of investments in different types of transportation and infrastructure assets. The Company has six reportable segments which operate in the Equipment Leasing and Infrastructure businesses across several market sectors. The Company’s reportable segments are (i) Aviation Leasing, (ii) Offshore Energy, (iii) Shipping Containers, (iv) Jefferson Terminal, (v) Railroad, and (vi) Ports and Terminals. Aviation Leasing consists of aircraft and aircraft engines held for lease and are typically held long-term. Offshore Energy consists of vessels and equipment that support offshore oil and gas drilling and production which are typically subject to long-term operating leases. Shipping Containers consists of an investment in an unconsolidated entity engaged in the acquisition and leasing of shipping containers (on both an operating lease and finance lease basis). Jefferson Terminal consists of a multi-modal crude oil and refined products terminal and other related assets. Railroad consists of our CMQR railroad operations. Ports and Terminals consists of Repauno, which is a 1,630 acre deep-water port located along the Delaware river with an underground storage cavern and multiple industrial development opportunities, and Long Ridge, which is a 1,660 acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities.
Corporate consists primarily of unallocated Company level general and administrative expenses, and management fees. The accounting policies of the segments are the same as those described in the summary of significant accounting policies; however, financial information presented by segment includes the impact of intercompany eliminations. The Company evaluates investment performance for each reportable segment primarily based on net income attributable to shareholders and Adjusted Net Income.
Adjusted Net Income is defined as net income attributable to shareholders, adjusted (a) to exclude the impact of provision for 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, and equity in earnings of unconsolidated entities; (b) to include the impact of cash income tax payments, the Company’s pro-rata share of the Adjusted Net Income from unconsolidated entities (collectively “Adjusted Net Income”), and (c) to exclude the impact of the non-controlling share of Adjusted Net Income.
The Company believes that net income attributable to shareholders, as defined by GAAP, is the most appropriate earnings measurement with which to reconcile Adjusted Net Income. Adjusted Net Income should not be considered as an alternative to net income attributable to shareholders as determined in accordance with GAAP.

30

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The following tables set forth certain information for each reportable segment of the Company:
I. For the Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2018
 
Equipment Leasing
 
Infrastructure
 

 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment leasing revenues
$
52,735

 
$
3,024

 
$
25

 
$
—

 
$
—

 
$
—

 
$
—

 
$
55,784

Infrastructure revenues
—

 
—

 
—

 
1,253

 
11,047

 
760

 
—

 
13,060

Total revenues
52,735

 
3,024

 
25

 
1,253

 
11,047

 
760

 
—

 
68,844

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
3,433

 
2,368

 
—

 
11,959

 
7,438

 
2,381

 
—

 
27,579

General and administrative
—

 
—

 
—

 
—

 
—

 
—

 
3,586

 
3,586

Acquisition and transaction expenses
157

 
—

 
—

 
—

 
—

 
—

 
1,609

 
1,766

Management fees and incentive allocation to affiliate
—

 
—

 
—

 
—

 
—

 
—

 
3,739

 
3,739

Depreciation and amortization
21,813

 
1,602

 
—

 
4,790

 
573

 
809

 
—

 
29,587

Interest expense
—

 
873

 
—

 
3,528

 
345

 
272

 
6,853

 
11,871

Total expenses
25,403

 
4,843

 
—

 
20,277

 
8,356

 
3,462

 
15,787

 
78,128

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in (losses) earnings of unconsolidated entities
(224
)
 
—

 
171

 
148

 
—

 
—

 
—

 
95

(Loss) gain on sale of equipment, net
(20
)
 
—

 
—

 
—

 
15

 
—

 
—

 
(5
)
Interest income
73

 
3

 
—

 
100

 
—

 
—

 
—

 
176

Other income
—

 
—

 
—

 
180

 
—

 
—

 
—

 
180

Total other (expense) income
(171
)
 
3

 
171

 
428

 
15

 
—

 
—

 
446

Income (loss) before income taxes
27,161

 
(1,816
)
 
196

 
(18,596
)
 
2,706

 
(2,702
)
 
(15,787
)
 
(8,838
)
Provision for (benefit from) income taxes
483

 
3

 
(1
)
 
11

 
—

 
(1
)
 
—

 
495

Net income (loss)
26,678

 
(1,819
)
 
197

 
(18,607
)
 
2,706

 
(2,701
)
 
(15,787
)
 
(9,333
)
Less: Net (loss) income attributable to non-controlling interests in consolidated subsidiaries
(24
)
 
—

 
—

 
(8,949
)
 
206

 
6

 
—

 
(8,761
)
Net income (loss) attributable to shareholders
$
26,702

 
$
(1,819
)
 
$
197

 
$
(9,658
)
 
$
2,500

 
$
(2,707
)
 
$
(15,787
)
 
$
(572
)








31

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The following table sets forth a reconciliation of Adjusted Net Income (Loss) to net loss attributable to shareholders:
 
Three Months Ended March 31, 2018
 
Equipment Leasing
 
Infrastructure
 

 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Adjusted Net Income (Loss)
$
27,342

 
$
(1,816
)
 
$
196

 
$
(8,723
)
 
$
2,543

 
$
(2,645
)
 
$
(14,169
)
 
$
2,728

Add: Non-controlling share of adjustments to Adjusted Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(198
)
Add: Equity in earnings of unconsolidated entities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
95

Add: Cash payments for income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9
)
Less: Incentive allocations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Pro-rata share of Adjusted Net Income from investments in unconsolidated entities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(95
)
Less: Asset impairment charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Changes in fair value of non-hedge derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(624
)
Less: Losses on the modification or extinguishment of debt and capital lease obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Acquisition and transaction expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,766
)
Less: Equity-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(208
)
Less: Provision for income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(495
)
Net loss attributable to shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(572
)
Summary information with respect to the Company’s geographic sources of revenue, based on location of customer, is as follows:
 
Three Months Ended March 31, 2018
 
Equipment Leasing
 
Infrastructure
 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Africa
$
1,385

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,385

Asia
9,209

 
2,658

 
25

 
—

 
—

 
—

 
11,892

Europe
34,918

 
—

 
—

 
—

 
—

 
—

 
34,918

North America
7,133

 
366

 
—

 
1,253

 
11,047

 
760

 
20,559

South America
90

 
—

 
—

 
—

 
—

 
—

 
90

Total
$
52,735

 
$
3,024

 
$
25

 
$
1,253

 
$
11,047

 
$
760

 
$
68,844




32

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

II. For the Three Months Ended March 31, 2017
 
Three Months Ended March 31, 2017
 
Equipment Leasing
 
Infrastructure
 

 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment leasing revenues
$
30,306

 
$
1,057

 
$
25

 
$
—

 
$
—

 
$
—

 
$
—

 
$
31,388

Infrastructure revenues
—

 
—

 
—

 
4,866

 
8,403

 
16

 
—

 
13,285

Total revenues
30,306

 
1,057

 
25

 
4,866

 
8,403

 
16

 
—

 
44,673

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
1,419

 
3,543

 
—

 
7,613

 
7,544

 
894

 
—

 
21,013

General and administrative
—

 
—

 
—

 
—

 
—

 
—

 
3,835

 
3,835

Acquisition and transaction expenses
215

 
—

 
—

 
—

 
—

 
—

 
1,237

 
1,452

Management fees and incentive allocation to affiliate
—

 
—

 
—

 
—

 
—

 
—

 
3,893

 
3,893

Depreciation and amortization
11,289

 
1,607

 
—

 
3,951

 
526

 
4

 
—

 
17,377

Interest expense
—

 
924

 
—

 
1,437

 
199

 
274

 
1,860

 
4,694

Total expenses
12,923

 
6,074

 
—

 
13,001

 
8,269

 
1,172

 
10,825

 
52,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity in losses of unconsolidated entities
(736
)
 
—

 
(465
)
 
(65
)
 
—

 
—

 
—

 
(1,266
)
Gain (loss) on sale of equipment and finance leases, net
2,032

 
—

 
—

 
—

 
(14
)
 
—

 
—

 
2,018

Loss on extinguishment of debt
—

 
—

 
—

 
—

 
—

 
—

 
(2,456
)
 
(2,456
)
Interest income
83

 
3

 
—

 
197

 
—

 
—

 
—

 
283

Other income
—

 
—

 
—

 
12

 
—

 
—

 
—

 
12

Total other income (expense)
1,379

 
3

 
(465
)
 
144

 
(14
)
 
—

 
(2,456
)
 
(1,409
)
Income (loss) before income taxes
18,762

 
(5,014
)
 
(440
)
 
(7,991
)
 
120

 
(1,156
)
 
(13,281
)
 
(9,000
)
Provision (benefit from) for income taxes
193

 
2

 
(25
)
 
39

 
—

 
3

 
—

 
212

Net income (loss)
18,569

 
(5,016
)
 
(415
)
 
(8,030
)
 
120

 
(1,159
)
 
(13,281
)
 
(9,212
)
Less: Net (loss) income attributable to non-controlling interests in consolidated subsidiaries
(82
)
 
(248
)
 
—

 
(4,358
)
 
4

 
(114
)
 
—

 
(4,798
)
Net income (loss) attributable to shareholders
$
18,651

 
$
(4,768
)
 
$
(415
)
 
$
(3,672
)
 
$
116

 
$
(1,045
)
 
$
(13,281
)
 
$
(4,414
)

33

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

The following table sets forth a reconciliation of Adjusted Net Loss to net loss attributable to shareholders:
 
Three Months Ended March 31, 2017
 
Equipment Leasing
 
Infrastructure
 
 
 
 
 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Adjusted Net Income (Loss)
$
19,059

 
$
(4,766
)
 
$
(440
)
 
$
(3,614
)
 
$
142

 
$
(1,042
)
 
$
(9,588
)
 
$
(249
)
Add: Non-controlling share of adjustments to Adjusted Net Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39

Add: Equity in losses of unconsolidated entities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,266
)
Add: Cash payments for income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3

Less: Incentive allocations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Pro-rata share of Adjusted Net Income from investments in unconsolidated entities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,266

Less: Asset impairment charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Changes in fair value of non-hedge derivative instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

Less: Losses on the modification or extinguishment of debt and capital lease obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,456
)
Less: Acquisition and transaction expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,452
)
Less: Equity-based compensation income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(87
)
Less: Provision for income taxes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(212
)
Net loss attributable to shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(4,414
)
Summary information with respect to the Company’s geographic sources of revenue, based on location of customer, is as follows:
 
Three Months Ended March 31, 2017
 
Equipment Leasing
 
Infrastructure
 

 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Total
Revenues

 

 

 

 

 
 
 
 
Africa
$
2,367

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
2,367

Asia
14,769

 
671

 
25

 
—

 
—

 
—

 
15,465

Europe
11,470

 
—

 
—

 
—

 
—

 
—

 
11,470

North America
1,405

 
386

 
—

 
4,866

 
8,403

 
16

 
15,076

South America
295

 
—

 
—

 
—

 
—

 
—

 
295

Total
$
30,306

 
$
1,057

 
$
25

 
$
4,866

 
$
8,403

 
$
16

 
$
44,673





34

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

V. Balance Sheet and location of long-lived assets
The following tables sets forth summarized balance sheet information and the geographic location of property, plant and equipment and leasing equipment, net as of March 31, 2018 and December 31, 2017:

March 31, 2018

Equipment Leasing

Infrastructure
 
 
 
 



Aviation Leasing

Offshore Energy

Shipping Containers

Jefferson Terminal

Railroad

Ports and Terminals
 
Corporate

Total
Total assets
$
1,002,582

 
$
194,420

 
$
4,624

 
$
577,547

 
$
53,126

 
$
146,594

 
$
68,933

 
$
2,047,826

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt, net
—

 
52,084

 
—

 
198,869

 
17,150

 
—

 
442,535

 
710,638

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
148,500

 
55,398

 
99

 
216,892

 
31,937

 
19,691

 
448,815

 
921,332

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling interests in equity of consolidated subsidiaries
3,013

 
—

 
—

 
72,556

 
2,988

 
364

 
524

 
79,445

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
854,082

 
139,022

 
4,525

 
360,655

 
21,189

 
126,903

 
(379,882
)
 
1,126,494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
$
1,002,582

 
$
194,420

 
$
4,624

 
$
577,547

 
$
53,126

 
$
146,594

 
$
68,933

 
$
2,047,826

 
March 31, 2018
 
Equipment Leasing
 
Infrastructure
 
 
 
 
 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Property, plant and equipment and leasing equipment, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Africa
$
48,371

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
48,371

Asia
243,632

 
161,496

 
—

 
—

 
—

 
—

 
—

 
405,128

Europe
495,156

 


 
—

 
—

 
—

 
—

 
—

 
495,156

North America
127,136

 
—

 
—

 
374,227

 
42,110

 
136,004

 
—

 
679,477

South America
12,413

 
—

 
—

 
—

 
—

 
—

 
—

 
12,413

Total
$
926,708

 
$
161,496

 
$
—

 
$
374,227

 
$
42,110

 
$
136,004

 
$
—

 
$
1,640,545


35

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

 
December 31, 2017
 
Equipment Leasing
 
Infrastructure
 
 
 
 
 
 
 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Total assets
$
952,543

 
$
195,101

 
$
4,429

 
$
579,329

 
$
51,989

 
$
123,693

 
$
48,722

 
$
1,955,806

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt, net
—

 
53,590

 
—

 
184,942

 
22,513

 
—

 
442,219

 
703,264

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
145,882

 
56,853

 
100

 
210,159

 
36,560

 
14,229

 
456,948

 
920,731

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-controlling interests in equity of consolidated subsidiaries
3,037

 
—

 
—

 
81,414

 
2,737

 
295

 
524

 
88,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
806,661

 
138,248

 
4,329

 
369,170

 
15,429

 
109,464

 
(408,226
)
 
1,035,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and equity
$
952,543

 
$
195,101

 
$
4,429

 
$
579,329

 
$
51,989

 
$
123,693

 
$
48,722

 
$
1,955,806

 
December 31, 2017
 
Equipment Leasing
 
Infrastructure
 
 
 
 
 
Aviation Leasing
 
Offshore Energy
 
Shipping Containers
 
Jefferson Terminal
 
Railroad
 
Ports and Terminals
 
Corporate
 
Total
Property, plant and equipment and leasing equipment, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Africa
$
36,648

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
36,648

Asia
210,152

 
163,072

 
—

 
—

 
—

 
—

 
—

 
373,224

Europe
527,166

 
—

 
—

 
—

 
—

 
—

 
—

 
527,166

North America
96,525

 
—

 
—

 
371,687

 
40,512

 
118,317

 
—

 
627,041

South America
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
870,491

 
$
163,072

 
$
—

 
$
371,687

 
$
40,512

 
$
118,317

 
$
—

 
$
1,564,079



36

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

15. EARNINGS PER SHARE AND EQUITY
Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding. Diluted EPS is calculated by dividing net income (loss) attributable to shareholders by the weighted average number of common shares outstanding, plus potentially dilutive securities. Potentially dilutive securities are calculated using the treasury stock method.
The calculation of basic and diluted EPS is presented below:
 
 
Three Months Ended March 31,
(in thousands, except share and per share data)
 
2018
 
2017
Net loss attributable to shareholders
 
$
(572
)
 
$
(4,414
)
Weighted Average Shares Outstanding - Basic
 
81,534,454

 
75,762,283

Weighted Average Shares Outstanding - Diluted
 
81,534,454

 
75,762,283

 
 
 
 
 
Basic and Diluted EPS
 
$
(0.01
)
 
$
(0.06
)
For the three months ended March 31, 2018 and 2017, 47,189 and 2,149 shares, respectively, have been excluded from the calculation of Diluted EPS because the impact would be anti-dilutive.
During the three months ended March 31, 2018, the Company issued 7,000,000 common shares, par value $0.01 per share, representing limited liability interest in the Company, in connection with a public offering, at a price of $18.65 per share. The offering closed on January 16, 2018. Net proceeds received by the Company from the offering were $128,450 after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. To compensate the Manager for its successful efforts in raising capital for the Company, in connection with the offering, the Company granted options to the Manager related to 700,000 common shares at the public offering price which had a fair value of approximately $1,900 as of the grant date. The assumptions used in valuing the options were: a 2.52% risk-free rate, a 5.45% dividend yield, a 27.73% volatility and a ten-year term. The Company intends to use the net proceeds from the offering for general corporate purposes, including the funding of future investments.
16. COMMITMENTS AND CONTINGENCIES
In the normal course of business the Company and its subsidiaries may be involved in various claims, legal proceedings, or may enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. Within the Company’s Offshore Energy segment, a lessee did not fulfill their obligation under their charter arrangement, therefore the Company is pursuing rights afforded to the Company under the charter and the range of potential losses against the obligation is $0 to $3,334. The Company’s maximum exposure under other arrangements is unknown as no additional claims have been made. The Company believes the risk of loss in connection with such arrangements is remote.
The Company has also entered into an arrangement with its non-controlling interest holder of Repauno, whereby the non-controlling interest holder may receive additional payments contingent upon the achievement of certain conditions, not to exceed $15,000. The Company will account for such amounts when and if such conditions are achieved.
The Company has entered into an arrangement with the seller of Long Ridge, whereby the seller may receive additional payments contingent upon the achievement of certain conditions, not to exceed $5,000. The Company will account for such amounts when and if such conditions are achieved.
Several of the Company’s subsidiaries are lessees under various operating and capital leases. Total rent expense for operating leases was as follows:
 
Three Months Ended March 31,
 
2018
 
2017
Rent expense
$
1,157

 
$
1,241


37

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(Dollar amounts in thousands, unless otherwise noted)

As of March 31, 2018, minimum future rental payments under operating and capital leases are as follows:
2018
$
3,991

2019
5,079

2020
4,039

2021
2,739

2022
2,227

Thereafter
69,040

Total
$
87,115

17. SUBSEQUENT EVENTS
On April 12, 2018, the Company drew down on the Revolving Credit Facility for $25,000 which will bear interest at the 3-month LIBOR interest plus applicable margin per terms of the agreement.
On May 3, 2018, the Company’s Board of Directors declared a cash dividend on its common shares of $0.33 per share for the quarter ended March 31, 2018, payable on May 29, 2018 to the holders of record on May 17, 2018.

38




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”). The Company’s MD&A should be read in conjunction with its 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 are 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, 2018, we had total consolidated assets of $2.0 billion and total equity of $1.1 billion.
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. The Company targets or develops 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 our corporate operating segment and the following six reportable segments: (i) Aviation Leasing, (ii) Offshore Energy, (iii) Shipping Containers, all of which are within Equipment Leasing Business, and (iv) Jefferson Terminal, (v) Railroad and (vi) Ports and Terminals, 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 Offshore Energy segment consists of vessels and equipment that support offshore oil and gas activities and are typically subject to long-term operating leases. The Shipping Containers segment consists of an investment in an unconsolidated entity engaged in the leasing of shipping containers on both an operating lease and finance lease basis. The Jefferson Terminal segment consists of a multi-modal crude and refined products terminal and other related assets which were acquired in 2014. The Railroad segment consists of our Central Maine and Quebec Railway (“CMQR”) short line railroad operations also acquired in 2014. The Ports and Terminals segment consists of Repauno, acquired in 2016, a 1,630 acre deep-water port located along the Delaware river with an underground storage cavern and multiple industrial development opportunities, and Long Ridge, acquired in June 2017, a 1,660 acre multi-modal port located along the Ohio River with rail, dock, and multiple industrial development opportunities.
The Corporate operating segment primarily consists of unallocated corporate general and administrative expenses, and management fees.
The Company’s 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 the summary of significant accounting policies; however, financial information presented by segment includes the impact of intercompany eliminations.
Our Manager
On December 27, 2017, SoftBank Group Corp. (“SoftBank”) announced that it completed its previously announced acquisition of Fortress (the “SoftBank Merger”). In connection with the Merger, Fortress operates within SoftBank as an independent business headquartered in New York.

39



Results of Operations
Adjusted Net Income (Loss) (Non-GAAP)
The Chief Operating Decision Maker (“CODM”) utilizes Adjusted Net Income (Loss) as the key performance measure. This performance measure provides the CODM with the information necessary to assess operational performance, as well as make resource and allocation decisions.
Adjusted Net Income (Loss) is defined as net income (loss) attributable to shareholders, adjusted (a) to exclude the impact of provision for 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, and equity in earnings of unconsolidated entities, (b) to include the impact of cash income tax payments, and our pro-rata share of the Adjusted Net Income (Loss) from unconsolidated entities, and (c) to exclude the impact of the non-controlling share of Adjusted Net Income (Loss). We evaluate investment performance for each reportable segment primarily based on Adjusted Net Income (Loss). We believe that net income attributable to shareholders, as defined by GAAP, is the most comparable earnings measurement with which to reconcile Adjusted Net Income (Loss).  
Adjusted EBITDA (Non-GAAP)
We view Adjusted EBITDA as a secondary measurement to Adjusted Net Income (Loss), which we believe serves as a useful supplement to investors, analysts and management to measure economic performance of deployed revenue generating assets between periods on a consistent basis, and which we believe measures our financial performance and helps identify operational factors that management can impact in the short-term, namely our cost structure and expenses. Adjusted EBITDA may not be comparable to similarly titled measures of other companies because other entities may not calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA is defined as net income (loss) attributable to shareholders, adjusted (a) to exclude the impact of provision for 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 of unconsolidated entities and the non-controlling share of Adjusted EBITDA.



40


Comparison of the three months ended March 31, 2018 and March 31, 2017
The following table presents our consolidated results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Income (Loss) for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Equipment leasing revenues
 
 
 
 
 
 
Lease income
 
$
31,557

 
$
18,246

 
$
13,311

Maintenance revenue
 
23,427

 
12,669

 
10,758

Finance lease income
 
367

 
386

 
(19
)
Other revenue
 
433

 
87

 
346

Total equipment leasing revenues
 
55,784

 
31,388

 
24,396

Infrastructure revenues
 
 
 
 
 
 
 Lease income
 
382

 
16

 
366

 Rail revenues
 
11,047

 
8,403

 
2,644

 Terminal services revenues
 
1,253

 
4,866

 
(3,613
)
 Other revenue
 
378

 
—

 
378

Total infrastructure revenues
 
13,060

 
13,285

 
(225
)
Total revenues
 
68,844

 
44,673

 
24,171

 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
27,579

 
21,013

 
6,566

General and administrative
 
3,586

 
3,835

 
(249
)
Acquisition and transaction expenses
 
1,766

 
1,452

 
314

Management fees and incentive allocation to affiliate
 
3,739

 
3,893

 
(154
)
Depreciation and amortization
 
29,587

 
17,377

 
12,210

Interest expense
 
11,871

 
4,694

 
7,177

Total expenses
 
78,128

 
52,264

 
25,864


 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
Equity in earnings (losses) of unconsolidated entities
 
95

 
(1,266
)
 
1,361

(Loss) gain on sale of equipment, net
 
(5
)
 
2,018

 
(2,023
)
Loss on extinguishment of debt
 
—

 
(2,456
)
 
2,456

Interest income
 
176

 
283

 
(107
)
Other income
 
180

 
12

 
168

Total other income (expense)
 
446

 
(1,409
)
 
1,855

Loss before income taxes
 
(8,838
)
 
(9,000
)
 
162

Provision for income taxes
 
495

 
212

 
283

Net loss
 
(9,333
)
 
(9,212
)
 
(121
)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
 
(8,761
)
 
(4,798
)
 
(3,963
)
Net loss attributable to shareholders
 
$
(572
)
 
$
(4,414
)
 
$
3,842


41


 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Add: Provision for income taxes
 
495

 
212

 
283

Add: Equity-based compensation expense
 
208

 
87

 
121

Add: Acquisition and transaction expenses
 
1,766

 
1,452

 
314

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
2,456

 
(2,456
)
Add: Changes in fair value of non-hedge derivative instruments
 
624

 
—

 
624

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities(1)
 
95

 
(1,266
)
 
1,361

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
9

 
(3
)
 
12

Less: Equity in (earnings) losses of unconsolidated entities
 
(95
)
 
1,266

 
(1,361
)
Less: Non-controlling share of Adjusted Net Income (Loss) (2)
 
198

 
(39
)
 
237

Adjusted Net Income (Loss)
 
$
2,728

 
$
(249
)
 
$
2,977

______________________________________________________________________________________ 
(1) Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities includes the Company’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above.
(2) Non-controlling share of Adjusted Net Income (Loss) is comprised of the following for the three months ended March 31, 2018 and 2017: (i) equity-based compensation of $37 and $25, (ii) provision for income tax of $4 and $15, and (iii) changes in fair value of non-hedge derivative instruments of $(244) and $0, less (iv) cash tax payments of $(5) and $1, respectively.
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
 
 
2018
 
2017
 
 
(in thousands)
Net loss attributable to shareholders
 
$
(572
)
 
$
(4,414
)
 
$
3,842

Add: Provision for income taxes
 
495

 
212

 
283

Add: Equity-based compensation expense
 
208

 
87

 
121

Add: Acquisition and transaction expenses
 
1,766

 
1,452

 
314

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
2,456

 
(2,456
)
Add: Changes in fair value of non-hedge derivative instruments
 
624

 
—

 
624

Add: Asset impairment charges
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Add: Depreciation and amortization expense (3)
 
36,814

 
19,306

 
17,508

Add: Interest expense
 
11,871

 
4,694

 
7,177

Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (4)
 
175

 
(680
)
 
855

Less: Equity in (earnings) losses of unconsolidated entities
 
(95
)
 
1,266

 
(1,361
)
Less: Non-controlling share of Adjusted EBITDA (5)
 
(3,165
)
 
(2,242
)
 
(923
)
Adjusted EBITDA (non-GAAP)
 
$
48,121

 
$
22,137

 
$
25,984

_______________________________________________________
(3) Depreciation and amortization expense includes $29,587 and $17,377 of depreciation and amortization expense, $1,992 and $1,283 of lease intangible amortization, and $5,235 and $646 of amortization for lease incentives in the three months ended March 31, 2018 and 2017, respectively.
(4) Pro-rata share of Adjusted EBITDA from unconsolidated entities includes the following items for the three months ended March 31, 2018 and 2017: (i) net income (loss) of $48 and $(1,309), (ii) interest expense of $112 and $251, and (iii) depreciation and amortization expense of $15 and $378, respectively.

42


(5) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended March 31, 2018 and 2017: (i) equity based compensation of $37 and $24, (ii) provision for income taxes of $4 and $15, (iii) interest expense of $1,292 and $529, (iv) depreciation and amortization expense of $2,076 and $1,674, and (v) changes in fair value of non-hedge derivative instruments of $(244) and $0, respectively.
Revenues
For the three months ended March 31, 2018, total revenues increased $24,171 compared to the three months ended March 31, 2017 due to higher revenues in our Aviation Leasing, Offshore Energy, Railroad and Ports and Terminals segments. These increases were partially offset by a decrease in the Jefferson Terminal segment.
In Equipment Leasing, lease income increased $13,311 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to an increase in the number of assets on lease in the Aviation Leasing segment. Additionally, we continued to increase the number of aircraft and engines subject to leases with maintenance arrangements resulting in an increase to our maintenance revenue of $10,758.
In Infrastructure, rail revenues increased $2,644 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to higher traffic related to a detour resulting in the diversion of trains onto our track. Lease income increased $366 in the three months ended March 31, 2018 from a lease contract at Long Ridge, which was acquired in June 2017. The increases were offset by lower Jefferson Terminal revenue of $3,613 primarily due to lower volumes.
Expenses
For the three months ended March 31, 2018 total expenses increased $25,864 compared to the three months ended March 31, 2017 mainly due to higher (i) operating expenses (ii) depreciation and amortization and (iii) interest expense.
Operating expenses increased $6,566 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to increases in (i) facility operations of $1,525 primarily in the Jefferson Terminal segment, (ii) bad debt expense of $1,410 related to the write-off of receivables in the Aviation Leasing segment, (iii) repairs and maintenance expense of $796 primarily due to maintenance costs in Jefferson Terminal and (iv) compensation and benefits of $766 primarily reflecting hiring in the Ports & Terminals and Railroad segments. Additionally, there were increases in other operating expenses related to business growth.
Depreciation and amortization increased $12,210 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to additional assets acquired and placed on lease in the Aviation Leasing segment.
Interest expense increased $7,177 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily related to interest on the Senior Notes and the Revolving Credit Facility. Refer to the Note 8 of the Consolidated Financial Statements for further detail.
Other Income (Expense)
For the three months ended March 31, 2018, total other income (expense) increased $1,855 compared to the three months ended March 31, 2017. The increase in income in 2018 primarily reflects the $2,456 loss on extinguishment of debt in the three months ended March 31, 2017 period, there was no loss on extinguishment of debt in 2018. Additionally, there was $1,361 in increased equity in earnings of unconsolidated entities primarily related to our Shipping Containers segment. Partially offsetting these increases was a $2,023 lower gain on the sale of equipment compared to the prior year period.
Net Loss
Net loss attributable to shareholders for the three months ended March 31, 2018 decreased $3,842 compared to the same period in 2017, primarily due to the changes discussed above.
Adjusted Net Income (Loss) (Non-GAAP)
Adjusted Net Income (Loss) increased $2,977 for the three months ended March 31, 2018 compared to the same period in 2017, primarily due to the changes in revenue, expenses and other income (expense) noted above, and a lower pro-rata share of Adjusted Net Loss compared to 2017. Partially offsetting the increase was lower losses on the extinguishment of debt of $2,456 in 2018 compared to 2017 and equity in earnings of $95 in 2018 compared to equity in losses of $1,266 in 2017.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $48,121 for the three months ended March 31, 2018, an increase of $25,984 compared to the same period of 2017. In addition to the changes in revenue, expenses and income/(loss) noted above, which resulted in a net decrease in loss attributable to shareholders, the change was primarily due to (i) increased depreciation and amortization expense from additional assets acquired and placed into service, (ii) increased interest expense, and (iii) increased pro-rata share of Adjusted EBITDA from unconsolidated entities. Partially offsetting these changes were changes in (i) the losses on extinguishment of debt, (ii) equity in losses of unconsolidated entities and (iii) non-controlling share of Adjusted EBITA.

43


Aviation Leasing Segment
As of March 31, 2018, in our Aviation Leasing segment, we own and manage 163 aviation assets, consisting of 58 commercial aircraft and 105 jet engines.
As of March 31, 2018, 50 of our commercial aircraft and 82 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 87% utilized as of March 31, 2018, based on the equity value of our on-hire leasing equipment as a percentage of the total equity value of our aviation leasing equipment. Our aircraft currently have a weighted average remaining lease term of 27 months, and our engines currently on-lease have an average remaining lease term of 11 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, 2018
9

 
39

 
48

Purchases
1

 
7

 
8

Sales
—

 
—

 
—

Transfers
—

 
2

 
2

Assets at March 31, 2018
10

 
48

 
58

 
 
 
 
 
 
Engines
 
 
 
 
 
Assets at January 1, 2018
57

 
53

 
110

Purchases
2

 
1

 
3

Sales
—

 
(4
)
 
(4
)
Transfers
—

 
(4
)
 
(4
)
Assets at March 31, 2018
59

 
46

 
105



44


The following table presents our results of operations and reconciliation of net income attributable to shareholders to Adjusted Net Income for the Aviation Leasing segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Equipment leasing revenues
 
 
 
 
 
 
Lease income
 
$
29,308

 
$
17,635

 
$
11,673

Maintenance revenue
 
23,427

 
12,669

 
10,758

Other revenue
 
—

 
2

 
(2
)
Total revenues
 
52,735

 
30,306

 
22,429

 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
3,433

 
1,419

 
2,014

Acquisition and transaction expenses
 
157

 
215

 
(58
)
Depreciation and amortization
 
21,813

 
11,289

 
10,524

Total expenses
 
25,403

 
12,923

 
12,480

 
 
 
 
 
 
 
Other (expense) income
 
 
 
 
 
 
Equity losses of unconsolidated entities
 
(224
)
 
(736
)
 
512

(Loss) gain on sale of equipment, net
 
(20
)
 
2,032

 
(2,052
)
Interest income
 
73

 
83

 
(10
)
Total other (expense) income
 
(171
)
 
1,379

 
(1,550
)
Income before income taxes
 
27,161

 
18,762

 
8,399

Provision for income taxes
 
483

 
193

 
290

Net income
 
26,678

 
18,569

 
8,109

Less: Net income attributable to non-controlling interest in consolidated subsidiaries
 
(24
)
 
(82
)
 
58

Net income attributable to shareholders
 
$
26,702

 
$
18,651

 
$
8,051

Add: Provision for income taxes
 
483

 
193

 
290

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
157

 
215

 
(58
)
Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income from unconsolidated entities(1)
 
(224
)
 
(736
)
 
512

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in losses of unconsolidated entities
 
224

 
736

 
(512
)
Less: Non-controlling share of Adjusted Net Income
 
—

 
—

 
—

Adjusted Net Income
 
$
27,342

 
$
19,059

 
$
8,283

(1) Pro-rata share of Adjusted Net Income from unconsolidated entities includes Aviation Leasing’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above, for which there were no adjustments.

45


The following table sets forth a reconciliation of net income attributable to shareholders to Adjusted EBITDA for the Aviation Leasing segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
 
 
2018
 
2017
 
(Dollar amounts in thousands)

Net income attributable to shareholders
 
$
26,702

 
$
18,651

 
$
8,051

Add: Provision for income taxes
 
483

 
193

 
290

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
157

 
215

 
(58
)
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)
 
29,040

 
13,218

 
15,822

Add: Interest expense
 
—

 
—

 
—

Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities
 
(224
)
 
(736
)
 
512

Less: Equity in losses of unconsolidated entities
 
224

 
736

 
(512
)
Less: Non-controlling share of Adjusted EBITDA
 
(172
)
 
(41
)
 
(131
)
Adjusted EBITDA (non-GAAP)
 
$
56,210

 
$
32,236

 
$
23,974

______________________________________________________________________________________ 
(2) Depreciation and amortization expense includes (i) $21,813 and $11,289 of depreciation expense, (ii) $1,992 and $1,283 of lease intangible amortization, and (iii) $5,235 and $646 of amortization for lease incentives in the three months ended March 31, 2018 and 2017, respectively.
Revenues
Total revenues increased $22,429 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, due to higher lease income and maintenance revenue reflecting newly acquired assets. Lease income increased $11,673 primarily due to higher aircraft lease income of $6,863 reflecting an additional 29 aircraft on lease partially offset by the redelivery of three aircraft. Engine lease income increased $4,810 primarily driven by an increase in the number of engines which generated revenue from 47 to 87 in the three months ended March 31, 2017 and 2018, respectively. Maintenance revenue increased $10,758 due to a higher number of aircraft and engines on lease. Engine maintenance and aircraft maintenance revenue increased $6,497 and $4,261, respectively, in the three months ended March 31, 2018 compared to the three months ended March 31, 2017.
Expenses
Total expenses increased $12,480 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to an increase in depreciation and amortization and an increase in operating expenses. Depreciation and amortization increased by $10,524 reflecting the depreciation of additional aircraft and engines owned or put on lease in the three months ended March 31, 2018. Operating expenses increased $2,014 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily reflecting increases in (i) bad debt expense of $1,436 related to receivables deemed uncollectible, (ii) professional fees of $153 due to an increased number of assets on lease, (iii) aviation shipping expense of $152 due to the positioning of our assets for lease and (iv) other operating expense of $273 due to the overall growth of the aviation portfolio.
Other Income
Total other income decreased $1,550 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 reflecting a $20 loss on the sale of leasing equipment in 2018 compared to a $2,032 gain in 2017 partially offset by a $512 decrease in equity losses of unconsolidated entities.
Adjusted Net Income (Non-GAAP)
Adjusted Net Income was $27,342 for the three months ended March 31, 2018 increasing $8,283 compared to the three months ended March 31, 2017, primarily reflecting the changes to net income attributable to shareholders noted above, adjusted for the provision for income taxes, and acquisition and transaction expenses.

46


Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $56,210 for the three months ended March 31, 2018 increasing $23,974 compared to the three months ended March 31, 2017. In addition to the changes in net income attributable to shareholders noted above, this movement was primarily due to higher depreciation and amortization expense for the additional aircraft and engines owned and on lease in the three months ended March 31, 2018 and higher provision for income tax.
Offshore Energy Segment
In our Offshore Energy segment, we own one remotely operated vehicle (“ROV”) support vessel, one construction support vessel and one anchor handling tug supply (“AHTS”) vessel. The chart below describes the assets in our Offshore Energy segment as of March 31, 2018:
  Offshore Energy Assets
Asset Type
Year Built
Description
AHTS Vessel
2010
Anchor handling tug supply vessel with accommodation for 30 personnel and a total bollard pull of 68.5 tons
Construction Support Vessel
2014
DP-3 construction support and well intervention vessel with 250-ton main crane, 2,000 square meter open deck space, moon pool and accommodation for 100 personnel
ROV Support Vessel
2011
DP-2 dive and ROV support vessel with 50-ton crane, moon pool and accommodation for 120 personnel


47


The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for the Offshore Energy segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Equipment leasing revenues
 
 
 
 
 
 
Lease income
 
$
2,249

 
$
611

 
$
1,638

Finance lease income
 
367

 
386

 
(19
)
Other revenue
 
408

 
60

 
348

Total revenues
 
3,024

 
1,057

 
1,967

 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
2,368

 
3,543

 
(1,175
)
Depreciation and amortization
 
1,602

 
1,607

 
(5
)
Interest expense
 
873

 
924

 
(51
)
Total expenses
 
4,843

 
6,074

 
(1,231
)
 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
Interest income
 
3

 
3

 
—

Total other income
 
3

 
3

 
—

Loss before income taxes
 
(1,816
)
 
(5,014
)
 
3,198

Provision for income taxes
 
3

 
2

 
1

Net loss
 
(1,819
)
 
(5,016
)
 
3,197

Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
 
—

 
(248
)
 
248

Net loss attributable to shareholders
 
$
(1,819
)
 
$
(4,768
)
 
$
2,949

Add: Provision for income taxes
 
3

 
2

 
1

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income from unconsolidated entities
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted Net Income
 
—

 
—

 
—

Adjusted Net Loss
 
$
(1,816
)
 
$
(4,766
)
 
$
2,950



48


    
The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for the Offshore Energy segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
 
 
2018
 
2017
 
(Dollar amounts in thousands)

Net loss attributable to shareholders
 
$
(1,819
)
 
$
(4,768
)
 
$
2,949

Add: Provision for income taxes
 
3

 
2

 
1

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Add: Depreciation and amortization expense
 
1,602

 
1,607

 
(5
)
Add: Interest expense
 
873

 
924

 
(51
)
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)
 
—

 
(95
)
 
95

Adjusted EBITDA (non-GAAP)
 
$
659

 
$
(2,330
)
 
$
2,989

________________________________________________________
(1) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended March 31, 2018 and 2017: (i) depreciation expense of $0 and $62 and (ii) interest expense of $0 and $33.
Revenues
Total revenues increased $1,967 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to higher lease income and other revenue. The increase in lease income reflects the ROV support vessel having been on a long-term lease arrangement in 2018 compared to 2017 when a long-term lease arrangement was entered into towards the end of March. Other revenue increased $348 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to the crew provisions reimbursement income for the offshore construction support vessel.
Expenses
For the three months ended March 31, 2018, total expenses decreased $1,231 compared to the prior year period primarily due to decreases in operating expenses.
Operating expenses decreased $1,175 in the three months ended March 31, 2018 compared to the prior period reflecting lower (i) legal fees of $975, (ii) mobilization and cost for spare parts of $304 and (iii) other operating expenses of $227 partially offset by increased project costs of $197 and crew costs of $134.
During the three months ended March 31, 2018, there was depreciation expense of $1,194 and $408 related to the construction support vessel and ROV support vessel, respectively, consistent to the prior period.
During the three months ended March 31, 2018, there was interest expense of $873 and $0 primarily related to financing for the construction support vessel and ROV support vessel, respectively. During the three months ended March 31, 2017, there was interest expense of $891 and $33 primarily related to financing for the construction support vessel and ROV support vessel, respectively. The note relating to the ROV support vessel was settled during the third quarter of 2017 due to the transfer of interest from the non-controlling interest holder to the Company.
Adjusted Net Loss (Non-GAAP)
Adjusted Net Loss decreased $2,950 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The decrease is primarily due to the changes to net loss attributable to shareholders described above.

49


Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA increased $2,989 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase is primarily due to the changes to net loss attributable to shareholders described above.
Shipping Containers Segment
In our Shipping Containers segment, we own, through a joint venture an interest in approximately 32,000 maritime shipping containers and related equipment through one portfolio. The chart below describes the assets in our Shipping Containers segment as of March 31, 2018:
Shipping Containers Assets
Number of Containers
Type
Average Age
Lease Type
Customer Mix
Economic Interest (%)
32,000
20’ Dry
20’ Reefer
40’ Dry
40’ HC Dry
40’ HC Reefer
~10 Years
Direct Finance Lease/Operating Lease
5 Customers
51%

50


The following table presents our results of operations and reconciliation of Net income (loss) attributable to shareholders to Adjusted Net Income (Loss) for the Shipping Containers segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Equipment leasing revenues
 
 
 
 
 
 
Finance lease income
 
$
—

 
$
—

 
$
—

Other revenue
 
25

 
25

 
—

Total revenues
 
25

 
25

 
—

 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
Equity in earnings (losses) of unconsolidated entities
 
171

 
(465
)
 
636

Total other income (expense)
 
171

 
(465
)
 
636

Income (loss) before income taxes
 
196

 
(440
)
 
636

Benefit from income taxes
 
(1
)
 
(25
)
 
24

Net income (loss) attributable to shareholders
 
$
197

 
$
(415
)
 
$
612

Add: Benefit from income taxes
 
(1
)
 
(25
)
 
24

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities (1)
 
171

 
(465
)
 
636

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in (losses) earnings of unconsolidated entities
 
(171
)
 
465

 
(636
)
Less: Non-controlling share of Adjusted Net Income
 
—

 
—

 
—

Adjusted Net Income (Loss)
 
$
196

 
$
(440
)
 
$
636

________________________________________________________
(1) Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities includes Shipping Container’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above.

51


The following table sets forth a reconciliation of net income (loss) attributable to shareholders to Adjusted EBITDA for the Shipping Containers segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Net income (loss) attributable to shareholders
 
$
197

 
$
(415
)
 
$
612

Add: Benefit from income taxes
 
(1
)
 
(25
)
 
24

Add: Equity-based compensation expense
 
—

 
—

 
—

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Add: Depreciation and amortization expense
 
—

 
—

 
—

Add: Interest expense
 
—

 
—

 
—

Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities (2)
 
251

 
121

 
130

Less: Equity in (losses) earnings of unconsolidated entities
 
(171
)
 
465

 
(636
)
Less: Non-controlling share of Adjusted EBITDA
 
—

 
—

 
—

Adjusted EBITDA (non-GAAP)
 
$
276

 
$
146

 
$
130

_______________________________________________________
(2) The Company’s pro-rata share of Adjusted EBITDA from unconsolidated entities includes the following items for the three months ended March 31, 2018 and 2017: (i) net income (loss) of $124 and $(508), (ii) interest expense of $112 and $251, and (iii) depreciation and amortization expense of $15 and $378, respectively.
Revenues
Total revenues remained consistent in the three months ended March 31, 2018 compared to the three months ended March 31, 2017.
Other Income (Expense)
Total other income (expense) increased $636 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, reflecting income earned from the sales of operating lease containers within our shipping container joint venture.
Adjusted Net Income (Loss) (Non-GAAP)
Adjusted Net Income (Loss) increased $636 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, reflecting the increase in equity in earnings of unconsolidated entities.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $276 in the three months ended March 31, 2018, an increase of $130 compared to the three months ended March 31, 2017. The increase primarily reflects the entities change in equity in unconsolidated entities coupled with a higher pro-rata share of Adjusted EBITDA from unconsolidated entities.

52


Jefferson Terminal Segment
The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for the Jefferson Terminal segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Infrastructure revenues
 
 
 
 
 
 
 Terminal services revenues
 
$
1,253

 
$
4,866

 
$
(3,613
)
Total revenues
 
1,253

 
4,866

 
(3,613
)
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
11,959

 
7,613

 
4,346

Depreciation and amortization
 
4,790

 
3,951

 
839

Interest expense
 
3,528

 
1,437

 
2,091

Total expenses
 
20,277

 
13,001

 
7,276

 
 
 
 
 
 
 
Other income
 
 
 
 
 
 
Equity in earnings (losses) of unconsolidated entities
 
148

 
(65
)
 
213

Interest income
 
100

 
197

 
(97
)
Other income
 
180

 
12

 
168

Total other income
 
428

 
144

 
284

Loss before income taxes
 
(18,596
)
 
(7,991
)
 
(10,605
)
Provision for income taxes
 
11

 
39

 
(28
)
Net loss
 
(18,607
)
 
(8,030
)
 
(10,577
)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
 
(8,949
)
 
(4,358
)
 
(4,591
)
Net loss attributable to shareholders
 
$
(9,658
)
 
$
(3,672
)
 
$
(5,986
)
Add: Provision for income taxes
 
11

 
39

 
(28
)
Add: Equity-based compensation expense
 
90

 
59

 
31

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
 
624

 
—

 
624

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income (Loss) from unconsolidated entities (1)
 
148

 
(65
)
 
213

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
9

 
(3
)
 
12

Less: Equity in (losses) earnings of unconsolidated entities
 
(148
)
 
65

 
(213
)
Less: Non-controlling share of Adjusted Net Income (Loss)(2)
 
201

 
(37
)
 
238

Adjusted Net Loss
 
$
(8,723
)
 
$
(3,614
)
 
$
(5,109
)
______________________________________________________
(1) Pro-rata share of Adjusted Net Loss from unconsolidated entities includes Jefferson Terminal’s proportionate share of the unconsolidated entities’ net income adjusted for the excluded and included items detailed in the table above, for which there were no adjustments.
(2) Jefferson Terminal’s non-controlling share of Adjusted Net Income (Loss) is comprised of the following for the three months ended March 31, 2018 and 2017: (i) equity-based compensation of $34 and $23, (ii) provision for income taxes of $4 and $15, (iii) changes in fair value of non-hedge derivative instruments of $(244) and $0, less (iv) cash paid for income taxes of $(5) and $1, respectively.

53


The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for the Jefferson Terminal segment for the three months ended March 31, 2018 and 2017: 
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Net loss attributable to shareholders
 
$
(9,658
)
 
$
(3,672
)
 
$
(5,986
)
Add: Provision for income taxes
 
11

 
39

 
(28
)
Add: Equity-based compensation expense
 
90

 
59

 
31

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
 
624

 
—

 
624

Add: Asset impairment charges
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Add: Depreciation and amortization expense
 
4,790

 
3,951

 
839

Add: Interest expense
 
3,528

 
1,437

 
2,091

Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities
 
148

 
(65
)
 
213

Less: Equity in (losses) earnings of unconsolidated entities
 
(148
)
 
65

 
(213
)
Less: Non-controlling share of Adjusted EBITDA (3)
 
(2,935
)
 
(2,038
)
 
(897
)
Adjusted EBITDA (non-GAAP)
 
$
(3,550
)
 
$
(224
)
 
$
(3,326
)
________________________________________________________
(3) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended March 31, 2018 and 2017: (i) equity-based compensation of $34 and $23, (ii) provision for income taxes of $4 and $15, (iii) interest expense of $1,271 and $458, (iv) changes in fair value of non-hedge derivative instruments of $(244) and $0, and (vii) depreciation and amortization expense of $1,870 and $1,542, respectively.
Revenues
Total revenues decreased $3,613 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, reflecting lower volumes.
Expenses
Total expenses increased $7,276 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to higher operating expenses of $4,346. During the quarter, Jefferson Terminal transitioned terminal operations to a new terminal operator. As a result of this transition, there was a non-recurring increase in facility operating costs related to the ramp-up of the new operator of $1,144. Additionally, the terminal had various other non-recurring facility operating costs totaling $1,134. Additionally, the increase in total operating expenses reflect higher (i) professional fees of $831 which were related to legal expenses for ongoing matters, and (ii) repairs and maintenance of $565, for maintenance performed during the quarter. General operating costs increased by (iii) $382 related to relocation expenses for a new office, (iv) tax expense of $156, (v) environmental expense of $117 related to waste disposal costs incurred in 2018, and (vi) lease expenses of $34.
Interest expense increased $2,091 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 due to a decrease in interest capitalized under the Series 2016 bonds and a decrease in construction in progress as certain terminal storage assets were placed into service in the first quarter of 2018.
Adjusted Net Loss (Non-GAAP)
Adjusted Net Loss was $8,723 in the three months ended March 31, 2018, increasing $5,109 compared to the three months ended March 31, 2017. The increase reflects the changes in net loss attributable to shareholders noted above, offset by the changes in fair value of non-hedge derivatives and the non-controlling interest share of Adjusted Net Loss.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $(3,550) in the three months ended March 31, 2018, a decrease of $3,326 as compared to the three months ended March 31, 2017. The decrease reflects the changes in net loss attributable to shareholders noted above as well as a $897 decrease in non-controlling share of Adjusted EBITDA. Partially offsetting this decrease is the increase in interest expense of $2,091 noted above, as well as depreciation and amortization expense of $839 and the change in fair value of non-hedge derivative instruments of $624.

54


Railroad Segment
The following table presents our results of operations and reconciliation of net income attributable to shareholders to Adjusted Net Income for the Railroad segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues
 
Infrastructure revenues
 
 
 
 
 
 
 Rail revenues
 
$
11,047

 
$
8,403

 
$
2,644

Total revenues
 
11,047

 
8,403

 
2,644

 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
7,438

 
7,544

 
(106
)
Depreciation and amortization
 
573

 
526

 
47

Interest expense
 
345

 
199

 
146

Total expenses
 
8,356

 
8,269

 
87

 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
Gain (loss) on sale of equipment, net
 
15

 
(14
)
 
29

Total other income
 
15

 
(14
)
 
29

Income before income taxes
 
2,706

 
120

 
2,586

Provision for income taxes
 
—

 
—

 
—

Net income
 
2,706

 
120

 
2,586

Less: Net income attributable to non-controlling interest in consolidated subsidiaries
 
206

 
4

 
202

Net income attributable to shareholders
 
$
2,500

 
$
116

 
$
2,384

Add: Provision for income taxes
 
—

 
—

 
—

Add: Equity-based compensation expense
 
46

 
28

 
18

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income from unconsolidated entities
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted Net Income
 
(3
)
 
(2
)
 
(1
)
Adjusted Net Income
 
$
2,543

 
$
142

 
$
2,401



55


The following table sets forth a reconciliation of net income (loss) attributable to shareholders to Adjusted EBITDA for the Railroad segment for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Net income attributable to shareholders
 
$
2,500

 
$
116

 
$
2,384

Add: Provision for income taxes
 
—

 
—

 
—

Add: Equity-based compensation expense
 
46

 
28

 
18

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
 
573

 
526

 
47

Add: Interest expense
 
345

 
199

 
146

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)
 
(58
)
 
(41
)
 
(17
)
Adjusted EBITDA (non-GAAP)
 
$
3,406

 
$
828

 
$
2,578

________________________________________________________
(1) Non-controlling share of Adjusted EBITDA is comprised of the following items for the three months ended March 31, 2018 and 2017: (i) equity-based compensation of $3 and $1, (ii) interest expense of $21 and $11, and (iii) depreciation and amortization expense of $34 and $29, respectively.
Revenues
Total revenues increased $2,644 in the three months ended March 31, 2018 compared to the same period of 2017 due to higher traffic related to a detour resulting in the diversion of trains onto our track. The increase reflects $3,025 of higher freight transportation revenue partially offset by a $381 decrease in switching and other rail service revenue.
Expenses
Total expenses decreased $87 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 primarily due to lower operating expenses. The decrease in operating expenses of $106 reflects lower (i) general operating expense of $1,197 due to certain tax benefits taken in the three months ended March 31, 2018 for the 2017 annual period that were enacted during 2017, (ii) fuel expense of $183 and (iii) professional fees of $55. Partially offsetting these decreases was higher expenses of (i) $1,004 pertaining to the increased traffic resulting from the diversion of trains onto our track and (ii) $325 relating to compensation and benefits.
Adjusted Net Income (Non-GAAP)
Adjusted Net Income increased $2,401 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. In addition to the changes in net income attributable to shareholders noted above, Adjusted Net Income was impacted by higher equity-based compensation expense of $18.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $3,406 in the three months ended March 31, 2018, increasing $2,578 as compared to the three months ended March 31, 2017. In addition to the changes in net income attributable to shareholders noted above, Adjusted EBITDA was also impacted by an increase in interest expense of $146 and higher equity-based compensation expense of $18 in the three months ended March 31, 2018, compared to the three months ended March 31, 2017.

56


Ports and Terminals
The following table presents our results of operations and reconciliation of net income (loss) attributable to shareholders to Adjusted Net Loss for Ports and Terminals for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Revenues

Infrastructure revenues
 
 
 
 
 
 
 Lease income
 
$
382

 
$
16

 
$
366

 Other revenue
 
378

 
—

 
378

Total revenues
 
760

 
16

 
744


 
 
 
 
 
 
Expenses
 
 
 
 
 
 
Operating expenses
 
2,381

 
894

 
1,487

Depreciation and amortization
 
809

 
4

 
805

Interest expense
 
272

 
274

 
(2
)
Total expenses
 
3,462

 
1,172

 
2,290

Loss before income taxes
 
(2,702
)
 
(1,156
)
 
(1,546
)
(Benefit from) provision for income taxes
 
(1
)
 
3

 
(4
)
Net loss
 
(2,701
)
 
(1,159
)
 
(1,542
)
Less: Net income (loss) attributable to non-controlling interest in consolidated subsidiaries
 
6

 
(114
)
 
120

Net loss attributable to shareholders
 
$
(2,707
)
 
$
(1,045
)
 
$
(1,662
)
Add: (Benefit from) provision for income taxes
 
(1
)
 
3

 
(4
)
Add: Equity-based compensation expense
 
63

 
—

 
63

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income from unconsolidated entities
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted Net Income
 
—

 
—

 
—

Adjusted Net Loss
 
$
(2,645
)
 
$
(1,042
)
 
$
(1,603
)

57


The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for Ports and Terminals for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Net loss attributable to shareholders
 
$
(2,707
)
 
$
(1,045
)
 
$
(1,662
)
Add: (Benefit from) provision for income taxes
 
(1
)
 
3

 
(4
)
Add: Equity-based compensation expense
 
63

 
—

 
63

Add: Acquisition and transaction expenses
 
—

 
—

 
—

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
—

 
—

Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Depreciation and amortization expense
 
809

 
4

 
805

Add: Interest expense
 
272

 
274

 
(2
)
Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted EBITDA
 
—

 
(27
)
 
27

Adjusted EBITDA
 
$
(1,564
)
 
$
(791
)
 
$
(773
)
Revenues
For the three months ended March 31, 2018, total revenue increased $744 consisting of $366 of higher lease income from leases in place at Long Ridge (acquired in June 2017), as well as $378 of other revenue, relating to services performed for lessees at Long Ridge.
Expenses
Total expenses increased $2,290 for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase primarily reflects higher operating expenses of $1,487, which consisted of (i) compensation and benefits expenses of $477 as a result of additional employees hired at Long Ridge, (ii) facility operations of $410, (iii) insurance expense of $157 and (iv) other operating expenses of $443. Depreciation expense increased $805 for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 due to the acquisition of Long Ridge in the second quarter of 2017 as well as the placement of additional assets into service at Repauno.
Adjusted Net Loss (Non-GAAP)
Adjusted Net Loss increased $1,603 for the three months ended March 31, 2018 compared to the same period of 2017 due to the changes in net loss attributable to shareholders noted above, offset by equity based compensation of $63.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $(1,564) and $(791) for the three months ended March 31, 2018 and 2017, respectively. In addition to the changes in net loss attributable to shareholders noted above, Adjusted EBITDA for the three months ended March 31, 2018 includes depreciation expense of $809, which represents an increase of $805 compared to the three months ended March 31, 2017.


58


Corporate
The following table presents our results of operations and reconciliation of net loss attributable to shareholders to Adjusted Net Loss for Corporate for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Expenses
 
 
 
 
 
 
General and administrative
 
$
3,586

 
$
3,835

 
$
(249
)
Acquisition and transaction expenses
 
1,609

 
1,237

 
372

Management fees and incentive allocation to affiliate
 
3,739

 
3,893

 
(154
)
Interest expense
 
6,853

 
1,860

 
4,993

Total expenses
 
15,787

 
10,825

 
4,962

 
 
 
 
 
 
 
Other expense
 
 
 
 
 
 
Loss on extinguishment of debt
 
—

 
(2,456
)
 
2,456

Total other expense
 
—

 
(2,456
)
 
2,456

Loss before income taxes
 
(15,787
)
 
(13,281
)
 
(2,506
)
Provision for income taxes
 
—

 
—

 
—

Net loss
 
(15,787
)
 
(13,281
)
 
(2,506
)
Less: Net loss attributable to non-controlling interest in consolidated subsidiaries
 
—

 
—

 
—

Net loss attributable to shareholders
 
$
(15,787
)
 
$
(13,281
)
 
$
(2,506
)
Add: Provision for income taxes
 
—

 
—

 
—

Add: Equity-based compensation expense
 
9

 
—

 
9

Add: Acquisition and transaction expenses
 
1,609

 
1,237

 
372

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
2,456

 
(2,456
)
Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Pro-rata share of Adjusted Net Income from unconsolidated entities
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Less: Cash payments for income taxes
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted Net Income
 
—

 
—

 
—

Adjusted Net Loss
 
$
(14,169
)
 
$
(9,588
)
 
$
(4,581
)

59


The following table sets forth a reconciliation of net loss attributable to shareholders to Adjusted EBITDA for Corporate for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
March 31,
 
Change
(Dollar amounts in thousands)
 
2018
 
2017
 
Net loss attributable to shareholders
 
$
(15,787
)
 
$
(13,281
)
 
$
(2,506
)
Add: Provision for income taxes
 
—

 
—

 
—

Add: Equity-based compensation expense
 
9

 
—

 
9

Add: Acquisition and transaction expenses
 
1,609

 
1,237

 
372

Add: Losses on the modification or extinguishment of debt and capital lease obligations
 
—

 
2,456

 
(2,456
)
Add: Changes in fair value of non-hedge derivative instruments
 
—

 
—

 
—

Add: Asset impairment charges
 
—

 
—

 
—

Add: Incentive allocations
 
—

 
—

 
—

Add: Depreciation and amortization expense
 
—

 
—

 
—

Add: Interest expense
 
6,853

 
1,860

 
4,993

Add: Pro-rata share of Adjusted EBITDA from unconsolidated entities
 
—

 
—

 
—

Less: Equity in earnings of unconsolidated entities
 
—

 
—

 
—

Less: Non-controlling share of Adjusted EBITDA
 
—

 
—

 
—

Adjusted EBITDA
 
$
(7,316
)
 
$
(7,728
)
 
$
412

Expenses
Total expenses increased $4,962 in the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase primarily consists of higher interest expense of $4,993 related Senior Notes issued throughout 2017. General and administrative costs decreased $249 and reflected (i) $327 of lower general corporate costs, (ii) $23 in lower reimbursement expenses to our Manager, and (iii) $5 of lower insurance expense. Partially offsetting these decreases was higher directors fees of $84 resulting from the additions of two new directors in 2018, and other expenses of $22. Acquisition and transaction costs increased $372, reflecting $454 of higher reimbursement expenses to our Manager, partially offset by $82 of lower legal expenses.
Other Expenses
Total other expenses decreased $2,456 in the three months ended March 31, 2018 compared to the same period in 2017. The decrease is due to a loss on extinguishment of debt incurred in the prior period.
Adjusted Net Loss (Non-GAAP)
Adjusted Net Loss was $14,169 in the three months ended March 31, 2018, increasing $4,581 compared to the three months ended March 31, 2017. In addition to the changes in net loss attributable to shareholders noted above, Adjusted Net Loss was reduced by $2,456 in 2017 related to the extinguishment of debt. There was no extinguishment in 2018.
Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA was $(7,316) for the three months ended March 31, 2018, increasing $412 compared to the same period in 2017. In addition to the changes in net loss attributable to shareholders noted above, Adjusted EBITDA includes the impact of higher interest expense of $4,993 related to the Senior Notes issued throughout March 2017. Adjusted EBITDA for the 2017 period reflects the impact of losses on the extinguishment of debt. There was no extinguishment in 2018.

Liquidity and Capital Resources
Our principal uses of liquidity have been and continue to be (i) acquisitions of transportation infrastructure and equipment, (ii) dividends to our shareholders, (iii) expenses associated with our operating activities, and (iv) debt service obligations associated with our investments (all dollar amounts are expressed in thousands).
•
In the three months ended March 31, 2018 and 2017, cash used for the purpose of making investments was $119,626 and $98,265, respectively.
•
In the three months ended March 31, 2018 and 2017, dividends to shareholders were $27,333 and $25,013, respectively, and no distributions were made to non-controlling interests.
•
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.

60


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 debt securities, (iii) proceeds from asset sales and (iv) proceeds from the issuance of common shares.
•
During the three months ended March 31, 2018 and 2017, cash flows from operating activities, plus the principal collections on finance leases and maintenance reserve collections were $21,319 and $22,214, respectively.
•
During the three months ended March 31, 2018, additional borrowings were obtained in connection with the Jefferson Revolver of $13,000, net of financing costs, and the CMQR Credit Agreement of $5,600. We made total principal repayments of $12,612, primarily relating to the FTAI Pride Credit Agreement and the CMQR Credit Agreement. During three months ended March 31, 2017, additional borrowings were obtained in connection with the Term Loan of $97,163, net of deferred financing costs and the Senior Notes of $137,248, net of deferred financing costs and the repayment of the Term Loan. We made total principal repayments of $1,562 primarily related to the of the FTAI Pride Credit Agreement.
•
During the three months ended March 31, 2018 and 2017, proceeds from the sale of assets were $6,174 and $9,886, respectively.
•
During the three months ended March 31, 2018, proceeds from the issuance of common shares were $128,450, net of issuance costs of $2,100.
Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. Our board of directors takes this and other factors into account as part of any decision to pay a dividend, and the timing and amount of any future dividend is subject to change at the discretion of our board of directors.
The Company is currently evaluating several potential Infrastructure and Equipment Leasing transactions, which could occur within the next 12 months. However, as of the date of this filing, none of these pipeline transactions or negotiations are definitive or included within the planned liquidity needs of the Company. We cannot assure you if or when any such transaction will be consummated or the terms of any such transaction.
The Company has a dividend reinvestment plan in place which allows shareholders to automatically reinvest dividends in the Company’s common shares. The plan became effective on February 24, 2017.
Historical Cash Flow
Comparison of the three months ended March 31, 2018 and March 31, 2017
The following table compares the historical cash flow for the three months ended March 31, 2018 and March 31, 2017:
 
Three Months Ended
(Dollar amounts in thousands)
March 31, 2018
 
March 31, 2017
Cash Flow Data:
 
 
 
Net cash provided by operating activities
$
11,470

 
$
17,680

Net cash used in investing activities
$
(113,483
)
 
$
(88,209
)
Net cash provided by financing activities
$
115,946

 
$
214,287

Net cash provided by operating activities was $11,470 in the three months ended March 31, 2018 as compared to $17,680 in the three months ended March 31, 2017, representing a $6,210 decrease. Net loss was $9,333 for the three months ended March 31, 2018, compared $9,212 for the three months ended March 31, 2017, an increase in net loss of $121. The decrease was attributable to changes in (i) other assets of $10,051 due to the settlement of maintenance right assets in the three months ended March 31, 2017, (ii) in accounts receivable of $5,761and (ii) accounts payable of $4,776 due to the expansion of business operations across all segments. The decrease was offset by adjustments to reconcile net income which include an increase of (i) $12,210 relating to depreciation and amortization, (ii) $5,277 relating to amortization of lease intangibles and incentives, (iii) $1,410 relating to bad debt expense and (iv) $2,023 of losses on the sale of leasing equipment, offset by a decrease of $2,456 of loss on extinguishment of debt and $1,361 in equity in losses of unconsolidated entities.
Net cash used in investing activities was $113,483 in the three months ended March 31, 2018 as compared to $88,209 in the three months ended March 31, 2017, representing a $25,274 increase. Cash used in investing activities increased due to the acquisition of leasing equipment and lease intangibles of $19,377 in the Aviation Leasing segment and the acquisition of property, plant and equipment of $8,845 mainly due to on going capital projects at Repauno and Jefferson Terminal, offset by a decrease in cash used in investments in unconsolidated entities of $13,539 and proceeds from the sale of leasing equipment of $3,698 in three months ended March 31, 2018 as compared to the three months ended March 31, 2017.

61


Net cash provided by financing activities was $115,946 in the three months ended March 31, 2018 as compared to $214,287 in the three months ended March 31, 2017, representing a $98,341 decrease. This was attributable to a $216,811 decrease in proceeds from borrowings, mainly attributable to the Senior Notes and an increase of $11,050 on the repayment of debt, mainly attributable to repayments under the CMQR Credit Agreement. These decreases were offset by an increase of $128,450 from proceeds for the issuance of common stock net of issuance costs and an increase in receipt of maintenance deposits of $5,296.
Funds Available for Distribution (Non-GAAP)
The Company uses Funds Available for Distribution (“FAD”) in evaluating its ability to meet its stated dividend policy. FAD is not a financial measure in accordance with GAAP. The GAAP measure most directly comparable to FAD is net cash provided by operating activities. The Company believes FAD is a useful metric for investors and analysts for similar purposes.
The Company defines FAD as: net cash provided by operating activities plus principal collections on finance leases, proceeds from sale of assets, and return of capital distributions from unconsolidated entities, less required payments on debt obligations and capital distributions to non-controlling interest, and excluding changes in working capital. The following table sets forth a reconciliation of Net Cash Provided by Operating Activities to FAD:

Three Months Ended
(Dollar amounts in thousands)
March 31, 2018
 
March 31, 2017
Net Cash Provided by Operating Activities
$
11,470


$
17,680

Add: Principal Collections on Finance Leases
129


110

Add: Proceeds from sale of assets
6,174


9,885

Add: Return of Capital Distributions from Unconsolidated Entities
—


—

Less: Required Payments on Debt Obligations (1)
(1,562
)

(1,562
)
Less: Capital Distributions to Non-Controlling Interest
—


—

Exclude: Changes in Working Capital
18,226


(4,365
)
Funds Available for Distribution (FAD)
$
34,437


$
21,748

_____________________________________________________
(1) Required payments on debt obligations for the three months ended March 31, 2018 excludes $11,050 repayment of the CMQR Credit Agreement, and for the three months ended March 31, 2017 excludes $100,000 repayment of the Term Loan, both of which were voluntary refinancings as repayment of these amounts was not required at such time.
Limitations
FAD is subject to a number of limitations and assumptions and there can be no assurance that the Company will generate FAD sufficient to meet its intended dividends. FAD has material limitations as a liquidity measure of the Company because such measure excludes items that are required elements of the Company’s net cash provided by operating activities as described below. FAD should not be considered in isolation nor as a substitute for analysis of the Company’s results of operations under GAAP, and it is not the only metric that should be considered in evaluating the Company’s ability to meet its stated dividend policy. Specifically:
•
FAD does not include equity capital called from the Company’s existing limited partners, proceeds from any debt issuance or future equity offering, historical cash and cash equivalents and expected investments in the Company’s operations.
•
FAD does not give pro forma effect to prior acquisitions, certain of which cannot be quantified.
•
While FAD reflects the cash inflows from sale of certain assets, FAD does not reflect the cash outflows to acquire assets as the Company relies on alternative sources of liquidity to fund such purchases.
•
FAD does not reflect expenditures related to capital expenditures, acquisitions and other investments as the Company has multiple sources of liquidity and intends to fund these expenditures with future incurrences of indebtedness, additional capital contributions and/or future issuances of equity.
•
FAD does not reflect any maintenance capital expenditures necessary to maintain the same level of cash generation from our capital investments.
•
FAD does not reflect changes in working capital balances as management believes that changes in working capital are primarily driven by short term timing differences, which are not meaningful to the Company’s distribution decisions.
•
Management has significant discretion to make distributions, and the Company is not bound by any contractual provision that requires it to use cash for distributions.

62


If such factors were included in FAD, there can be no assurance that the results would be consistent with the Company’s presentation of FAD.

Debt Obligations
Refer to Note 8 of the Consolidated Financial Statements for detail.
Contractual Obligations
The following table summarizes our future obligations, by period due, as of March 31, 2018, under our various contractual obligations and commitments. We had no off-balance sheet arrangements as of March 31, 2018.
 
 
 
 
(in thousands)

2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
FTAI Pride Credit Agreement
$
4,688

 
$
47,743

 
$
—

 
$
—

 
$
—

 
$
—

 
$
52,431

CMQR Credit Agreement
—

 
17,350

 
—

 
—

 
—

 
—

 
17,350

Series 2012 Bonds
1,545

 
1,670

 
1,810

 
1,960

 
2,120

 
33,660

 
42,765

Series 2016 Bonds
—

 
—

 
144,200

 
—

 
—

 
—

 
144,200

Senior Notes
—

 
—

 
—

 
—

 
450,000

 
—

 
450,000

Jefferson Revolver
—

 
—

 
—

 
13,511

 
—

 
—

 
13,511

Total principal payments on loans and bonds payable
6,233

 
66,763

 
146,010

 
15,471

 
452,120

 
33,660

 
720,257

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total estimated interest payments (1)
39,316

 
46,206

 
34,870

 
33,408

 
9,192

 
15,683

 
178,675

Obligation to third-party (Repauno)
5,500

 
—

 
—

 
—

 
—

 
—

 
5,500

Operating lease obligations
3,719

 
4,722

 
3,698

 
2,532

 
2,135

 
69,033

 
85,839

Capital lease obligations
272

 
357

 
341

 
207

 
92

 
7

 
1,276

 
48,807

 
51,285

 
38,909

 
36,147

 
11,419

 
84,723

 
271,290

Total contractual obligations
$
55,040

 
$
118,048

 
$
184,919

 
$
51,618

 
$
463,539

 
$
118,383

 
$
991,547

(1) Estimated interest rates as of March 31, 2018.
We expect to meet our future short-term liquidity requirements through cash on hand 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.
Item 3.     Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and foreign exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Interest Rate Risk
Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. Interest rate risk is highly sensitive to many factors, including the U.S. government’s monetary and tax policies, global economic factors and other factors beyond our control. We are exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates. Our primary interest rate exposure relates to our term loan arrangements.
Our borrowing agreements generally require payments based on a variable interest rate index, such as LIBOR. Therefore, to the extent our borrowing costs are not fixed, increases in interest rates may reduce our net income by increasing the cost of our debt without any corresponding increase in rents or cash flow from our finance leases. We manage our exposure to interest rate movements through the use of interest rate derivatives (interest rate swaps and caps). As a result, when market rates of interest change, there is generally not a material impact on our interest expense, future earnings or cash flows.

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The following discussion about the potential effects of changes in interest rates is based on a sensitivity analysis, which models the effects of hypothetical interest rate shifts on our financial condition and results of operations. Although we believe a sensitivity analysis provides the most meaningful analysis permitted by the rules and regulations of the SEC, it is constrained by several factors, including the necessity to conduct the analysis based on a single point in time and by the inability to include the extraordinarily complex market reactions that normally would arise from the market shifts modeled. Although the following results of a sensitivity analysis for changes in interest rates may have some limited use as a benchmark, they should not be viewed as a forecast. This forward-looking disclosure also is selective in nature and addresses only the potential interest expense impacts on our financial instruments and, in particular, does not address the mark-to-market impact on our interest rate derivatives. It also does not include a variety of other potential factors that could affect our business as a result of changes in interest rates.
As of March 31, 2018, assuming we do not hedge our exposure to interest rate fluctuations related to our outstanding floating rate debt, a hypothetical 100-basis point increase/decrease in our variable interest rate on our borrowings would result in an interest expense increase/(decrease) of approximately $644 and $(656), respectively, over the next 12 months before the impact of interest rate derivatives.
Foreign Currency Exchange Risk
Our functional currency is U.S. dollars. All of our leasing arrangements are denominated in U.S. dollars. Currently, the majority of freight rail revenue is also denominated in U.S. dollars, but a portion is denominated in Canadian dollars. Although foreign exchange risk could arise from our operations in multiple jurisdictions, we do not have significant exposure to foreign currency risk as our leasing arrangements are denominated in U.S. dollars. All of our purchase agreements are negotiated in U.S. dollars, and we currently receive the majority of revenue in U.S. dollars. We pay substantially all of our expenses in U.S. dollars; however we pay some expenses in Canadian dollars. Because we currently receive the majority of our revenues in U.S. dollars and pay substantially all of our expenses in U.S. dollars, we do not expect a change in foreign exchange rates would have a significant impact on our results of operations or cash flows.

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Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on the evaluation of our disclosure controls and procedures as of March 31, 2018, and due to the material weakness in our internal control over financial reporting described in Management’s Report on Internal Control over Financial Reporting included in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on March 1, 2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective.
Internal Control over Financial Reporting
No change other than certain remediation efforts related to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting. We have made no significant changes in our remediation plans during the three months ended March 31, 2018 that could materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. For further information with regard to our “Remediation Plans,” please refer to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on March 1, 2018.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are and may become involved in legal proceedings, including but not limited to regulatory investigations and inquiries, in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, we do not expect our current and any threatened legal proceedings to have a material adverse effect on our business, financial position or results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material adverse effect on our financial results.
Item 1A. Risk Factors
You should carefully consider the following risks and other information in this Form 10-Q in evaluating us and our common shares. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition. The risk factors generally have been separated into the following categories: risks related to our business, risks related to our Manager, risks related to taxation and risks related to our common shares. However, these categories do overlap and should not be considered exclusive.
Risks Related to Our Business
Uncertainty relating to macroeconomic conditions may reduce the demand for our assets, result in non-performance of contracts by our lessees or charterers, limit our ability to obtain additional capital to finance new investments, or have other unforeseen negative effects.
Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and commodity price volatility, historically have created difficult operating environments for owners and operators in the transportation industry. Many factors, including factors that are beyond our control, may impact our operating results or financial condition and/or affect the lessees and charterers that form our customer base. For some years, the world has experienced weakened economic conditions and volatility following adverse changes in global capital markets. More recently, excess supply in oil and gas markets has put significant downward pressure on prices for these commodities, and may affect demand for assets used in production, refining and transportation of oil and gas. In particular, the significant decline in oil prices since 2015 has resulted in lower offshore exploration and production budgets worldwide, with industry experts predicting that offshore exploration and production spending will decrease by approximately 5% in 2018, as compared to 2017. These conditions have resulted in significant contraction, de-leveraging and reduced liquidity in the credit markets. A number of governments have implemented, or are considering implementing, a broad variety of governmental actions or new regulations for the financial markets. In addition, limitations on the availability of capital, higher costs of capital for financing expenditures or the desire to preserve liquidity, may cause our current or prospective customers to make reductions in future capital budgets and spending.
Further, demand for our assets is related to passenger and cargo traffic growth, which in turn is dependent on general business and economic conditions. Global economic downturns could have an adverse impact on passenger and cargo traffic levels and

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consequently our lessees’ and charterers’ business, which may in turn result in a significant reduction in revenues, earnings and cash flows, difficulties accessing capital and a deterioration in the value of our assets. We may also become exposed to increased credit risk from our customers and third parties who have obligations to us, which could result in increased non-performance of contracts by our lessees or charterers and adversely impact our business, prospects, financial condition, results of operations and cash flows.
The industries in which we operate have experienced periods of oversupply during which lease rates and asset values have declined, particularly during the recent economic downturn, and any future oversupply could materially adversely affect our results of operations and cash flows.
The oversupply of a specific asset is likely to depress the lease or charter rates for and the value of that type of asset and result in decreased utilization of our assets, and the industries in which we operate have experienced periods of oversupply during which rates and asset values have declined, particularly during the recent economic downturn. Factors that could lead to such oversupply include, without limitation:
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general demand for the type of assets that we purchase;
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general macroeconomic conditions, including market prices for commodities that our assets may serve;
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geopolitical events, including war, prolonged armed conflict and acts of terrorism;
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outbreaks of communicable diseases and natural disasters;
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governmental regulation;
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interest rates;
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the availability of credit;
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restructurings and bankruptcies of companies in the industries in which we operate, including our customers;
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manufacturer production levels and technological innovation;
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manufacturers merging or exiting the industry or ceasing to produce certain asset types;
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retirement and obsolescence of the assets that we own;
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our railroad infrastructure may be damaged, including by flooding and railroad derailments;
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increases in supply levels of assets in the market due to the sale or merging of operating lessors; and
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reintroduction of previously unused or dormant assets into the industries in which we operate.
These and other related factors are generally outside of our control and could lead to persistence of, or increase in, the oversupply of the types of assets that we acquire or decreased utilization of our assets, either of which could materially adversely affect our results of operations and cash flow. In addition, lessees may redeliver our assets to locations where there is oversupply, which may lead to additional repositioning costs for us if we move them to areas with higher demand. Positioning expenses vary depending on geographic location, distance, freight rates and other factors, and may not be fully covered by drop-off charges collected from the last lessees of the equipment or pick-up charges paid by the new lessees. Positioning expenses can be significant if a large portion of our assets are returned to locations with weak demand, which could materially adversely affect our business, prospects, financial condition, results of operations and cash flow.

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There can be no assurance that any target returns will be achieved.
Our target returns for assets are targets only and are not forecasts of future profits. We develop target returns based on our Manager’s assessment of appropriate expectations for returns on assets and the ability of our Manager to enhance the return generated by those assets through active management. There can be no assurance that these assessments and expectations will be achieved and failure to achieve any or all of them may materially adversely impact our ability to achieve any target return with respect to any or all of our assets.
In addition, our target returns are based on estimates and assumptions regarding a number of other factors, including, without limitation, holding periods, the absence of material adverse events affecting specific investments (which could include, without limitation, natural disasters, terrorism, social unrest or civil disturbances), general and local economic and market conditions, changes in law, taxation, regulation or governmental policies and changes in the political approach to transportation investment, either generally or in specific countries in which we may invest or seek to invest. Many of these factors, as well as the other risks described elsewhere in this report, are beyond our control and all could adversely affect our ability to achieve a target return with respect to an asset. Further, target returns are targets for the return generated by specific assets and not by us. Numerous factors could prevent us from achieving similar returns, notwithstanding the performance of individual assets, including, without limitation, taxation and fees payable by us or our operating subsidiaries, including fees and incentive allocation payable to our Manager.
There can be no assurance that the returns generated by any of our assets will meet our target returns, or any other level of return, or that we will achieve or successfully implement our asset acquisition objectives, and failure to achieve the target return in respect of any of our assets could, among other things, have a material adverse effect on our business, prospects, financial condition, results of operations and cash flow. Further, even if the returns generated by individual assets meet target returns, there can be no assurance that the returns generated by other existing or future assets would do so, and the historical performance of the assets in our existing portfolio should not be considered as indicative of future results with respect to any assets.
Contractual defaults may adversely affect our business, prospects, financial condition, results of operations and cash flows by decreasing revenues and increasing storage, positioning, collection, recovery and lost equipment expenses.
The success of our business depends in large part on the success of the operators in the sectors in which we participate. Cash flows from our assets are substantially impacted by our ability to collect compensation and other amounts to be paid in respect of such assets from the customers with whom we enter into leases, charters or other contractual arrangements. Inherent in the nature of the leases, charters and other arrangements for the use of such assets is the risk that we may not receive, or may experience delay in realizing, such amounts to be paid. While we target the entry into contracts with credit-worthy counterparties, no assurance can be given that such counterparties will perform their obligations during the term of the leases, charters or other contractual arrangements. In addition, when counterparties default, we may fail to recover all of our assets, and the assets we do recover may be returned in damaged condition or to locations where we will not be able to efficiently lease, charter or sell them. In most cases, we maintain, or require our lessees to maintain, certain insurances to cover the risk of damages or loss of our assets. However, these insurance policies may not be sufficient to protect us against a loss.
Depending on the specific sector, the risk of contractual defaults may be elevated due to excess capacity as a result of oversupply during the recent economic downturn. We lease assets to our customers pursuant to fixed-price contracts, and our customers then seek to utilize those assets to transport goods and provide services. If the price at which our customers receive for their transportation services decreases as a result of an oversupply in the marketplace, then our customers may be forced to reduce their prices in order to attract business (which may have an adverse effect on their ability to meet their contractual lease obligations to us), or may seek to renegotiate or terminate their contractual lease arrangements with us to pursue a lower-priced opportunity with another lessor, which may have a direct, adverse effect on us. See “-The industries in which we operate have experienced periods of oversupply during which lease rates and asset values have declined, particularly during the financial crisis, and any future oversupply could materially adversely affect our results of operations and cash flows.” Any default by a material customer would have a significant impact on our profitability at the time the customer defaulted, which could materially adversely affect our operating results and growth prospects. In addition, some of our counterparties may reside in jurisdictions with legal and regulatory regimes that make it difficult and costly to enforce such counterparties’ obligations.

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We may not be able to renew or obtain new or favorable charters or leases, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
Our operating leases are subject to greater residual risk than direct finance leases because we will own the assets at the expiration of an operating lease term and we may be unable to renew existing charters or leases at favorable rates, or at all, or sell the leased or chartered assets, and the residual value of the asset may be lower than anticipated. In addition, our ability to renew existing charters or leases or obtain new charters or leases will also depend on prevailing market conditions, and upon expiration of the contracts governing the leasing or charter of the applicable assets, we may be exposed to increased volatility in terms of rates and contract provisions. For example, we do not currently have long-term charters for our construction support vessel and our ROV support vessel. Likewise, our customers may reduce their activity levels or seek to terminate or renegotiate their charters or leases with us. If we are not able to renew or obtain new charters or leases in direct continuation, or if new charters or leases are entered into at rates substantially below the existing rates or on terms otherwise less favorable compared to existing contractual terms, or if we are unable to sell assets for which we are unable to obtain new contracts or leases, our business, prospects, financial condition, results of operations and cash flows could be materially adversely affected.
If we acquire a high concentration of a particular type of asset, or concentrate our investments in a particular sector, our business, prospects, financial condition, results of operations and cash flows could be adversely affected by changes in market demand or problems specific to that asset or sector.
If we acquire a high concentration of a particular asset, or concentrate our investments in a particular sector, our business and financial results could be adversely affected by sector-specific or asset-specific factors. For example, if a particular sector experiences difficulties such as increased competition or oversupply, the operators we rely on as a lessor may be adversely affected and consequently our business and financial results may be similarly affected. If we acquire a high concentration of a particular asset and the market demand for a particular asset declines, it is redesigned or replaced by its manufacturer or it experiences design or technical problems, the value and rates relating to such asset may decline, and we may be unable to lease or charter such asset on favorable terms, if at all. Any decrease in the value and rates of our assets may have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We operate in highly competitive markets.
The business of acquiring transportation and transportation-related infrastructure assets is highly competitive. Market competition for opportunities includes traditional transportation and infrastructure companies, commercial and investment banks, as well as a growing number of non-traditional participants, such as hedge funds, private equity funds and other private investors, including Fortress-related entities. Some of these competitors may have access to greater amounts of capital and/or to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have certain advantages not shared by us. In addition, competitors may have incurred, or may in the future incur, leverage to finance their debt investments at levels or on terms more favorable than those available to us. Strong competition for investment opportunities could result in fewer such opportunities for us, as certain of these competitors have established and are establishing investment vehicles that target the same types of assets that we intend to purchase.
In addition, some of our competitors may have longer operating histories, greater financial resources and lower costs of capital than us, and consequently, may be able to compete more effectively in one or more of our target markets. We likely will not always be able to compete successfully with our competitors and competitive pressures or other factors may also result in significant price competition, particularly during industry downturns, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
Litigation to enforce our contracts and recover our assets has inherent uncertainties that are increased by the location of our assets in jurisdictions that have less developed legal systems.
While some of our contractual arrangements are governed by New York law and provide for the non-exclusive jurisdiction of the courts located in the state of New York, our ability to enforce our counterparties’ obligations under such contractual arrangements is subject to applicable laws in the jurisdiction in which enforcement is sought. While some of our existing assets are used in specific jurisdictions, transportation and transportation-related infrastructure assets by their nature generally move throughout multiple jurisdictions in the ordinary course of business. As a result, it is not possible to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be commenced. Litigation and enforcement proceedings have inherent uncertainties in any jurisdiction and are expensive. These uncertainties are enhanced in countries that have less developed legal systems where the interpretation of laws and regulations is not consistent, may be influenced by factors other than legal merits and may be cumbersome, time-consuming and even more expensive. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and where the legal system is not as well developed. As a result, the remedies available and the relative success and expedience of collection and enforcement proceedings with respect to the owned assets in various jurisdictions cannot be predicted. To the extent more of our business shifts to areas outside of the United States and Europe, such as China and Malaysia, it may become more difficult and expensive to enforce our rights and recover our assets.

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Certain liens may arise on our assets.
Certain of our assets are currently subject to liens under separate financing arrangements entered into by certain subsidiaries in connection with acquisitions of assets. In the event of a default under such arrangements by the applicable subsidiary, the lenders thereunder would be permitted to take possession of or sell such assets. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.” In addition, our currently owned assets and assets that we purchase in the future may be subject to other liens based on the industry practices relating to such assets. Until they are discharged, these liens could impair our ability to repossess, re-lease or sell our assets, and to the extent our lessees or charterers do not comply with their obligations to discharge any liens on the applicable assets, we may find it necessary to pay the claims secured by such liens in order to repossess such assets. Such payments could materially adversely affect our operating results and growth prospects.
The values of the assets that we purchase may fluctuate due to various factors.
The fair market values of our assets may decrease or increase depending on a number of factors, including the prevailing level of charter or lease rates from time to time, general economic and market conditions affecting our target markets, type and age of assets, supply and demand for assets, competition, new governmental or other regulations and technological advances, all of which could impact our profitability and our ability to lease, charter, develop, operate, or sell such assets. In addition, our assets depreciate as they age and may generate lower revenues and cash flows. We must be able to replace such older, depreciated assets with newer assets, or our ability to maintain or increase our revenues and cash flows will decline. In addition, if we dispose of an asset for a price that is less than the depreciated book value of the asset on our balance sheet or if we determine that an asset’s value has been impaired, we will recognize a related charge in our consolidated statement of operations and such charge could be material.
Our use of joint ventures or partnerships, and our Manager’s outsourcing of certain functions, may present unforeseen obstacles or costs.
We have acquired and may in the future acquire interests in certain assets in cooperation with third-party partners or co-investors through jointly-owned acquisition vehicles, joint ventures or other structures. In these co-investment situations, our ability to control the management of such assets depends upon the nature and terms of the joint arrangements with such partners and our relative ownership stake in the asset, each of which will be determined by negotiation at the time of the investment and the determination of which is subject to the discretion of our Manager. Depending on our Manager’s perception of the relative risks and rewards of a particular asset, our Manager may elect to acquire interests in structures that afford relatively little or no operational and/or management control to us. Such arrangements present risks not present with wholly-owned assets, such as the possibility that a co-investor becomes bankrupt, develops business interests or goals that conflict with our interests and goals in respect of the assets, all of which could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
In addition, our Manager expects to utilize third party contractors to perform services and functions related to the operation and leasing of our assets. These functions may include billing, collections, recovery and asset monitoring. Because we and our Manager do not directly control these third parties, there can be no assurance that the services they provide will be delivered at a level commensurate with our expectations, or at all. The failure of any such third party contractors to perform in accordance with our expectations could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
We are subject to the risks and costs of obsolescence of our assets.
Technological and other improvements expose us to the risk that certain of our assets may become technologically or commercially obsolete. For example, in our Aviation Leasing segment, as manufacturers introduce technological innovations and new types of aircraft, some of our assets could become less desirable to potential lessees. Such technological innovations may increase the rate of obsolescence of existing aircraft faster than currently anticipated by us. In addition, the imposition of increased regulation regarding stringent noise or emissions restrictions may make some of our aircraft less desirable and less valuable in the marketplace. In our Offshore Energy segment, development and construction of new, sophisticated, high-specification assets could cause our assets to become less desirable to potential charterers, and insurance rates may also increase with the age of a vessel, making older vessels less desirable to potential charterers. Any of these risks may adversely affect our ability to lease, charter or sell our assets on favorable terms, if at all, which could materially adversely affect our operating results and growth prospects.
The North American rail sector is a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future laws, regulations and other requirements could significantly increase our costs of doing business, thereby adversely affecting our profitability.
The rail sector is subject to extensive laws, regulations and other requirements including, but not limited to, those relating to the environment, safety, rates and charges, service obligations, employment, labor, immigration, minimum wages and overtime pay, health care and benefits, working conditions, public accessibility and other requirements. These laws and regulations are enforced by U.S. and Canadian federal agencies including the U.S. and Canadian Environmental Protection Agencies, the U.S. and Canadian Departments of Transportation (USDOT or Transport Canada), the Occupational Safety and Health Act (OSHA or Canadian provincial equivalents), the U.S. Federal Railroad Administration, or FRA, and the U.S. Surface Transportation Board, or STB, as well as

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numerous other state, provincial, local and federal agencies. Ongoing compliance with, or a violation of, these laws, regulations and other requirements could have a material adverse effect on our business, financial condition and results of operations.
We believe that our rail operations are in substantial compliance with applicable laws and regulations. However, these laws and regulations, and the interpretation or enforcement thereof, are subject to frequent change and varying interpretation by regulatory authorities, and we are unable to predict the ongoing cost to us of complying with these laws and regulations or the future impact of these laws and regulations on our operations. In addition, from time to time we are subject to inspections and investigations by various regulators. Violation of environmental or other laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions and construction bans or delays.
Legislation passed by the U.S. Congress or Canadian Parliament or new regulations issued by federal agencies can significantly affect the revenues, costs and profitability of our business. For instance, more recently proposed bills such as the “Rail Shipper Fairness Act of 2015,” if adopted, could increase government involvement in railroad pricing, service and operations and significantly change the federal regulatory framework of the railroad industry. Several of the changes under consideration could have a significant negative impact on FTAI’s ability to determine prices for rail services, meet service standards and could force a reduction in capital spending. Statutes imposing price constraints or affecting rail-to-rail competition could adversely affect FTAI’s profitability.
Under various U.S. and Canadian federal, state, provincial and local environmental requirements, as the owner or operator of terminals or other facilities, we may be liable for the costs of removal or remediation of contamination at or from our existing locations, whether we knew of, or were responsible for, the presence of such contamination. The failure to timely report and properly remediate contamination may subject us to liability to third parties and may adversely affect our ability to sell or rent our property or to borrow money using our property as collateral. Additionally, we may be liable for the costs of remediating third-party sites where hazardous substances from our operations have been transported for treatment or disposal, regardless of whether we own or operate that site. In the future, we may incur substantial expenditures for investigation or remediation of contamination that has not yet been discovered at our current or former locations or locations that we may acquire.
A discharge of hydrocarbons or hazardous substances into the environment associated with operating our rail assets could subject us to substantial expense, including the cost to recover the materials spilled, restore the affected natural resources, pay fines and penalties, and natural resource damages and claims made by employees, neighboring landowners, government authorities and other third parties, including for personal injury and property damage. We may experience future catastrophic sudden or gradual releases into the environment from our facilities or discover historical releases that were previously unidentified or not assessed. Although our inspection and testing programs are designed to prevent, detect and address any such releases promptly, the liabilities incurred due to any future releases into the environment from our assets, have the potential to substantially affect our business. Such events could also subject us to media and public scrutiny that could have a negative effect on our operations and also on the value of our common shares.
Our business could be adversely affected if service on the railroads is interrupted or if more stringent regulations are adopted regarding railcar design or the transportation of crude oil by rail.
As a result of hydraulic fracturing and other improvements in extraction technologies, there has been a substantial increase in the volume of crude oil and liquid hydrocarbons produced and transported in North America, and a geographic shift in that production versus historical production. The increase in volume and shift in geography has resulted in a growing percentage of crude oil being transported by rail. High-profile accidents involving crude-oil-carrying trains in Quebec, North Dakota and Virginia, and more recently in West Virginia and Illinois, have raised concerns about the environmental and safety risks associated with crude oil transport by rail and the associated risks arising from railcar design.
In May 2015, the DOT issued new production standards and operational controls for rail tank cars used in “High-Hazard Flammable Trains” (i.e., trains carrying commodities such as ethanol, crude oil and other flammable liquids). Similar standards have been adopted in Canada. The new standard applies for all cars manufactured after October 1, 2015, and existing tank cars must be retrofitted within the next three to eight years. The applicable operational controls include reduced speed restrictions, and maximum lengths on trains carrying these materials. Retrofitting our tank cars will be required under these new standards. While we may be able to pass some of these costs on to our customers, there may be costs that we cannot pass on to them. We continue to monitor the railcar regulatory landscape and remain in close contact with railcar suppliers and other industry stakeholders to stay informed of railcar regulation rulemaking developments. It is unclear how these regulations will impact the crude-by-rail industry, and any such impact would depend on a number of factors that are outside of our control. If, for example, overall volume of crude-by-rail decreases, or if we do not have access to a sufficient number of compliant cars to transport required volumes under our existing contracts, our operations may be negatively affected. This may lead to a decrease in revenues and other consequences.
The adoption of additional federal, state, provincial or local laws or regulations, including any voluntary measures by the rail industry regarding railcar design or crude oil and liquid hydrocarbon rail transport activities, or efforts by local communities to restrict or limit rail traffic involving crude oil, could affect our business by increasing compliance costs and decreasing demand for our services, which could adversely affect our financial position and cash flows. Moreover, any disruptions in the operations of railroads, including those due to shortages of railcars, weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts or bottlenecks, could adversely impact our customers’ ability to move their product and, as a result, could affect our business.

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Our assets are exposed to unplanned interruptions caused by catastrophic events outside of our control which may disrupt our business and cause damage or losses that may not be adequately covered by insurance.
The operations of transportation and infrastructure projects are exposed to unplanned interruptions caused by significant catastrophic events, such as hurricanes, cyclones, earthquakes, landslides, floods, explosions, fires, major plant breakdowns, pipeline or electricity line ruptures or other disasters. Operational disruption, as well as supply disruption, could adversely impact the cash flows available from these assets. In addition, the cost of repairing or replacing damaged assets could be considerable. Repeated or prolonged interruption may result in temporary or permanent loss of customers, substantial litigation or penalties for regulatory or contractual non-compliance, and any loss from such events may not be recoverable under relevant insurance policies. Although we believe that we are adequately insured against these types of events, either indirectly through our lessees or charterers or through our own insurance policies, no assurance can be given that the occurrence of any such event will not materially adversely affect us. In addition, if a lessee or charterer is not obligated to maintain sufficient insurance, we may incur the costs of additional insurance coverage during the related lease or charter. We can give no assurance that such insurance will be available at commercially reasonable rates, if at all.
Our assets generally require routine maintenance, and we may be exposed to unforeseen maintenance costs.
We may be exposed to unforeseen maintenance costs for our assets associated with a lessee’s or charterer’s failure to properly maintain the asset. We enter into leases and charters with respect to some of our assets pursuant to which the lessees are primarily responsible for many obligations, which generally include complying with all governmental requirements applicable to the lessee or charterer, including operational, maintenance, government agency oversight, registration requirements and other applicable directives. Failure of a lessee or charterer to perform required maintenance during the term of a lease or charter could result in a decrease in value of an asset, an inability to re-lease or charter an asset at favorable rates, if at all, or a potential inability to utilize an asset. Maintenance failures would also likely require us to incur maintenance and modification costs upon the termination of the applicable lease or charter; such costs to restore the asset to an acceptable condition prior to re-leasing, charter or sale could be substantial. Any failure by our lessees or charterers to meet their obligations to perform required scheduled maintenance or our inability to maintain our assets could materially adversely affect our business, prospects, financial condition, results of operations and cash flows.
Some of our customers operate in highly regulated industries and changes in laws or regulations, including laws with respect to international trade, may adversely affect our ability to lease, charter or sell our assets.
Some of our customers operate in highly regulated industries such as aviation and offshore energy. A number of our contractual arrangements-for example, our leasing aircraft engines or offshore energy equipment to third-party operators-require the operator (our customer) to obtain specific governmental or regulatory licenses, consents or approvals. These include consents for certain payments under such arrangements and for the export, import or re-export of the related assets. Failure by our customers or, in certain circumstances, by us, to obtain certain licenses and approvals could negatively affect our ability to conduct our business. In addition, the shipment of goods, services and technology across international borders subjects the operation of our assets to international trade laws and regulations. Moreover, many countries, including the United States, control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. If any such regulations or sanctions affect the asset operators that are our customers, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
It is impossible to predict whether third parties will allege liability related to our purchase of the Montreal, Maine and Atlantic Railway (“MM&A”) assets out of bankruptcy, including possible claims related to the July 6, 2013 train derailment near Lac-Mégantic, Quebec.
On July 6, 2013, prior to our ownership, a train carrying crude oil on the MM&A line derailed near Lac-Mégantic, Quebec which resulted in fires that claimed the lives of 47 individuals (the “Incident”). Approximately two million gallons of crude oil were either burned or released into the environment, including into the nearby Chaudière River. Prior to our acquisition of the MM&A assets in May and June 2014, we received written assurance from the Quebec Ministry of Sustainable Development, Environment, Wildlife and Parks that it would take full responsibility for the environmental clean-up and that it would not hold CMQR liable for any environmental damages or costs relating to clean-up or restoration of the affected area as a result of the Incident. While we don’t anticipate any liability relating to the Incident, including liability for claims alleging personal injury, property damage or natural resource damages, there can be no assurance that such claims relating to the Incident will not arise in the future. No claims have been made or threatened against us as of March 31, 2018 and we do not anticipate any expenditures relating to environmental clean-up (including impacts to the Chaudière River) as a result of the Incident.

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Certain of our assets are subject to purchase options held by the charterer or lessee of the asset which, if exercised, could reduce the size of our asset base and our future revenues.
We have granted purchase options to the charterers and lessees of certain of our assets. The market values of these assets may change from time to time depending on a number of factors, such as general economic and market conditions affecting the industries in which we operate, competition, cost of construction, governmental or other regulations, technological changes and prevailing levels of charter or lease rates from time to time. The purchase price under a purchase option may be less than the asset’s market value at the time the option may be exercised. In addition, we may not be able to obtain a replacement asset for the price at which the asset is sold. In such cases, our business, prospects, financial condition, results of operations and cash flows may be materially adversely affected.
The profitability of our Offshore Energy segment may be impacted by the profitability of the offshore oil and gas industry generally, which is significantly affected by, among other things, volatile oil and gas prices.
Demand for assets in the Offshore Energy segment and our ability to secure charter contracts for our assets at favorable charter rates following expiry or termination of existing charters will depend, among other things, on the level of activity in the offshore oil and gas industry. The offshore oil and gas industry is cyclical and volatile, and demand for oil-service assets depends on, among other things, the level of development and activity in oil and gas exploration, as well as the identification and development of oil and gas reserves and production in offshore areas worldwide. The availability of high quality oil and gas prospects, exploration success, relative production costs, the stage of reservoir development, political concerns and regulatory requirements all affect the level of activity for charterers of oil-service vessels. Accordingly, oil and gas prices and market expectations of potential changes in these prices significantly affect the level of activity and demand for oil-service assets. Oil and gas prices can be extremely volatile and are affected by numerous factors beyond the Company’s control, such as: worldwide demand for oil and gas; costs of exploring, developing, producing and delivering oil and gas; expectations regarding future energy prices; the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and impact pricing; the level of production in non-OPEC countries; governmental regulations and policies regarding development of oil and gas reserves; local and international political, economic and weather conditions; domestic and foreign tax policies; political and military conflicts in oil-producing and other countries; and the development and exploration of alternative fuels. Any reduction in the demand for our assets due to these or other factors could materially adversely affect our operating results and growth prospects.
Our Shipping Containers segment is affected by the lack of an international title registry for containers, which increases the risk of ownership disputes.
Although the Bureau International des Containers registers and allocates a unique four letter prefix to every container in accordance with International Standardization Organization (“ISO”) standard 6346 (Freight container coding, identification and marking) there is no internationally recognized system of recordation or filing to evidence our title to containers nor is there an internationally recognized system for filing security interest in containers. While this has not historically had a material impact on our intermodal assets, the lack of a title recordation system with respect to containers could result in disputes with lessees, end-users, or third parties, such as creditors of end-users, who may improperly claim ownership of the containers, especially in countries with less developed legal systems.
Our international operations involve additional risks, which could adversely affect our business, prospects, financial condition, results of operations and cash flows.
We and our customers operate in various regions throughout the world. As a result, we may, directly or indirectly, be exposed to political and other uncertainties, including risks of:
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terrorist acts, armed hostilities, war and civil disturbances;
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acts of piracy;
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significant governmental influence over many aspects of local economies;
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seizure, nationalization or expropriation of property or equipment;
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repudiation, nullification, modification or renegotiation of contracts;
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limitations on insurance coverage, such as war risk coverage, in certain areas;
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political unrest;
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foreign and U.S. monetary policy and foreign currency fluctuations and devaluations;

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•
the inability to repatriate income or capital;
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complications associated with repairing and replacing equipment in remote locations;
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import-export quotas, wage and price controls, imposition of trade barriers;
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U.S. and foreign sanctions or trade embargoes;
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restrictions on the transfer of funds into or out of countries in which we operate;
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compliance with U.S. Treasury sanctions regulations restricting doing business with certain nations or specially designated nationals;
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regulatory or financial requirements to comply with foreign bureaucratic actions;
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compliance with applicable anti-corruption laws and regulations;
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changing taxation policies, including confiscatory taxation;
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other forms of government regulation and economic conditions that are beyond our control; and
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governmental corruption.
Any of these or other risks could adversely impact our customers’ international operations which could materially adversely impact our operating results and growth opportunities.
We may make acquisitions in emerging markets throughout the world, and investments in emerging markets are subject to greater risks than developed markets and could adversely affect our business, prospects, financial condition, results of operations and cash flows.
To the extent that we acquire assets in emerging markets-which we may do throughout the world-additional risks may be encountered that could adversely affect our business. Emerging market countries have less developed economies and infrastructure and are often more vulnerable to economic and geopolitical challenges and may experience significant fluctuations in gross domestic product, interest rates and currency exchange rates, as well as civil disturbances, government instability, nationalization and expropriation of private assets and the imposition of taxes or other charges by government authorities. In addition, the currencies in which investments are denominated may be unstable, may be subject to significant depreciation and may not be freely convertible or may be subject to the imposition of other monetary or fiscal controls and restrictions.
Emerging markets are still in relatively early stages of their development and accordingly may not be highly or efficiently regulated. Moreover, emerging markets tend to be shallower and less liquid than more established markets which may adversely affect our ability to realize profits from our assets in emerging markets when we desire to do so or receive what we perceive to be their fair value in the event of a realization. In some cases, a market for realizing profits from an investment may not exist locally. In addition, issuers based in emerging markets are not generally subject to uniform accounting and financial reporting standards, practices and requirements comparable to those applicable to issuers based in more developed countries, thereby potentially increasing the risk of fraud and other deceptive practices. Settlement of transactions may be subject to greater delay and administrative uncertainties than in developed markets and less complete and reliable financial and other information may be available to investors in emerging markets than in developed markets. In addition, economic instability in emerging markets could adversely affect the value of our assets subject to leases or charters in such countries, or the ability of our lessees or charters, which operate in these markets, to meet their contractual obligations. As a result, lessees or charterers that operate in emerging market countries may be more likely to default under their contractual obligations than those that operate in developed countries. Liquidity and volatility limitations in these markets may also adversely affect our ability to dispose of our assets at the best price available or in a timely manner.
As we have and may continue to acquire assets located in emerging markets throughout the world, we may be exposed to any one or a combination of these risks, which could adversely affect our operating results.

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We are actively evaluating acquisitions of assets and operating companies in other transportation and infrastructure sectors which could result in additional risks and uncertainties for our business and unexpected regulatory compliance costs.
While our existing portfolio consists of assets in the aviation, energy, intermodal transport and rail sectors, we are actively evaluating acquisitions of assets and operating companies in other sectors of the transportation and transportation-related infrastructure and equipment markets and we plan to be flexible as other attractive opportunities arise over time. To the extent we make acquisitions in other sectors, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and other resources and with combining or integrating operational and management systems and controls. Entry into certain lines of business may subject us to new laws and regulations and may lead to increased litigation and regulatory risk. Many types of transportation assets, including certain rail, airport and seaport assets, are subject to registration requirements by U.S. governmental agencies, as well as foreign governments if such assets are to be used outside of the United States. Failing to register the assets, or losing such registration, could result in substantial penalties, forced liquidation of the assets and/or the inability to operate and, if applicable, lease the assets. We may need to incur significant costs to comply with the laws and regulations applicable to any such new acquisition. The failure to comply with these laws and regulations could cause us to incur significant costs, fines or penalties or require the assets to be removed from service for a period of time resulting in reduced income from these assets. In addition, if our acquisitions in other sectors produce insufficient revenues, or produce investment losses, or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our reputation and business may be harmed.
We may acquire operating businesses, including businesses whose operations are not fully matured and stabilized. These businesses may be subject to significant operating and development risks, including increased competition, cost overruns and delays, and difficulties in obtaining approvals or financing. These factors could materially affect our business, financial condition, liquidity and results of operations.
We have acquired, and may in the future acquire, operating businesses including businesses whose operations are not fully matured and stabilized (including, but not limited to, our businesses within the Jefferson Terminal and Ports and Terminals segments). While we have deep experience in the construction and operation of these companies, we are nevertheless subject to significant risks and contingencies of an operating business, and these risks are greater where the operations of such businesses are not fully matured and stabilized. Key factors that may affect our operating businesses include, but are not limited to:
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competition from market participants;
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general economic and/or industry trends, including pricing for the products or services offered by our operating businesses;
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the issuance and/or continued availability of necessary permits, licenses, approvals and agreements from governmental agencies and third parties as are required to construct and operate such businesses;
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changes or deficiencies in the design or construction of development projects;
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unforeseen engineering, environmental or geological problems;
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potential increases in construction and operating costs due to changes in the cost and availability of fuel, power, materials and supplies;
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the availability and cost of skilled labor and equipment;
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our ability to enter into additional satisfactory agreements with contractors and to maintain good relationships with these contractors in order to construct development projects within our expected cost parameters and time frame, and the ability of those contractors to perform their obligations under the contracts and to maintain their creditworthiness;
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potential liability for injury or casualty losses which are not covered by insurance;
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potential opposition from non-governmental organizations, environmental groups, local or other groups which may delay or prevent development activities;
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local and economic conditions;
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changes in legal requirements; and
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force majeure events, including catastrophes and adverse weather conditions.
Any of these factors could materially affect our business, financial condition, liquidity and results of operations.

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The agreements governing our indebtedness place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.
The agreements governing our indebtedness, including the indenture governing our Senior Notes, contain covenants that place restrictions on us and our subsidiaries. The indenture governing our Senior Notes restricts, among other things, our and certain of our subsidiaries’ ability to:
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merge, consolidate or transfer all, or substantially all, of our assets;
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incur additional debt or issue preferred shares;
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make certain investments or acquisitions;
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create liens on our or our subsidiaries’ assets;
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sell assets;
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make distributions on or repurchase our shares;
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enter into transactions with affiliates; and
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create dividend restrictions and other payment restrictions that affect our subsidiaries.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. A breach of any of these covenants could result in an event of default. Cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, the lenders or holders thereof could elect to declare all outstanding debt under such agreements to be immediately due and payable.
Terrorist attacks could negatively impact our operations and our profitability and may expose us to liability and reputational damage.
Terrorist attacks may negatively affect our operations. Such attacks have contributed to economic instability in the United States and elsewhere, and further acts of terrorism, violence or war could similarly affect world trade and the industries in which we and our customers operate. In addition, terrorist attacks or hostilities may directly impact airports or aircraft, ports where our containers and vessels travel, or our physical facilities or those of our customers. In addition, it is also possible that our assets could be involved in a terrorist attack. The consequences of any terrorist attacks or hostilities are unpredictable, and we may not be able to foresee events that could have a material adverse effect on our operations. Although our lease and charter agreements generally require the counterparties to indemnify us against all damages arising out of the use of our assets, and we carry insurance to potentially offset any costs in the event that our customer indemnifications prove to be insufficient, our insurance does not cover certain types of terrorist attacks, and we may not be fully protected from liability or the reputational damage that could arise from a terrorist attack which utilizes our assets.
Because we are a recently formed company with a limited operating history, our historical financial and operating data may not be representative of our future results.
We are a recently formed limited liability company with a limited operating history. Our results of operations, financial condition and cash flows reflected in our consolidated financial statements may not be indicative of the results we would have achieved if we were a public company or results that may be achieved in future periods. Consequently, there can be no assurance that we will be able to generate sufficient income to pay our operating expenses and make satisfactory distributions to our shareholders, or any distributions at all. Further, we only make acquisitions identified by our Manager. As a result of this concentration of assets, our financial performance depends on the performance of our Manager in identifying target assets, the availability of opportunities falling within our asset acquisition strategy and the performance of those underlying assets.

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Our leases and charters require payments in U.S. dollars, but many of our customers operate in other currencies; if foreign currencies devalue against the U.S. dollar, our lessees or charterers may be unable to meet their payment obligations to us in a timely manner.
Our current leases and charters require that payments be made in U.S. dollars. If the currency that our lessees or charterers typically use in operating their businesses devalues against the U.S. dollar, our lessees or charterers could encounter difficulties in making payments to us in U.S. dollars. Furthermore, many foreign countries have currency and exchange laws regulating international payments that may impede or prevent payments from being paid to us in U.S. dollars. Future leases or charters may provide for payments to be made in euros or other foreign currencies. Any change in the currency exchange rate that reduces the amount of U.S. dollars obtained by us upon conversion of future lease payments denominated in euros or other foreign currencies, may, if not appropriately hedged by us, have a material adverse effect on us and increase the volatility of our earnings.
Our inability to obtain sufficient capital would constrain our ability to grow our portfolio and to increase our revenues.
Our business is capital intensive, and we have used and may continue to employ leverage to finance our operations. Accordingly, our ability to successfully execute our business strategy and maintain our operations depends on the availability and cost of debt and equity capital. Additionally, our ability to borrow against our assets is dependent, in part, on the appraised value of such assets. If the appraised value of such assets declines, we may be required to reduce the principal outstanding under our debt facilities or otherwise be unable to incur new borrowings.
We can give no assurance that the capital we need will be available to us on favorable terms, or at all. Our inability to obtain sufficient capital, or to renew or expand our credit facilities, could result in increased funding costs and would limit our ability to:
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meet the terms and maturities of our existing and future debt facilities;
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purchase new assets or refinance existing assets;
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fund our working capital needs and maintain adequate liquidity; and
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finance other growth initiatives.
In addition, we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”). As such, certain forms of financing such as finance leases may not be available to us. Please see “- If we are deemed an investment company under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.”
We may not generate a sufficient amount of cash or generate sufficient free cash flow to fund our operations or repay our indebtedness.
Our ability to make payments on our indebtedness as required depends on our ability to generate cash flow in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not generate sufficient free cash flow to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient free cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition and results of operations.

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The effects of various environmental regulations may negatively affect the industries in which we operate which could have a material adverse effect on our financial condition, results of operations and cash flows.
We are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and noise and emission levels. Under some environmental laws in the United States and certain other countries, strict liability may be imposed on the owners or operators of assets, which could render us liable for environmental and natural resource damages without regard to negligence or fault on our part. We could incur substantial costs, including cleanup costs, fines and third-party claims for property or natural resource damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessee’s or charterer’s current or historical operations, any of which could have a material adverse effect on our results of operations and financial condition. While we typically maintain liability insurance coverage and typically require our lessees to provide us with indemnity against certain losses, the insurance coverage is subject to large deductibles, limits on maximum coverage and significant exclusions and may not be sufficient or available to protect against any or all liabilities and such indemnities may not cover or be sufficient to protect us against losses arising from environmental damage. In addition, changes to environmental standards or regulations in the industries in which we operate could limit the economic life of the assets we acquire or reduce their value, and also require us to make significant additional investments in order to maintain compliance, which would negatively impact our cash flows and results of operations.
Our Repauno site and Long Ridge property are subject to environmental laws and regulations that may expose us to significant costs and liabilities.
Our Repauno site is subject to on-going environmental investigation and remediation by the former owner of the property related to historic industrial operations. The former owner is responsible for completion of this work, and we benefit from a related indemnity and insurance policy. If the former owner fails to fulfill its investigation and remediation, or indemnity obligations and the related insurance, which are subject to limits and conditions, fail to cover our costs, we could incur losses. Redevelopment of the property in those areas undergoing investigation and remediation must await state environmental agency confirmation that no further investigation or remediation is required before redevelopment activities can occur in such areas of the property. Therefore, any delay in the former owner’s completion of the environmental work or receipt of related approvals in an area of the property could delay our redevelopment activities. In addition, once received, permits and approvals may be subject to litigation, and projects may be delayed or approvals reversed or modified in litigation. If there is a delay in obtaining any required regulatory approval, it could delay projects and cause us to incur costs.
In connection with our acquisition of Long Ridge, the former owner of the property is obligated to perform certain post-closing demolition activities, remove specified containers, equipment and structures and conduct investigation, removal, cleanup and decontamination related thereto. In addition, the former owner is responsible for on-going environmental remediation related to historic industrial operations on and off Long Ridge. Pursuant to an order issued by the Ohio Environmental Protection Agency (“Ohio EPA”), the former owner is responsible for completing the removal and off-site disposal of electrolytic pots associated with the former use of Long Ridge as an aluminum reduction plant. In addition, Long Ridge is located adjacent to the former Ormet Corporation Superfund site (the “Ormet site”), which is owned and operated by the former owner of Long Ridge. Pursuant to an order with the United States Environmental Protection Agency (“US EPA”), the former owner is obligated to pump groundwater that has been impacted by the adjacent Ormet site beneath our site and discharge it to the Ohio River and monitor the groundwater annually. Long Ridge is also subject to an environmental covenant related to the adjacent Ormet site that, inter alia, restricts the use of groundwater beneath our site and requires US EPA consent for activities on Long Ridge that could disrupt the groundwater monitoring or pumping. The former owner is contractually obligated to complete its regulatory obligations on Long Ridge and we benefit from a related indemnity and insurance policy. If the former owner fails to fulfill its demolition, removal, investigation, remediation or monitoring obligations, or indemnity obligations and the related insurance, which are subject to limits and conditions, fail to cover our costs, we could incur losses. Redevelopment of the property in those areas undergoing investigation and remediation pursuant to the Ohio EPA order must await state environmental agency confirmation that no further investigation or remediation is required before redevelopment activities can occur in such area of the property. Therefore, any delay in the former owner’s completion of the environmental work or receipt of related approvals or consents from Ohio EPA or US EPA could delay our redevelopment activities.
In addition, a portion of Long Ridge is proposed for redevelopment as a combined cycle gas-fired electric generating facility. Although environmental investigations in that portion of the property have not identified material impacts to soils or groundwater that reasonably would be expected to prevent or delay redevelopment, impacted materials could be encountered during construction that require special handling and/or result in delays to the project. In addition, the construction of an electric generating plant will require environmental permits and approvals from federal, state and local environmental agencies. Once received, permits and approvals may be subject to litigation, and projects may be delayed or approvals reversed or modified in litigation. If there is a delay in obtaining any required regulatory approval, it could delay projects and cause us to incur costs.
Moreover, new, stricter environmental laws, regulations or enforcement policies, including those imposed in response to climate change, could be implemented that significantly increase our compliance costs, or require us to adopt more costly methods of

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operation. If we are not able to transform Repauno or Long Ridge into hubs for industrial and energy development in a timely manner, their future prospects could be materially and adversely affected, which may have a material adverse effect on our business, operating results and financial condition.
If we are deemed an “investment company” under the Investment Company Act, it could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
We conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for certain privately-offered investment vehicles set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
We are a holding company that is not an investment company because we are engaged in the business of holding securities of our wholly-owned and majority-owned subsidiaries, which are engaged in transportation and related businesses which lease assets pursuant to operating leases and finance leases. The Investment Company Act may limit our and our subsidiaries’ ability to enter into financing leases and engage in other types of financial activity because less than 40% of the value of our and our subsidiaries’ total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis can consist of “investment securities.”
If we or any of our subsidiaries were required to register as an investment company under the Investment Company Act, the registered entity would become subject to substantial regulation that would significantly change our operations, and we would not be able to conduct our business as described in this report. We have not obtained a formal determination from the SEC as to our status under the Investment Company Act and, consequently, any violation of the Investment Company Act would subject us to material adverse consequences.
 Risks Related to Our Manager
We are dependent on our Manager and other key personnel at Fortress and may not find suitable replacements if our Manager terminates the Management Agreement or if other key personnel depart.
Our officers and other individuals who perform services for us (other than Jefferson and CMQR employees) are employees of our Manager or other Fortress entities. We are completely reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies, to conduct our business. We are subject to the risk that our Manager will terminate the Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost, or at all. Furthermore, we are dependent on the services of certain key employees of our Manager and certain key employees of Fortress entities whose compensation is partially or entirely dependent upon the amount of management fees earned by our Manager or the incentive allocations distributed to the General Partner and whose continued service is not guaranteed, and the loss of such personnel or services could materially adversely affect our operations. We do not have key man insurance for any of the personnel of the Manager or other Fortress entities that are key to us. An inability to find a suitable replacement for any departing employee of our Manager or Fortress entities on a timely basis could materially adversely affect our ability to operate and grow our business.
In addition, our Manager may assign our Management Agreement to an entity whose business and operations are managed or supervised by Mr. Wesley R. Edens, who is a principal and a Co-Chairman of the board of directors of Fortress, an affiliate of our Manager, and a member of the management committee of Fortress since co-founding Fortress in May 1998. In the event of any such assignment to a non-affiliate of Fortress, the functions currently performed by our Manager’s current personnel may be performed by others. We can give you no assurance that such personnel would manage our operations in the same manner as our Manager currently does, and the failure by the personnel of any such entity to acquire assets generating attractive risk-adjusted returns could have a material adverse effect on our business, financial condition, results of operations and cash flows.
On December 27, 2017, SoftBank announced that it completed the SoftBank Merger. In connection with the SoftBank Merger, Fortress operates within SoftBank as an independent business headquartered in New York. There can be no assurance that the SoftBank Merger will not have an impact on us or our relationship with the Manager.


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There are conflicts of interest in our relationship with our Manager.
Our Management Agreement, the Partnership Agreement and our operating agreement were negotiated prior to our IPO and among affiliated parties, and their terms, including fees payable, may not be as favorable to us as if they had been negotiated after our IPO with an unaffiliated third-party.
There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates - including investment funds, private investment funds, or businesses managed by our Manager, including Seacastle Ships Holdings Inc., Trac Intermodal and Florida East Coast Industries - invest in transportation and transportation-related infrastructure assets and whose investment objectives overlap with our asset acquisition objectives. Certain opportunities appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our board of directors and employees of our Manager who are our officers also serve as officers and/or directors of these other entities. For example, we have some of the same directors and officers as Seacastle Ships Holdings Inc. and Trac Intermodal. Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress, including Seacastle Ships Holdings Inc. and Trac Intermodal, for certain target assets. From time to time, affiliates of Fortress focus on investments in assets with a similar profile as our target assets that we may seek to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. Fortress has multiple existing and planned funds focused on investing in one or more of our target sectors, each with significant current or expected capital commitments. We may co-invest with these funds in transportation and transportation-related infrastructure assets. Fortress funds generally have a fee structure similar to ours, but the fees actually paid will vary depending on the size, terms and performance of each fund.  
Our Management Agreement generally does not limit or restrict our Manager or its affiliates from engaging in any business or managing other pooled investment vehicles that invest in assets that meet our asset acquisition objectives. Our Manager intends to engage in additional transportation and infrastructure related management and transportation, infrastructure and other investment opportunities in the future, which may compete with us for investments or result in a change in our current investment strategy. In addition, our operating agreement provides that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our shareholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of FTAI and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.
The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we may engage (subject to our strategy) in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, including Seacastle Ships Holdings Inc., Trac Intermodal and Florida East Coast Industries, which may include, but are not limited to, certain acquisitions, financing arrangements, purchases of debt, co-investments, consumer loans, servicing advances and other assets that present an actual, potential or perceived conflict of interest. Our board of directors adopted a policy regarding the approval of any “related person transactions” pursuant to which certain of the material transactions described above may require disclosure to, and approval by, the independent members of our board of directors. Actual, potential or perceived conflicts have given, and may in the future give, rise to investor dissatisfaction, litigation or regulatory inquiries or enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.
The structure of our Manager’s and the General Partner’s compensation arrangements may have unintended consequences for us. We have agreed to pay our Manager a management fee and the General Partner is entitled to receive incentive allocations from Holdco that are each based on different measures of performance. Consequently, there may be conflicts in the incentives of our Manager to generate attractive risk-adjusted returns for us. In addition, because the General Partner and our Manager are both affiliates of Fortress, the Income Incentive Allocation paid to the General Partner may cause our Manager to place undue emphasis on the maximization of earnings, including through the use of leverage, at the expense of other objectives, such as preservation of capital, to achieve higher incentive allocations. Investments with higher yield potential are generally riskier or more speculative than investments with lower yield potential. This could result in increased risk to the value of our portfolio of assets and our common shares.
Our directors have approved a broad asset acquisition strategy for our Manager and do not approve each acquisition we make at the direction of our Manager. In addition, we may change our strategy without a shareholder vote, which may result in our acquiring assets that are different, riskier or less profitable than our current assets.

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Our Manager is authorized to follow a broad asset acquisition strategy. We may pursue other types of acquisitions as market conditions evolve. Our Manager makes decisions about our investments in accordance with broad investment guidelines adopted by our board of directors. Accordingly, we may, without a shareholder vote, change our target sectors and acquire a variety of assets that differ from, and are possibly riskier than, our current asset portfolio. Consequently, our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in our existing portfolio. Our directors will periodically review our strategy and our portfolio of assets. However, our board does not review or pre-approve each proposed acquisition or our related financing arrangements. In addition, in conducting periodic reviews, the directors rely primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to reverse by the time they are reviewed by the directors even if the transactions contravene the terms of the Management Agreement. In addition, we may change our asset acquisition strategy, including our target asset classes, without a shareholder vote.
Our asset acquisition strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets we target and our ability to finance such assets on a short or long-term basis. Opportunities that present unattractive risk-return profiles relative to other available opportunities under particular market conditions may become relatively attractive under changed market conditions and changes in market conditions may therefore result in changes in the assets we target. Decisions to make acquisitions in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce or eliminate our ability to pay dividends on our common shares or have adverse effects on our liquidity or financial condition. A change in our asset acquisition strategy may also increase our exposure to interest rate, foreign currency or credit market fluctuations. In addition, a change in our asset acquisition strategy may increase our use of non-match-funded financing, increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.
Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our assets.
Pursuant to our Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, will not be liable to us or any of our subsidiaries, to our board of directors, or our or any subsidiary’s shareholders or partners for any acts or omissions by our Manager, its members, managers, officers, employees, sub-advisers and any other person controlling or Manager, except liability to the Company, our shareholders, directors, officers and employees and persons controlling us, by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We will, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees, sub-advisers and each other person, if any, controlling our Manager harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.
Our Manager’s due diligence of potential asset acquisitions or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.
Our Manager intends to conduct due diligence with respect to each asset acquisition opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the asset and will rely on information provided by the seller of the asset. In addition, if asset acquisition opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.
 Risks Related to Taxation
Shareholders may be subject to U.S. federal income tax on their share of our taxable income, regardless of whether they receive any cash dividends from us.
So long as we would not be required to register as an investment company under the Investment Company Act of 1940 if we were a U.S. Corporation and 90% of our gross income for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), on a continuing basis, FTAI will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Shareholders may be subject to U.S. federal, state, local and possibly, in some cases, non-U.S. income taxation on their allocable share of our items of income, gain, loss, deduction and credit (including our allocable share of those items of Holdco or any other entity in which we invest

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that is treated as a partnership or is otherwise subject to tax on a flow through basis) for each of our taxable years ending with or within their taxable year, regardless of whether they receive cash dividends from us. Shareholders may not receive cash dividends equal to their allocable share of our net taxable income or even the tax liability that results from that income.
In addition, certain of our holdings, including holdings, if any, in a Controlled Foreign Corporation (“CFC”) may produce taxable income prior to our receipt of cash relating to such income, and shareholders subject to U.S. federal income tax will be required to take such income into account in determining their taxable income.
New U.S. tax legislation could adversely affect us and our shareholders.
On December 22, 2017, legislation referred to as the “Tax Cuts and Jobs Act” (the “TCJA”) was signed into law. The TCJA is generally effective for taxable years beginning after December 31, 2017. The TCJA includes significant amendments to the Code, including amendments that significantly change the taxation of individuals and business entities, including the taxation of offshore earnings and the deductibility of interest. Some of the amendments could adversely affect our business and financial condition and the value of our common shares.
Although we are currently evaluating the impact of the TCJA on our business, significant uncertainty exists with respect to how the TCJA will affect our business. Some of this uncertainty will not be resolved until clarifying Treasury regulations are promulgated or other relevant authoritative guidance is published.
Prospective investors should consult their tax advisors about the TCJA and its potential impact before investing in our common shares.
Under the TCJA, shareholders that are Non-U.S. Holders (defined below) could be subject to U.S. federal income tax, including a 10% withholding tax, on the disposition of our common shares.
If the Internal Revenue Service (the “IRS”) were to determine that we, Holdco, or any other entity in which we invest that is subject to tax on a flow-through basis, is engaged in a U.S. trade or business for U.S. federal income tax purposes, any gain recognized by a foreign transferor on the sale, exchange or other disposition of our common shares would generally be treated as “effectively connected” with such trade or business to the extent it does not exceed the effectively connected gain that would be allocable to the transferor if we sold all of our assets at their fair market value as of the date of the transferor’s disposition. Under the TCJA, any such gain that is treated as effectively connected will generally be subject to U.S. federal income tax. In addition, the transferee of the common shares or the applicable withholding agent would be required to deduct and withhold a tax equal to 10% of the amount realized by the transferor on the disposition, which would include an allocable portion of our liabilities and would therefore generally exceed the amount of transferred cash received by transferor in the disposition, unless the transferor provides an IRS Form W-9 or an affidavit stating the transferor’s taxpayer identification number and that the transferor is not a foreign person. If the transferee fails to properly withhold such tax, we would be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold, plus interest. Although we do not believe that we are currently directly engaged in a U.S. trade or business, we are not required to manage our operations in a manner that is intended to avoid the conduct of a U.S. trade or business.
The withholding requirements with respect to the disposition of an interest in a publicly traded partnership are currently suspended and will remain suspended until Treasury regulations are promulgated or other relevant authoritative guidance is issued. Future guidance on the implementation of these requirements will be applicable on a prospective basis.
Tax gain or loss on a sale or other disposition of our common shares could be more or less than expected.
If a sale of our common shares by a shareholder is taxable in the United States, the shareholder will recognize gain or loss equal to the difference between the amount realized by such shareholder in the sale and such shareholder’s adjusted tax basis in those shares. A shareholder’s adjusted tax basis in the shares at the time of sale will generally be lower than the shareholder’s original tax basis in the shares to the extent that prior distributions to such shareholder exceed the total taxable income allocated to such shareholder. A shareholder may therefore recognize a gain in a sale of our common shares if the shares are sold at a price that is less than their original cost. A portion of the amount realized, whether or not representing gain, may be treated as ordinary income to such shareholder.
Our ability to make distributions depends on our receiving sufficient cash distributions from our subsidiaries, and we cannot assure our shareholders that we will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities.
Our subsidiaries may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, our funds available for distribution are indirectly reduced by such taxes, and the post-tax return to our shareholders is similarly reduced by such taxes.

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In general, a shareholder that is subject to U.S. federal income tax must include in income its allocable share of FTAI’s items of income, gain, loss, deduction, and credit (including, so long as FTAI is treated as a partnership for U.S. federal income tax purposes, FTAI’s allocable share of those items of Holdco and any pass-through subsidiaries of Holdco) for each of our taxable years ending with or within such shareholder’s taxable year. However, the cash distributed to a shareholder may not be sufficient to pay the full amount of such shareholder’s tax liability in respect of its investment in us, because each shareholder’s tax liability depends on such shareholder’s particular tax situation and the tax treatment of our underlying activities or assets.
If we are treated as a corporation for U.S. federal income tax purposes, the value of the shares could be adversely affected.
We have not requested, and do not plan to request, a ruling from the IRS on our treatment as a partnership for U.S. federal income tax purposes, or on any other matter affecting us. As of the date of the consummation of our initial public offering, under then current law and assuming full compliance with the terms of our operating agreement (and other relevant documents) and based upon factual statements and representations made by us, our outside counsel opined that we will be treated as a partnership, and not as an association or a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. However, opinions of counsel are not binding upon the IRS or any court, and the IRS may challenge this conclusion and a court may sustain such a challenge. The factual representations made by us upon which our outside counsel relied relate to our organization, operation, assets, activities, income, and present and future conduct of our operations. In general, if an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes is a “publicly traded partnership” (as defined in the Code) it will be nonetheless treated as a corporation for U.S. federal income tax purposes, unless the exception described below, and upon which we intend to rely, applies. A publicly traded partnership will, however, be treated as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of the Code and it is not required to register as an investment company under the Investment Company Act of 1940. We refer to this exception as the “Qualifying Income Exception.”
Qualifying income generally includes dividends, interest, capital gains from the sale or other disposition of stocks and securities and certain other forms of investment income. A substantial portion of our income consists of “Subpart F” income (which includes rent and other types of passive income) derived from CFCs. While we believe that such income constitutes qualifying income, no assurance can be given that the IRS will agree with such position. We also believe that our return from investments will include interest, dividends, capital gains and other types of qualifying income, but no assurance can be given as to the types of income that will be earned in any given year.
If we fail to satisfy the Qualifying Income Exception, we would be required to pay U.S. federal income tax at regular corporate rates on our income. Although the TCJA reduced regular corporate rates from 35% to 21%, our failure to qualify as a partnership for U.S. federal income tax purposes could nevertheless adversely affect our business, operating results and financial condition. In addition, we would likely be liable for state and local income and/or franchise taxes on our income. Finally, distributions of cash to shareholders would constitute qualified dividend income taxable to such shareholders to the extent of our earnings and profits and would not be deductible by us. Taxation of us as a publicly traded partnership taxable as a corporation could result in a material adverse effect on our cash flow and the after-tax returns for shareholders and thus could result in a substantial reduction in the value of our common shares.
Shareholders that are not U.S. persons should also anticipate being required to file U.S. tax returns and may be required to pay U.S. tax solely on account of owning our common shares.
In light of our intended investment activities, we may be, or may become, engaged in a U.S. trade or business for U.S. federal income tax purposes, in which case some portion of our income would be treated as effectively connected income with respect to non-U.S. persons. Moreover, we anticipate that, in the future, we will sell interests in U.S. real holding property corporations (each a “USRPHC”) and therefore be deemed to be engaged in a U.S. trade or business at such time. If we were to realize gain from the sale or other disposition of a U.S. real property interest (including a USRPHC) or were otherwise engaged in a U.S. trade or business, non-U.S. persons generally would be required to file U.S. federal income tax returns and would be subject to U.S. federal withholding tax on their allocable share of the effectively connected income on gain at the highest marginal U.S. federal income tax rates applicable to ordinary income. Non-U.S. persons that are corporations may also be subject to a branch profits tax on their allocable share of such income. Non-U.S. persons should anticipate being required to file U.S. tax returns and may be required to pay U.S. tax solely on account of owning our common shares.

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Non-U.S. persons that hold (or are deemed to hold) more than 5% of our common shares (or held, or were deemed to hold, more than 5% of our common shares) may be subject to U.S. federal income tax upon the disposition of some or all their common shares.
If a non-U.S. person held more than 5% of our common shares at any time during the 5-year period preceding such non-U.S. person’s disposition of our common shares, and we were considered a USRPHC (determined as if we were a U.S. corporation) at any time during such 5-year period because of our current or previous ownership of U.S. real property interests above a certain threshold, such non-U.S. person may be subject to U.S. tax on such disposition of our common shares (and may have a U.S. tax return filing obligation).
Tax-exempt shareholders may face certain adverse U.S. tax consequences from owning our common shares.
We are not required to manage our operations in a manner that would minimize the likelihood of generating income that would constitute “unrelated business taxable income” (“UBTI”) to the extent allocated to a tax-exempt shareholder. Although we expect to invest through subsidiaries that are treated as corporations for U.S. federal income tax purposes and such corporate investments would generally not result in an allocation of UBTI to a shareholder on account of the activities of those subsidiaries, we may not invest through corporate subsidiaries in all cases. Moreover, UBTI also includes income attributable to debt-financed property and we are not prohibited from incurring debt to finance our investments, including investments in subsidiaries. Furthermore, we are not prohibited from being (or causing a subsidiary to be) a guarantor of loans made to a subsidiary. If we (or certain of our subsidiaries) were treated as the borrower for U.S. tax purposes on account of those guarantees, some or all of our investments could be considered debt-financed property. The potential for income to be characterized as UBTI could make our common shares an unsuitable investment for a tax-exempt entity. Tax-exempt shareholders are urged to consult their tax advisors regarding the tax consequences of an investment in common shares.
We may hold or acquire certain investments through an entity classified as a CFC for U.S. federal income tax purposes.
Many of our investments are in non-U.S. corporations or are held through a non-U.S. subsidiary that is classified as a corporation for U.S. federal income tax purposes. Many of these entities are CFCs for U.S. federal income tax purposes. U.S. Holders indirectly owning an interest in a CFC may experience adverse U.S. tax consequences.
If substantially all of the U.S. source rental income derived from aircraft or ships used to transport passengers or cargo in international traffic (“U.S. source international transport rental income”) of any of our non-U.S. corporate subsidiaries is attributable to activities of personnel based in the United States, such subsidiary could be subject to U.S. federal income tax on a net income basis at regular tax rates, rather than at a rate of 4% on gross income, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
We believe that the U.S. source international transport rental income of our non-U.S. subsidiaries generally will be subject to U.S. federal income tax, on a gross-income basis at a rate not in excess of 4%. If any of our non-U.S. subsidiaries that is treated as a corporation for U.S. federal income tax purposes did not comply with certain administrative guidelines of the IRS, such that 90% or more of such subsidiary’s U.S. source international transport rental income were attributable to the activities of personnel based in the United States (in the case of bareboat leases) or from “regularly scheduled transportation” as defined in such administrative guidelines (in the case of time-charter leases), such subsidiary’s U.S. source rental income would be treated as income effectively connected with a trade or business in the United States. In such case, such subsidiary’s U.S. source international transport rental income would be subject to U.S. federal income tax at a maximum rate of 21% for taxable years beginning after December 31, 2017. In addition, such subsidiary would be subject to the U.S. federal branch profits tax on its effectively connected earnings and profits at a rate of 30%. The imposition of such taxes would adversely affect our business and would result in decreased funds available for distribution to our shareholders.
Our subsidiaries may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Some of our subsidiaries are subject to income, withholding or other taxes in certain non-U.S. jurisdictions by reason of their activities and operations, where their assets are used, or where the lessees of their assets (or others in possession of their assets) are located, and it is also possible that taxing authorities in any such jurisdictions could assert that our subsidiaries are subject to greater taxation than we currently anticipate. For example, a portion of certain of our non-U.S. corporate subsidiaries’ income is treated as effectively connected with a U.S. trade or business and is accordingly subject to U.S. federal income tax. It is possible that the IRS could assert that a greater portion of any such non-U.S. subsidiaries’ income is effectively connected income that should be subject to U.S. federal income tax.

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Our structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Our structure also is subject to potential legislative, judicial or administrative change and differing interpretations, possibly on a retroactive basis.
The U.S. federal income tax treatment of our shareholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The U.S. federal income tax treatment of our common shareholders may also be modified by administrative, legislative or judicial interpretation at any time, possibly on a retroactive basis, and any such action may affect our investments and commitments that were previously made, and could adversely affect the value of our shares or cause us to change the way we conduct our business.
Our organizational documents and agreements permit the board of directors to modify our operating agreement from time to time, without the consent of shareholders, in order to address certain changes in Treasury regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all shareholders. Moreover, we will apply certain assumptions and conventions in an attempt to comply with applicable rules and to report income, gain, deduction, loss and credit to shareholders in a manner that reflects such shareholders’ beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. However, these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions used by us do not satisfy the technical requirements of the Code and/or Treasury regulations and could require that items of income, gain, deduction, loss or credit, including interest deductions, be adjusted, reallocated, or disallowed, in a manner that adversely affects shareholders.
We could incur a significant tax liability if the IRS successfully asserts that the “anti-stapling” rules apply to our investments in our non-U.S. and U.S. subsidiaries, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
If we were subject to the “anti-stapling” rules of Section 269B of the Code, we would incur a significant tax liability as a result of owning more than 50% of the value of both U.S. and non-U.S. corporate subsidiaries, whose equity interests constitute “stapled interests” that may only be transferred together. If the “anti-stapling” rules applied, our non-U.S. corporate subsidiaries that are treated as corporations for U.S. federal income tax purposes would be treated as U.S. corporations, which would cause those entities to be subject to U.S. federal corporate income tax on their worldwide income. Because we intend to separately manage and operate our non-U.S. and U.S. corporate subsidiaries and structure their business activities in a manner that would allow us to dispose of such subsidiaries separately, we do not expect that the “anti-stapling” rules will apply. However, there can be no assurance that the IRS would not successfully assert a contrary position, which would adversely affect our business and result in decreased funds available for distribution to our shareholders.
Because we cannot match transferors and transferees of our shares, we have therefore adopted certain income tax accounting positions that may not conform with all aspects of applicable tax requirements. The IRS may challenge this treatment, which could adversely affect the value of our shares.
Because we cannot match transferors and transferees of our shares, we have adopted depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our shareholders. It also could affect the timing of these tax benefits or the amount of gain on the sale of our common shares and could have a negative impact on the value of our common shares or result in audits of and adjustments to our shareholders’ tax returns.
We generally allocate items of income, gain, loss and deduction using a monthly or other convention, whereby any such items we recognize in a given month are allocated to our shareholders as of a specified date of such month. As a result, if a shareholder transfers its common shares, it might be allocated income, gain, loss and deduction realized by us after the date of the transfer. Similarly, if a shareholder acquires additional common shares, it might be allocated income, gain, loss, and deduction realized by us prior to its ownership of such common shares. Consequently, our shareholders may recognize income in excess of cash distributions received from us, and any income so included by a shareholder would increase the basis such shareholder has in its common shares and would offset any gain (or increase the amount of loss) realized by such shareholder on a subsequent disposition of its common shares.

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Recently enacted legislation regarding U.S. federal income tax liability arising from IRS audits could adversely affect our shareholders.
For taxable years beginning on or after January 1, 2018, we will be liable for U.S. federal income tax liability arising from an IRS audit, unless certain alternative methods are available and we elect to use them. Under the new rules, it is possible that certain shareholders or we may be liable for taxes attributable to adjustments to our taxable income with respect to tax years that closed before such shareholders owned our shares. Accordingly, this new legislation may adversely affect certain shareholders in certain cases. This differs from the prior rules, which generally provided that tax adjustments only affect the persons who were shareholders in the tax year in which the item was reported on our tax return. The changes created by the new legislation are uncertain and in many respects depend on the promulgation of future regulations or other guidance by the U.S. Treasury Department or the IRS.
 Risks Related to Our Common Shares
The market price and trading volume of our common shares may be volatile, which could result in rapid and substantial losses for our shareholders.
The market price of our common shares may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common shares may fluctuate and cause significant price variations to occur. If the market price of our common shares declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common shares include:
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a shift in our investor base;
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our quarterly or annual earnings, or those of other comparable companies;
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actual or anticipated fluctuations in our operating results;
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changes in accounting standards, policies, guidance, interpretations or principles;
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announcements by us or our competitors of significant investments, acquisitions or dispositions;
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the failure of securities analysts to cover our common shares;
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changes in earnings estimates by securities analysts or our ability to meet those estimates;
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the operating and share price performance of other comparable companies;
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overall market fluctuations;
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general economic conditions; and
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developments in the markets and market sectors in which we participate.
Stock markets in the United States have experienced extreme price and volume fluctuations. Market fluctuations, as well as general political and economic conditions such as acts of terrorism, prolonged economic uncertainty, a recession or interest rate or currency rate fluctuations, could adversely affect the market price of our common shares.
We are required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls, and the outcome of that effort may adversely affect our results of operations, financial condition and liquidity. Because we are no longer an emerging growth company, we are subject to heightened disclosure obligations, which may impact our share price.
As a public company, we are required to comply with Section 404 (“Section 404”) of the Sarbanes-Oxley Act. Section 404 requires that we evaluate the effectiveness of our internal control over financial reporting at the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in our Annual Report on Form 10-K for that fiscal year. Section 404 also requires an independent registered public accounting firm to attest to, and report on, management’s assessment of our internal controls over financial reporting. Because we ceased to be an emerging growth company at the end of 2017, we were required to have our independent registered public accounting firm attest to the effectiveness of our internal controls in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The outcome of our review and the report of our independent registered public accounting firm may adversely affect our results of operations, financial condition and liquidity. During the course of our review, we may identify control deficiencies of varying degrees of severity, and we may incur significant costs to remediate those deficiencies or otherwise improve our internal controls. As a public company, we are required

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to report control deficiencies that constitute a “material weakness” in our internal control over financial reporting. If we discover a material weakness in our internal control over financial reporting, our share price could decline and our ability to raise capital could be impaired.
Furthermore, because we are no longer an emerging growth company, we can no longer take advantage of certain other exemptions from various SEC reporting requirements, including, but not limited to, exemptions from enhanced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the requirements of holding a non-binding advisory vote on executive compensation at our annual meeting and obtaining shareholder approval of any golden parachute payments not previously approved. Until we comply with these requirements in connection with our 2018 periodic reports, proxy statement and annual meeting of shareholders, our shareholders may not have access to certain information they deem important. Because we have previously taken advantage of each of these exemptions, we do not know if some investors will find our common shares less attractive as a result.
Your percentage ownership in us may be diluted in the future.
Your percentage ownership in FTAI may be diluted in the future because of equity awards granted and may be granted to our Manager pursuant to the Management Agreement and the Incentive Plan. We recently granted our Manager an option to acquire 700,000 common shares are part of the equity offering discussed in Note 15 to this Quarterly Report on Form 10Q. In the future, upon the successful completion of additional offerings of our common shares or other equity securities (including securities issued as consideration in an acquisition), we will grant to our Manager options to purchase common shares in an amount equal to 10% of the number of common shares being sold in such offerings (or if the issuance relates to equity securities other than our common shares, options to purchase a number of common shares equal to 10% of the gross capital raised in the equity issuance divided by the fair market value of a common share as of the date of the issuance), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser or attributed to such securities in connection with an acquisition (or the fair market value of a common share as of the date of the equity issuance if it relates to equity securities other than our common shares), and any such offering or the exercise of the option in connection with such offering would cause dilution.
Our board of directors has adopted the Incentive Plan which provides for the grant of equity-based awards, including restricted shares, stock options, stock appreciation rights, performance awards, restricted share units, tandem awards and other equity-based and non-equity based awards, in each case to our Manager, to the directors, officers, employees, service providers, consultants and advisors of our Manager who perform services for us, and to our directors, officers, employees, service providers, consultants and advisors. We have initially reserved 30,000,000 common shares for issuance under the Incentive Plan. As of March 31, 2018, rights relating to 725,000 of our common shares were outstanding under the Incentive Plan. In connection with an offering that closed on January 16, 2018, the number of shares reserved for issuance under the Incentive Plan will be increased in an amount equal to 700,000 common shares, which amount corresponds to the common shares subject to the option described above. In the future on the date of any equity issuance by the Company during the ten-year term of the Incentive Plan (including in respect of securities issued as consideration in an acquisition), the maximum number of shares available for issuance under the Plan will be increased to include an additional number of common shares equal to ten percent (10%) of either (i) the total number of common shares newly issued by the Company in such equity issuance or (ii) if such equity issuance relates to equity securities other than our common shares, a number of our common shares equal to 10% of (A) the gross capital raised in an equity issuance of equity securities other than common shares during the ten-year term of the Incentive Plan, divided by (B) the fair market value of a common share as of the date of such equity issuance.
Sales or issuances of our common shares could adversely affect the market price of our common shares.
Sales of substantial amounts of our common shares in the public market, or the perception that such sales might occur, could adversely affect the market price of our common shares. The issuance of our common shares in connection with property, portfolio or business acquisitions or the exercise of outstanding options or otherwise could also have an adverse effect on the market price of our common shares.
The incurrence or issuance of debt, which ranks senior to our common shares upon our liquidation, and future issuances of equity or equity-related securities, which would dilute the holdings of our existing common shareholders and may be senior to our common shares for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our common shares.
We have incurred and may in the future incur or issue debt or issue equity or equity-related securities to finance our operations, acquisitions or investments. Upon our liquidation, lenders and holders of our debt and holders of our preferred shares (if any) would receive a distribution of our available assets before common shareholders. Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash flows. We are not required to offer any additional equity securities to existing common shareholders on a preemptive basis. Therefore, additional issuances of common shares, directly or through convertible or exchangeable securities (including limited partnership interests in our operating partnership), warrants or options, will dilute the holdings of our existing common shareholders and such issuances, or the perception of such issuances, may reduce the market price of our common shares. Any preferred shares issued by us would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions

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to common shareholders. Because our decision to incur or issue debt or issue equity or equity-related securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common shareholders bear the risk that our future incurrence or issuance of debt or issuance of equity or equity-related securities will adversely affect the market price of our common shares.
Our determination of how much leverage to use to finance our acquisitions may adversely affect our return on our assets and may reduce funds available for distribution.
We utilize leverage to finance many of our asset acquisitions, which entitles certain lenders to cash flows prior to retaining a return on our assets. While our Manager targets using only what we believe to be reasonable leverage, our strategy does not limit the amount of leverage we may incur with respect to any specific asset. The return we are able to earn on our assets and funds available for distribution to our shareholders may be significantly reduced due to changes in market conditions, which may cause the cost of our financing to increase relative to the income that can be derived from our assets.
While we currently intend to pay regular quarterly dividends to our shareholders, we may change our dividend policy at any time.
Although we currently intend to pay regular quarterly dividends to holders of our common shares, we may change our dividend policy at any time. Our net cash provided by operating activities has been less than the amount of distributions to our shareholders. The declaration and payment of dividends to holders of our common shares will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including actual results of operations, liquidity and financial condition, net cash provided by operating activities, restrictions imposed by applicable law, our taxable income, our operating expenses and other factors our board of directors deem relevant. Our long term goal is to maintain a payout ratio of between 50-60% of funds available for distribution, with remaining amounts used primarily to fund our future acquisitions and opportunities. There can be no assurance that we will continue to pay dividends in amounts or on a basis consistent with prior distributions to our investors, if at all. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries and our ability to receive distributions from our subsidiaries may be limited by the financing agreements to which they are subject. In addition, pursuant to the Partnership Agreement, the General Partner will be entitled to receive incentive allocations before any amounts are distributed by the Company based both on our consolidated net income and capital gains income in each fiscal quarter and for each fiscal year, respectively.
Anti-takeover provisions in our operating agreement and Delaware law could delay or prevent a change in control.
Provisions in our operating agreement may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our shareholders. For example, our operating agreement provides for a staggered board, requires advance notice for proposals by shareholders and nominations, places limitations on convening shareholder meetings, and authorizes the issuance of preferred shares that could be issued by our board of directors to thwart a takeover attempt. In addition, certain provisions of Delaware law may delay or prevent a transaction that could cause a change in our control. The market price of our shares could be adversely affected to the extent that provisions of our operating agreement discourage potential takeover attempts that our shareholders may favor.
There are certain provisions in our operating agreement regarding exculpation and indemnification of our officers and directors that differ from the Delaware General Corporation Law (the “DGCL”) in a manner that may be less protective of the interests of our shareholders.
Our operating agreement provides that to the fullest extent permitted by applicable law our directors or officers will not be liable to us. Under the DGCL, a director or officer would be liable to us for (i) breach of duty of loyalty to us or our shareholders, (ii) intentional misconduct or knowing violations of the law that are not done in good faith, (iii) improper redemption of shares or declaration of dividend, or (iv) a transaction from which the director derived an improper personal benefit. In addition, our operating agreement provides that we indemnify our directors and officers for acts or omissions to the fullest extent provided by law. Under the DGCL, a corporation can only indemnify directors and officers for acts or omissions if the director or officer acted in good faith, in a manner he reasonably believed to be in the best interests of the corporation, and, in criminal action, if the officer or director had no reasonable cause to believe his conduct was unlawful. Accordingly, our operating agreement may be less protective of the interests of our shareholders, when compared to the DGCL, insofar as it relates to the exculpation and indemnification of our officers and directors.

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As a public company, we will incur additional costs and face increased demands on our management.
As a relatively new public company with shares listed on the NYSE, we need to comply with an extensive body of regulations that did not apply to us previously, including certain provisions of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulations of the SEC and requirements of the NYSE. These rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. For example, as a result of becoming a public company, we have independent directors and board committees. In addition, we may continue to incur additional costs associated with maintaining directors’ and officers’ liability insurance and with the termination of our status as an emerging growth company as of the end of 2017. Because we are no longer an emerging growth company, we are subject to the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and enhanced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We are currently evaluating and monitoring developments with respect to these rules, which may impose additional costs on us and have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.
If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common shares, our share price and trading volume could decline.
The trading market for our common shares are influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us downgrades our common units or publishes inaccurate or unfavorable research about our business, our common share price may decline. If analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our common share price or trading volume to decline and our common shares to be less liquid.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.


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Item 6. Exhibits
 
Exhibit No.
 
Description
 
 
Certificate of Formation (incorporated by reference to Exhibit 3.1 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed on April 30, 2015).
 
 
Amended and Restated Limited Liability Company Agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K, filed on May 21, 2015).
 
 
First Amendment to Amended and Restated Limited Liability Company Agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 3.3 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Indenture, dated March 15, 2017, between Fortress Transportation and Infrastructure Investors LLC and U.S. Bank National
Association, as trustee, relating to the Company’s 6.75% senior unsecured notes due 2022 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on March 15, 2017).

 
 
Form of global note representing the Company’s 6.75% senior unsecured notes due 2022 (included in Exhibit 4.1).
 
 
First Supplemental Indenture, dated June 8, 2017, between Fortress Transportation and Infrastructure Investors LLC
and U.S. Bank National Association, as trustee, relating to the Company’s 6.75% senior unsecured notes due 2022.
 
 
Second Supplemental Indenture, dated August 23, 2017, between Fortress Transportation and Infrastructure Investors LLC and U.S. Bank National Association, as trustee, relating to the Company’s 6.75% senior unsecured notes due 2022 (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K, filed on August 23, 2017).

 
 
Third Supplemental Indenture, dated December 20, 2017, between Fortress Transportation and Infrastructure LLC (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on December 20, 2017).
 
 
Fourth Amended and Restated Partnership Agreement of Fortress Worldwide Transportation and Infrastructure General Partnership (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on May 21, 2015).
†
 
Management and Advisory Agreement, dated as of May 20, 2015, between Fortress Transportation and Infrastructure Investors LLC and FIG LLC (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K, filed on May 21, 2015).
†
 
Registration Rights Agreement, dated as of May 20, 2015, among Fortress Transportation and Infrastructure Investors LLC, FIG LLC and Fortress Transportation and Infrastructure Master GP LLC (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K, filed on May 21, 2015).
†
 
Fortress Transportation and Infrastructure Investors LLC Nonqualified Stock Option and Incentive Award Plan (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K, filed on May 21, 2015).
 
 
Form of director and officer indemnification agreement of Fortress Transportation and Infrastructure Investors LLC (incorporated by reference to Exhibit 10.5 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed April 30, 2015).
 
 
Credit Agreement, dated as of August 27, 2014, among Morgan Stanley Senior Funding, Inc., as administrative agent, Jefferson Gulf Coast Energy Partners LLC and the other lenders party thereto (incorporated by reference to Exhibit 10.6 of Amendment No. 4 to the Company's Registration Statement on Form S-1, filed April 30, 2015).
 
 
Trust Indenture and Security Agreement between the District and The Bank of New York Mellon Trust Company, National Association, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Standby Bond Purchase Agreement among the Port of Beaumont Navigation District of Jefferson County, Texas, The Bank of New York Mellon Trust Company, National Association, Jefferson Railport Terminal II Holdings LLC and Jefferson Railport Terminal II LLC dated as of February 1, 2016 (incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Capital Call Agreement, by and among Fortress Transportation and Infrastructure Investors LLC, FTAI Energy Holdings LLC, FTAI Partner Holdings LLC, FTAI Midstream GP Holdings LLC, FTAI Midstream GP LLC, FTAI Midstream Holdings LLC, FTAI Energy Partners LLC and Jefferson Railport Terminal II Holdings LLC, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.9 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Fee and Support Agreement, among FTAI Energy Holdings LLC, FEP Terminal Holdings LLC, FTAI Energy Partners LLC and Jefferson Railport Terminal II LLC, dated as of March 7, 2016 (incorporated by reference to Exhibit 10.10 of the Company's Amended Annual Report on Form 10-K/A, filed on April 29, 2016).
 
 
Lease and Development Agreement (Facilities Lease), dated as of February 1, 2016, by and between the Port of Beaumont Navigation District of Jefferson County, Texas and Jefferson Railport Terminal II LLC (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Deed of Trust of Jefferson Railport Terminal II LLC, dated as of February 1, 2016 (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K, filed on March 10, 2016).
 
 
Credit Agreement, dated January 23, 2017, among Fortress Transportation and Infrastructure Investors LLC, as holdings, Fortress Worldwide Transportation and Infrastructure General Partnership, as IntermediateCo, WWTAI Finance Ltd., as Borrower, the Subsidiary Guarantors from time to time party thereto, the lenders from time to time party thereto and Morgan Stanley Senior Funding, Inc., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K, filed on January 27, 2017).
 
 
Credit Agreement, dated June 16, 2017, among Fortress Transportation and Infrastructure Investors LLC, as Borrower, the lenders and issuing banks from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on June 22, 2017).
†
 
Form of Award Agreement under the Fortress Transportation and Infrastructure Investors Nonqualified Stock Option
and Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K,
filed on January 17, 2018).

 
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

89


 
Exhibit No.
 
Description
 
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INS
 
XBRL Instance Document.
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
†
Management contracts and compensatory plans or arrangements.


90


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

FORTRESS TRANSPORTATION AND INFRASTRUCTURE INVESTORS LLC
By:
/s/ Joseph P. Adams, Jr.
 
Date:
May 4, 2018
 
Joseph P. Adams, Jr.
 
 
 
 
Chairman and Chief Executive Officer
 
 
 
By:
/s/ Scott Christopher
 
Date:
May 4, 2018
 
Scott Christopher
 
 
 
 
Chief Financial Officer and Chief Accounting Officer
 
 
 


91