FTAI Spin-off Deep Dive

August 2, 2022

Summary:

Today, FTAI began trading as two independent companies. Unfortunately, I don’t think either company is particularly interesting at the current valuation.

The spin-off, FTAI Infrastructure (FIP) is comprised of four infrastructure assets (more details below).

FTAI Infrastructure finished trading in the when issued market at a market cap of $328MM and an enterprise value of $1.8BN, implying an EV / 2023 EBITDA multiple of 9.0x.

Par Pacific Holdings (PARR), FTAI Infrastructure’s peer, trades at 4.7x 2022 EBITDA.

This seems rich to me given:

  1. Very high leverage.
  2. No history of positive free cash flow on an aggregate basis.
  3. Poor incentives given management agreement with Fortress.

What is fair value? I don’t know but I would need to see a sharp sell off to interest me.

Some other things to consider:

  1. FTAI Infrastructure will be a C-Corp and will no longer send investors a K-1. This is a positive and could result in index fund buying.
  2. FTAI Infrastructure intends to pay a dividend of $0.12 per year. This is something to watch. Current yield is 3.6%. If it gets cheap enough ($1.20?), it could be worth a trade.

The RemainCo, FTAI Aviation (FTAI), looks fairly valued currently.

Peers, AerCap Holdings (AER) and Air Lease (AL) trade at 9.3x 2023 EBITDA and 7.9x EBITDA, respectively.

On its last day of trading in the when issued market, FTAI Aviation (RemainCo) closed at $19.50.

At that price, the stock has a $1.9BN market cap and $3.9BN enterprise value.

If you believe my EBITDA estimate ($416.8MM) which is lower than management’s guidance of $550MM to $600MM, the stock is trading at 9.4x 2023 EBITDA.

If you believe management’s guidance and even ignore public company expenses ($575MM EBITDA estimate), the stock is trading 6.8x EBITDA and looks cheap. But I’m not convinced.

FTAI’s current valuation seems fair to me given:

  1. Poor incentives given management agreement with Fortress.
  2. Virtually no insider ownership.

At the same time, there are positives:

  1. FTAI Aviation will no longer issue K-1s. This will open up the stock to many investors who previously would not have been interested in owning it.
  2. It will pay a very attractive dividend. Guidance from the Q2 call was $1.20 on an annual basis which implies a 6.2% yield. Pretty juicy.

All in all, I’m not interested in owning FTAI Aviation at the current price, but I will continue to watch it, and would be interested at the right valuation.

Summary Table