Fortress Transportation And Infrastructure Investors To Spin-Off FTAI Infrastructure On August 1 –

On July 12, 2022, Fortress Transportation and Infrastructure Investors LLC (NYSE: FTA
FTA
I, $19.32, Market Capitalization: $1.9 billion) announced that its Board of Directors approved the spin-off of its Infrastructure business and provided additional details related to the spin-off . As per the company press release, each FTAI shareholder will receive one ordinary share of FTAI Infrastructure Inc for every one ordinary share of FTAI. The record date for the distribution for common stockholders is 7/21. The spin-off will be effected as a distribution of all of the shares owned by FTAI of common stock of FTAI Infrastructure to the holders of FTAI common shares as of the record date, which is expected to occur on 8/1. The company expects “when issued” trading for FTAI Infrastructure ordinary shares on the Nasdaq to begin on or about 7/20 and continue through 8/1 under the symbol “FIPWVPWV
.” Also, beginning on or about 7/20 and through the distribution date, it is expected that there will be two ways to trade FTAI common shares – either with or without the distribution of FTAI Infrastructure common stock. On the first trading day following the distribution, 8/2, FTAI Infrastructure will begin regular-way trading on the Nasdaq under the ticker symbol “FIP,” and FTAI will resume trading ex-distribution under the ticker symbol “FTAI.”

Valuation and Recommendation

We value Fortress Transportation and Infrastructure Investors LLC (FTAI) using SOTP methodology and separately value Equipment leasing and Infrastructure business. Our intrinsic value of $21.75 (previously: $22.25) for FTAI (Stub) is based on the 2022e EV/EBITDA multiple of 10.5x (~5% discount to median peer multiple of 11.0x
ZRX
). Our SOTP framework values Infrastructure businesses (excl. Long Ridge) by valuing each operating segment separately using 2022e EV/ EBITDA multiples. We assign a 2022e EV/EBITDA multiple of 5.0x to Jefferson Terminal and Repauno Port. For Transtar, we assign a 2022e EV/EBITDA multiple of 12.0x (~3% premium to median peer multiple of 11.7x). We value the company’s ~50.1% stake in Long-ridge using a 2022e P/E multiple of 12.0x. We arrive at an intrinsic value of $3.25 per share (previously: $10.75) for FTAI Infrastructure (Spin-Off ). Our consolidated target price for Fortress Transportation and Infrastructure Investors LLC (FTAI) stands at $25.00 per share (previously: $33.00), implying a potential upside of 29.4% from the current market price of $19.32 as of 7/12. We thereby retain our ‘Buy’ rating on the stock. Risks to our target price include the impact of the potential economic recession, increased competition, oil price volatility, operational risks, and environmental risks.

Regular-way and When-issued trading

The company expects “when-issued” trading for FTAI Infrastructure ordinary shares on the Nasdaq to begin on or about 7/20 and continue through 8/1 under the symbol “FIPWV.” Beginning on 7/20 till the distribution date, FTAI expects that there will be two ways to trade its ordinary shares, either with or without the right to a distribution of FTAI Infrastructure ordinary shares. FTAI shareholders who sell their FTAI common shares in the “regular-way” market (that is, the normal trading market under the symbol “FTAI”) after the record date and on or before the distribution date will be selling their right to receive shares of FTAI Infrastructure common stock in connection with the spin-off . Alternatively, FTAI shareholders who sell their FTAI common shares in the “ex-distribution” market during the same period under the symbol “FTAIV” will not be selling their right to receive shares of FTAI Infrastructure common stock in connection with the spin-off . The ‘regular-way’ trading of FTAI Infrastructure (FIP) and FTAI ordinary shares is expected to begin on the Nasdaq on 8/2, the first trading day following the distribution date.

Distribution of Fortress Infrastructure shares to FTAI shareholders

FTAI shareholders will receive one ordinary share of FTAI Infrastructure for every ordinary share of FTAI of the record date.

FTAI shareholders are not required to take any action to receive the FTAI Infrastructure stock. Record holders whose FTAI shares are registered directly with American Stock Transfer & Trust Company, LLC will receive a book-entry account statement for the FTAI Infrastructure stock.

A] FTAI (Stub):

EV/EBITDA Valuation: Post-spin-off , FTAI (Stub) will include the company’s Equipment leasing business which primarily leases aircraft and aircraft engines. The segment has demonstrated growth and returns over the years. Factoring in the Russia Ukraine war, we estimate 2022e Adjusted EBITDA of $439.1 million. We assume net debt of $2.1 billion, factoring in the ~$750 million in cash payout by SpinCo to FTAI (Stub) at the time of the separation. Our intrinsic value of $21.75 (previously: $22.25) for FTAI (Stub) is based on the 2022e EV/EBITDA multiple of 10.5x. The assigned multiple is at a ~5% discount to the median peer multiple of 11.0x due to the company’s smaller size of operations and relatively higher leverage profile.

B] FTAI Infrastructure Inc (Spin-Off ):

Post-spin-off , SpinCo will include Infrastructure businesses comprised of Jefferson, Repauno, Long Ridge, and Transtar. Our SOTP framework values Infrastructure businesses (excl. Long Ridge) by valuing each operating segment separately using 2022e EV/ EBITDA multiples. We assign a 2022e EV/ EBITA multiple of 5.0x to Jefferson Terminal and Repauno Port. The assigned multiple is at a ~11% premium to the closest comparable peer Exxon Mobil Corporation. For Transtar, we assign a 2022e EV/EBITA multiple of 12.0x (at a marginal ~3% premium to a median peer multiple of 11.7x). Our estimated Enterprise Value for Infrastructure businesses (excl. Long Ridge) stands at $1.4 billion. We assume net debt of ~$1.1 billion for Infrastructure businesses. FTAI has a ~50.1% stake in the Long Ridge energy terminal. On a run-rate basis, we expect Long Ridge to report $42 million of net profit (on a run-rate EBITDA of $125 million). Accordingly, the infrastructure business should report $22 million ‘equity in profits of unconsolidated entities’. Consequently, we value the company’s stake in Long Ridge at $264 million using a 2022e P/E multiple of 12.0x. The assigned multiple is at a marginal ~6% premium to the closest comparable Vistra Corp’s multiple of 11.3x. After adding the Long Ridge stake to the infrastructure business, we arrive at an intrinsic value of $3.25 per share (previously: $10.75) for Infrastructure business (Spin-Off ).

C] Consolidated Valuation:

Our consolidated target price for Fortress Transportation and Infrastructure Investors LLC (FTAI) stands at $25.00 per share (previously: $33.00), implying a potential upside of 29.4% from the current market price of $19.32 as of 7/12. We thereby retain our ‘Buy’ rating on the stock.

Company Description

Fortress Transportation and Infrastructure Investors LLC (Parent)

Headquartered in New York, Fortress Transportation and Infrastructure Investors LLC (NYSE: FTAI) owns and acquires Infrastructure and related equipment to transport goods and people in Africa, Asia, Europe, North America, and South America. The company is externally managed by FIG LLC, an affiliate of Fortress Investment Group LLC. The company’s operations consist of two primary strategic business units – Equipment leasing and Infrastructure. The equipment leasing segment leases aircraft and aircraft engines. The infrastructure business comprises Jefferson Terminal, Ports and Terminals, and Transtar. Jefferson Terminal develops a multi-modal crude oil and refined products handling terminal in Beaumont, Texas, and ownership of various other assets for the transportation and processing of crude oil and related products. The Ports and Terminals segment operates Repauno, a 1,630 acre deep-water port located along the Delaware River; and Long Ridge, a 1,660-acre multi-modal port situated along the Ohio River. The company also owns and leases off shore energy equipment and shipping containers. In July 2021, the company acquired Transtar, which comprises five freight railroads and one switching company that provides rail service to manufacturing and production facilities. The company serves operators of transportation and infrastructure networks comprising airlines, off shore energy service providers, energy providers, and shipping lines. For FY21, the company generated total revenues of $455.8 million.

Fortress Infrastructure Inc (Spin-Off )

The infrastructure business (SpinCo) will consist of Jefferson, Repauno, Long Ridge, and Transtar. The Jefferson Terminal consists of a multi-modal crude and refined products terminal and other related assets, which were acquired in 2014. The Ports and Terminals segment consists of Repauno, which was acquired in 2016, a 1,630-acre deep-water port along the Delaware River with an underground storage cavern and multiple industrial development opportunities. It also includes an equity method investment (Long Ridge), a 1,660-acre multi-modal port along the Ohio River with rail, dock, and multiple industrial development opportunities, including a power plant under construction. In July 2021, the company acquired Transtar, which comprises five freight railroads and one switching company that provides rail service to manufacturing and production facilities. For FY21, the Infrastructure business generated total revenues of $120.2 million.