Debt
Our debt financing at September 30, 2022 and December 31, 2021 is summarized below:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| ( in thousands, except percentages) |
Unsecured | | | |
Senior notes | $ | 17,064,248 | | | $ | 16,892,058 | |
Term financings | 186,775 | | | 167,000 | |
Revolving credit facility | 1,570,000 | | | — | |
Total unsecured debt financing | 18,821,023 | | | 17,059,058 | |
Secured | | | |
Term financings | 116,981 | | | 126,660 | |
Export credit financing | 13,309 | | | 18,301 | |
Total secured debt financing | 130,290 | | | 144,961 | |
| | | |
Total debt financing | 18,951,313 | | | 17,204,019 | |
Less: Debt discounts and issuance costs | (182,256) | | | (181,539) | |
Debt financing, net of discounts and issuance costs | $ | 18,769,057 | | | $ | 17,022,480 | |
Selected interest rates and ratios: | | | |
Composite interest rate(1) | 2.85 | % | | 2.79 | % |
Composite interest rate on fixed-rate debt(1) | 2.86 | % | | 2.90 | % |
Percentage of total debt at a fixed-rate | 87.0 | % | | 94.8 | % |
| | | |
| | | |
(1) This rate does not include the effect of upfront fees, facility fees, undrawn fees or amortization of debt discounts and issuance costs. |
Senior unsecured notes (including Medium-Term Note Program)
As of September 30, 2022, we had $17.1 billion in senior unsecured notes outstanding. As of December 31, 2021, we had $16.9 billion in senior unsecured notes outstanding.
During the nine months ended September 30, 2022, we issued $1.5 billion in aggregate principal amount of senior unsecured notes comprised of (i) $750.0 million in aggregate principal amount of 2.20% Medium-Term Notes due 2027, and (ii) $750.0 million in aggregate principal amount of 2.875% Medium-Term Notes due 2032.
For more information regarding our senior unsecured notes outstanding, see Note 2 of Notes to Consolidated Financial Statements included in Part III, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Unsecured revolving credit facility
As of September 30, 2022, we had $1.6 billion outstanding under our unsecured revolving credit facility (the “Revolving Credit Facility”). As of December 31, 2021, we did not have any amounts outstanding under our Revolving Credit Facility. Borrowings under the Revolving Credit Facility are used to finance our working capital needs in the ordinary course of business and for other general corporate purposes.
In April 2022, we amended and extended our Revolving Credit Facility through an amendment that, among other things, extended the final maturity date from May 5, 2025 to May 5, 2026, increased the total revolving commitments to approximately $7.0 billion as of May 5, 2022 and replaced LIBOR with Term SOFR as the benchmark interest rate and made certain conforming changes related thereto. As of September 30, 2022, borrowings under the Revolving Credit Facility accrued interest at Adjusted Term SOFR (as defined in the Revolving Credit Facility), plus a margin of 1.05% per year. We are required to pay a facility fee of 0.20%
per year in respect of total commitments under the Revolving Credit Facility. Interest rate and facility fees are subject to increases or decreases based on declines or improvements in the credit ratings for our debt.
In June 2022, we increased the aggregate facility capacity by an additional $122.5 million and also extended the maturity of $125.0 million in commitments to May 5, 2026. As of November 3, 2022, we had total revolving commitments of approximately $7.1 billion. Lenders held revolving commitments totaling approximately $6.7 billion that mature on May 5, 2026, commitments totaling $32.5 million that mature on May 5, 2025 and commitments totaling $375.0 million that mature on May 5, 2023.
The Revolving Credit Facility provides for certain covenants, including covenants that limit our subsidiaries’ ability to incur, create, or assume certain unsecured indebtedness, and our subsidiaries’ abilities to engage in certain mergers, consolidations, and asset sales. The Revolving Credit Facility also requires us to comply with certain financial maintenance covenants including minimum consolidated shareholders’ equity, minimum consolidated unencumbered assets, and an interest coverage test. In addition, the Revolving Credit Facility contains customary events of default. In the case of an event of default, the lenders may terminate the commitments under the Revolving Credit Facility and require immediate repayment of all outstanding borrowings.
Other debt financings
From time to time, we enter into other debt financings such as unsecured term financings and secured term financings, including export credit. As of September 30, 2022, the outstanding balance on other debt financings was $317.1 million and we had pledged three aircraft as collateral with a net book value of $214.6 million. As of December 31, 2021, the outstanding balance on other debt financings was $312.0 million and we had pledged three aircraft as collateral with a net book value of $222.2 million.
Preferred equity
The following table summarizes our preferred stock issued and outstanding as of September 30, 2022 (in thousands, except for share amounts and percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares Issued and Outstanding as of September 30, 2022 | | | | Carrying Value as of September 30, 2022 | | Issue Date | | Dividend Rate in Effect at September 30, 2022 | | Next dividend rate reset date | | Dividend rate after reset date |
Series A | 10,000,000 | | | | | $ | 250,000 | | | March 5, 2019 | | 6.150 | % | | March 15, 2024 | | 3M LIBOR plus 3.65% |
Series B | 300,000 | | | | | 300,000 | | | March 2, 2021 | | 4.650 | % | | June 15, 2026 | | 5 Yr U.S. Treasury plus 4.076% |
Series C | 300,000 | | | | | 300,000 | | | October 13, 2021 | | 4.125 | % | | December 15, 2026 | | 5 Yr U.S. Treasury plus 3.149% |
Total | 10,600,000 | | | | | $ | 850,000 | | | | | | | | | |
For more information regarding our preferred stock issued and outstanding, see Note 4 of Notes to Consolidated Financial Statements included in Part III, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2021.
The following table summarizes the quarterly cash dividends that we paid during the nine months ended September 30, 2022 on our outstanding Series A, Series B and Series C Preferred Stock:
| | | | | | | | | | | | | | | | | | | | | | |
| | |
Title of each class | | March 15, 2022 | | June 15, 2022 | | September 15, 2022 | | |
| | (in thousands) | | |
Series A Preferred Stock | | $3,844 | | $3,844 | | $3,843 | | |
Series B Preferred Stock | | $3,487 | | $3,487 | | $3,488 | | |
Series C Preferred Stock | | $3,094 | | $3,094 | | $3,094 | | |
Off‑balance Sheet Arrangements
We have not established any unconsolidated entities for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. We have, however, from time to time established subsidiaries or trusts for the purpose of leasing aircraft or facilitating borrowing arrangements which are consolidated.
We have non-controlling interests in two investment funds in which we own 9.5% of the equity of each fund. We account for our interest in these funds under the equity method of accounting due to our level of influence and involvement in the funds. Also, we manage aircraft that we have sold through our Thunderbolt platform. In connection with the sale of certain aircraft portfolios through our Thunderbolt platform, we hold non-controlling interests of approximately 5.0% in two entities. These investments are accounted for under the cost method of accounting.
Impact of LIBOR Transition
On March 5, 2021, the Chief Executive of the U.K. Financial Conduct Authority, which regulates LIBOR, publicly announced that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021, and that publication of certain tenors of U.S. dollar LIBOR (including overnight and one, three, six and 12 months) will permanently cease after June 30, 2023. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee (“ARRC”) has recommended the use of a Secured Overnight Funding Rate (“SOFR”). SOFR is different from LIBOR in that it is a backward-looking secured rate rather than a forward-looking unsecured rate. For cash products and loans, the ARRC has also recommended Term SOFR, which is a forward-looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR.
As of September 30, 2022, we had approximately $0.8 billion of floating rate debt outstanding that used either one or three-month LIBOR as the applicable reference rate to calculate the interest on such debt, of which $155.5 million is set to mature after June 30, 2023. Additionally, our perpetual Series A Preferred Stock is set to accrue dividends at a floating rate determined by reference to three-month LIBOR, if available, beginning March 15, 2024. While all of our agreements governing LIBOR-linked debt obligations and Series A Preferred Stock obligations that are set to mature after June 30, 2023 contain LIBOR transition fallback provisions, the lack of a standard market practice and inconsistency in fallback provisions in recent years is reflected across the agreements governing our floating rate debt and Series A Preferred Stock. For our Series A Preferred Stock, if we determine there is no such alternative reference rate as of March 15, 2024, then we must select an independent financial advisor to determine a substitute rate for LIBOR, and if an independent financial advisor cannot determine an alternative reference rate, the dividend rate, business day convention and manner of calculating dividends applicable during the fixed-rate period of the Series A Preferred Stock will be in effect.
In April 2022, we amended and extended our Revolving Credit Facility through an amendment that, among other things, replaced LIBOR with Term SOFR as the benchmark interest rate. After that amendment, borrowings under the amended Revolving Credit Facility accrue interest at Adjusted Term SOFR (as defined in the Revolving Credit Facility), plus a margin of 1.05% per year subject to increases or decreases based on declines or improvements in the credit ratings for our debt.
The implementation of a substitute reference rate for the calculation of interest rates under our LIBOR linked debt and Series A Preferred Stock obligations may cause us to incur expenses in effecting the transition and may result in disputes with our lenders or holders of Series A Preferred Stock over the appropriateness or comparability to LIBOR of the substitute reference rate selected. However, we do not expect the LIBOR transition impact will have a material effect on our financial results based on our anticipated LIBOR linked outstanding debt and Series A Preferred Stock at June 30, 2023.
If the rate used to calculate interest on our outstanding floating rate debt that as of September 30, 2022, used LIBOR and our Series A Preferred Stock were to increase by 1.0% either as a result of an increase in LIBOR or the result of the use of an alternative reference rate determined under the fallback provisions in the applicable financial instrument when LIBOR is discontinued, we would expect to incur additional interest expense and preferred dividends of $8.4 million and $2.5 million, respectively on such indebtedness and our Series A Preferred Stock as of September 30, 2022 on an annualized basis.
Credit Ratings
In June 2022, Fitch Ratings reaffirmed our corporate rating, long-term debt credit rating and outlook. Our investment-grade corporate and long-term debt credit ratings help us to lower our cost of funds and broaden our access to attractively priced capital. The following table summarizes our current credit ratings:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Rating Agency | | Long-term Debt | | Corporate Rating | | Outlook | | Date of Last Ratings Action |
Kroll Bond Ratings | A- | | A- | | Stable | | March 25, 2022 |
Standard and Poor's | BBB | | BBB | | Stable | | April 21, 2022 |
Fitch Ratings | BBB | | BBB | | Stable | | June 28, 2022 |
While a ratings downgrade would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings.
Results of Operations
The following table presents our historical operating results for the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts and percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (unaudited) |
Revenues | | | | | | | | |
Rental of flight equipment | | $ | 541,397 | | $ | 519,535 | | $ | 1,653,223 | | $ | 1,439,674 |
Aircraft sales, trading and other | | 19,937 | | 4,974 | | 62,469 | | 51,539 |
Total revenues | | 561,334 | | 524,509 | | 1,715,692 | | 1,491,213 |
| | | | | | | | |
Expenses | | | | | | | | |
Interest | | 122,348 | | 114,659 | | 358,621 | | 346,244 |
Amortization of debt discounts and issuance costs | | 13,162 | | 12,571 | | 39,772 | | 37,109 |
Interest expense | | 135,510 | | 127,230 | | 398,393 | | 383,353 |
Depreciation of flight equipment | | 242,503 | | 224,960 | | 713,095 | | 651,742 |
Write-off of Russian fleet | | — | | — | | 802,352 | | — |
Selling, general and administrative | | 39,718 | | 31,082 | | 110,993 | | 84,682 |
Stock-based compensation expense | | 5,764 | | 6,692 | | 9,799 | | 18,800 |
Total expenses | | 423,495 | | 389,964 | | 2,034,632 | | 1,138,577 |
Income/(loss) before taxes | | 137,839 | | 134,545 | | (318,940) | | 352,636 |
Income tax (expense)/benefit | | (27,458) | | (27,208) | | 76,606 | | (67,785) |
Net income/(loss) | | $ | 110,381 | | $ | 107,337 | | $ | (242,334) | | $ | 284,851 |
Preferred stock dividends | | (10,425) | | (7,331) | | (31,275) | | (19,010) |
Net income/(loss) attributable to common stockholders | | $ | 99,956 | | $ | 100,006 | | $ | (273,609) | | $ | 265,841 |
| | | | | | | | |
Earnings/(Loss) per share of common stock: | | | | | | | | |
Basic | | $ | 0.90 | | $ | 0.88 | | $ | (2.45) | | $ | 2.33 |
Diluted | | $ | 0.90 | | $ | 0.87 | | $ | (2.45) | | $ | 2.32 |
| | | | | | | | |
Other financial data | | | | | | | | |
Pre-tax margin | | 24.6 | % | | 25.7 | % | | (18.6) | % | | 23.6 | % |
Pre-tax return on common equity (trailing twelve months) | | (2.9) | % | | 8.0 | % | | (2.9) | % | | 8.0 | % |
Adjusted net income before income taxes(1) | | $ | 146,340 | | $ | 146,477 | | $ | 501,708 | | $ | 389,535 |
Adjusted diluted earnings per share before income taxes(1) | | $ | 1.32 | | $ | 1.28 | | $ | 4.47 | | $ | 3.40 |
Adjusted pre-tax margin(1) | | 26.1 | % | | 27.9 | % | | 29.2 | % | | 26.1 | % |
Adjusted pre-tax return on common equity (trailing twelve months)(1) | | 12.0 | % | | 9.1 | % | | 12.0 | % | | 9.1 | % |
__________________________________________
(1)Adjusted net income before income taxes (defined as net income/(loss) attributable to common stockholders excluding the effects of certain non-cash items, one-time or non-recurring items, such as write-offs of our Russian fleet, that are not expected to continue in the future and certain other items), adjusted pre-tax margin (defined as adjusted net income before income taxes divided by total revenues), adjusted diluted earnings per share before income taxes (defined as adjusted net income before income taxes divided by the weighted average diluted common shares outstanding) and adjusted pre-tax return on common equity (defined as adjusted net income before income taxes divided by average common shareholders’ equity) are measures of operating performance that are not defined by GAAP and should not be considered as an alternative to net income/(loss) attributable to common stockholders, pre-tax margin, earnings/(loss) per share, diluted
earnings/(loss) per share and pre-tax return on common equity, or any other performance measures derived in accordance with GAAP. Adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity are presented as supplemental disclosure because management believes they provide useful information on our earnings from ongoing operations.
Management and our board of directors use adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity to assess our consolidated financial and operating performance. Management believes these measures are helpful in evaluating the operating performance of our ongoing operations and identifying trends in our performance, because they remove the effects of certain non-cash items, one-time or non-recurring items that are not expected to continue in the future and certain other items from our operating results. Adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, however, should not be considered in isolation or as a substitute for analysis of our operating results or cash flows as reported under GAAP. Adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity do not reflect our cash expenditures or changes in our cash requirements for our working capital needs. In addition, our calculation of adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity may differ from the adjusted net income before income taxes, adjusted pre-tax margin, adjusted diluted earnings per share before income taxes and adjusted pre-tax return on common equity, or analogous calculations of other companies in our industry, limiting their usefulness as a comparative measure.
The following table shows the reconciliation of the numerator for adjusted pre-tax margin (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (unaudited) |
Reconciliation of the numerator for adjusted pre-tax margin (net income/(loss) attributable to common stockholders to adjusted net income before income taxes): | | | | | | | |
Net income/(loss) attributable to common stockholders | $ | 99,956 | | $ | 100,006 | | $ | (273,609) | | $ | 265,841 |
Amortization of debt discounts and issuance costs | 13,162 | | 12,571 | | 39,772 | | 37,109 |
Write-off of Russian fleet | — | | — | | 802,352 | | — |
Stock-based compensation expense | 5,764 | | 6,692 | | 9,799 | | 18,800 |
Income tax expense/(benefit) | 27,458 | | 27,208 | | (76,606) | | 67,785 |
Adjusted net income before income taxes | $ | 146,340 | | $ | 146,477 | | $ | 501,708 | | $ | 389,535 |
| | | | | | | |
Denominator for adjusted pre-tax margin: | | | | | |
Total revenues | $ | 561,334 | | $ | 524,509 | | $ | 1,715,692 | | $ | 1,491,213 |
Adjusted pre-tax margin(a) | 26.1 | % | | 27.9 | % | | 29.2 | % | | 26.1 | % |
| | | | | | | |
| | | | | | | |
(a) Adjusted pre-tax margin is adjusted net income before income taxes divided by total revenues |
The following table shows the reconciliation of the numerator for adjusted diluted earnings per share before income taxes (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (unaudited) |
Reconciliation of the numerator for adjusted diluted earnings per share (net income/(loss) attributable to common stockholders to adjusted net income before income taxes): | | | | | | | |
Net income/(loss) attributable to common stockholders | $ | 99,956 | | | $ | 100,006 | | | $ | (273,609) | | | $ | 265,841 | |
Amortization of debt discounts and issuance costs | 13,162 | | | 12,571 | | | 39,772 | | | 37,109 | |
Write-off of Russian fleet | — | | | — | | | 802,352 | | | — | |
Stock-based compensation expense | 5,764 | | | 6,692 | | | 9,799 | | | 18,800 | |
Income tax expense/(benefit) | 27,458 | | | 27,208 | | | (76,606) | | | 67,785 | |
Adjusted net income before income taxes | $ | 146,340 | | | $ | 146,477 | | | $ | 501,708 | | | $ | 389,535 | |
| | | | | | | |
Denominator for adjusted diluted earnings per share: | | | | | | | |
Weighted-average diluted common shares outstanding | 111,090,133 | | | 114,381,621 | | | 111,874,002 | | | 114,415,169 | |
Potentially dilutive securities, whose effect would have been anti-dilutive | — | | | — | | | 329,947 | | | — | |
Adjusted weighted-average diluted common shares outstanding | 111,090,133 | | | 114,381,621 | | | 112,203,949 | | | 114,415,169 | |
Adjusted diluted earnings per share before income taxes(b) | $ | 1.32 | | | $ | 1.28 | | | $ | 4.47 | | | $ | 3.40 | |
| | | | | | | |
| | | | | | | |
(b) Adjusted diluted earnings per share before income taxes is adjusted net income before income taxes divided by adjusted weighted-average diluted common shares outstanding |
The following table shows the reconciliation of pre-tax return on common equity to adjusted pre-tax return on common equity (in thousands, except percentages): | | | | | | | | | | | |
| Trailing Twelve Months September 30, |
| 2022 | | 2021 |
| (unaudited) |
Reconciliation of the numerator for adjusted pre-tax return on common equity (net (loss)/income attributable to common stockholders to adjusted net income before income taxes): | | | |
Net (loss)/income attributable to common stockholders | $ | (131,292) | | $ | 373,090 |
Amortization of debt discounts and issuance costs | 53,284 | | 48,474 |
Write-off of Russian fleet | 802,352 | | — |
Stock-based compensation expense | 17,515 | | 21,472 |
Income tax (benefit)/expense | (40,008) | | 94,513 |
Adjusted net income before income taxes | $ | 701,851 | | $ | 537,549 |
| | | |
Reconciliation of denominator for pre-tax return on common equity to adjusted pre-tax return on common equity: | | | |
Common shareholders' equity as of beginning of the period | $ | 6,033,783 | | $ | 5,727,323 |
Common shareholders' equity as of end of the period | $ | 5,678,434 | | $ | 6,033,783 |
Average common shareholders' equity | $ | 5,856,109 | | $ | 5,880,553 |
| | | |
Adjusted pre-tax return on common equity(c) | 12.0 | % | | 9.1 | % |
| | | |
| | | |
(c) Adjusted pre-tax return on common equity is adjusted net income before income taxes divided by average common shareholders’ equity |
Three months ended September 30, 2022, compared to the three months ended September 30, 2021
Rental revenue
During the three months ended September 30, 2022, we recorded $541.4 million in rental revenue, which included amortization expense related to initial direct costs, net of overhaul revenue of $6.2 million, as compared to $519.5 million, which included amortization expense related to initial direct costs, net of overhaul revenue of $8.1 million for the three months ended September 30, 2021. Our owned fleet increased to 405 aircraft with a net book value of $23.9 billion as of September 30, 2022 from 370 aircraft with a net book value of $22.1 billion as of September 30, 2021. The increase in rental revenue was primarily driven by the continued growth in our fleet and significantly lower lease restructuring losses, offset by the loss of revenue from our terminated Russian leases and cash basis accounting. During the quarter, we did not recognize $6.2 million in revenue due to cash basis accounting as compared to $5.4 million in cash basis revenue recognized during the three months ended September 30, 2021.
Aircraft sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $19.9 million for the three months ended September 30, 2022 compared to $5.0 million for the three months ended September 30, 2021. The increase in our aircraft sales, trading and other revenue is primarily attributable to approximately $11.6 million in gains from the sale of one aircraft and four sales-type lease transactions for the three months ended September 30, 2022. We did not sell any aircraft during the three months ended September 30, 2021.
Interest expense
Interest expense totaled $135.5 million for the three months ended September 30, 2022 compared to $127.2 million for the three months ended September 30, 2021. Our interest expense increased due to an increase in our average debt balance and an increase in our composite cost of funds as compared to the prior year. Due to the rising interest rate environment, we expect our interest expense will continue to increase as our average debt balance outstanding and our composite cost of funds each increase in the future.
Depreciation expense
We recorded $242.5 million in depreciation expense of flight equipment for the three months ended September 30, 2022 compared to $225.0 million for the three months ended September 30, 2021. The increase in depreciation expense for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, is primarily attributable to the growth of our fleet during the last twelve months. We expect our depreciation expense to increase as we continue to add aircraft to our fleet.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $39.7 million for the three months ended September 30, 2022 compared to $31.1 million for the three months ended September 30, 2021. The increase in selling, general and administrative expenses was primarily due to the increase in business activity, increased expenses related to insurance premiums and the transition of aircraft. We expect an increase in operating costs due to higher inflation, increased insurance premiums, and certain geopolitical events, such as the Russia-Ukraine conflict. Selling, general and administrative expenses as a percentage of total revenue increased to 7.1% for the three months ended September 30, 2022 compared to 5.9% for the three months ended September 30, 2021.
Taxes
Our effective tax rate for the quarter decreased to 19.9% from 20.2% in the prior year. The effective tax rate decreased due to changes in permanent items.
Net income attributable to common stockholders
For the three months ended September 30, 2022, we reported consolidated net income attributable to common stockholders of $100.0 million, or $0.90 per diluted share, compared to a consolidated net income attributable to common stockholders of $100.0 million, or $0.87 per diluted share, for the three months ended September 30, 2021. Net income attributable to common stockholders remained in-line with the prior year period, primarily due to increases in interest, depreciation and selling, general and administrative expenses which partially offset the revenue increases discussed above.
Adjusted net income before income taxes
For the three months ended September 30, 2022, we recorded adjusted net income before income taxes of $146.3 million, or $1.32 per adjusted diluted share, compared to an adjusted net income before income taxes of $146.5 million, or $1.28 per adjusted diluted share, for the three months ended September 30, 2021. Despite our continued growth of our fleet and increase in revenues, adjusted net income before income taxes remained in-line with the prior year period, primarily due to increases in interest, depreciation and selling, general and administrative expenses which partially offset the revenue increases discussed above.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.
Nine months ended September 30, 2022, compared to the nine months ended September 30, 2021
Rental revenue
During the nine months ended September 30, 2022, we recorded $1.7 billion in rental revenue, which included overhaul revenue, net of amortization expense related to initial direct costs of $36.0 million, as compared to $1.4 billion, which included amortization expense related to initial direct costs, net of overhaul revenue of $20.4 million for the nine months ended September 30, 2021. Our owned fleet increased to 405 aircraft with a net book value of $23.9 billion as of September 30, 2022 from 370 aircraft with a net book value of $22.1 billion as of September 30, 2021. The increase in rental revenue was primarily driven by the continued growth in our fleet and significantly lower lease restructuring and cash basis losses, offset by the loss of revenue from our terminated Russian leases. During the nine months ended September 30, 2022, restructuring and cash basis losses were $11.1 million and $0.6 million, respectively, as compared to $108.7 million and $84.9 million during the nine months ended September 30, 2021.
Aircraft sales, trading and other revenue
Aircraft sales, trading and other revenue totaled $62.5 million for the nine months ended September 30, 2022 compared to $51.5 million for the nine months ended September 30, 2021. The increase in our aircraft sales, trading and other revenue is primarily due to $19.8 million in gains from the sale of one aircraft and eight sales-type lease transactions and $17.9 million in forfeiture of security deposit income from the termination of our leasing activities in Russia in the current year period, which was partially offset by $34.0 million in revenue recognized from the sale to a third party of certain unsecured claims related to Aeromexico’s insolvency proceedings during the nine months ended September 30, 2021. We did not sell any aircraft during the nine months ended September 30, 2021.
Interest expense
Interest expense totaled $398.4 million for the nine months ended September 30, 2022 compared to $383.4 million for the nine months ended September 30, 2021. Our interest expense increased due to an increase in our average debt balance and an increase in our composite cost of funds as compared to the prior year. Due to the rising interest rate environment, we expect our interest expense will continue to increase as our average debt balance outstanding and our composite cost of funds each increase in the future.
Depreciation expense
We recorded $713.1 million in depreciation expense of flight equipment for the nine months ended September 30, 2022 compared to $651.7 million for the nine months ended September 30, 2021. The increase in depreciation expense for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, is primarily attributable to the growth of our fleet during the last twelve months. We expect our depreciation expense to increase as we continue to add aircraft to our fleet.
Write-off of Russian fleet
As further described above under “Impact of Russia-Ukraine Conflict”, in response to the sanctions against certain industry sectors and parties in Russia, in March 2022 we terminated all of our leasing activities in Russia. As of November 3, 2022, 20 aircraft in our owned fleet and six aircraft in our managed fleet remain in Russia. The operators of these aircraft have continued to fly most of the aircraft notwithstanding the termination of leasing activities and our repeated demands for the return of the assets. While we or the applicable managed platform maintain title to the 26 aircraft, we determined that it is unlikely we or they will regain possession of the aircraft that have not been returned and that remain in Russia. As such, during the nine months ended September 30, 2022, we recorded a write-off of our interests in our owned and managed fleet that remain in Russia, totaling approximately $802.4 million. In June 2022, we submitted insurance claims to our insurers to recover our losses relating to these aircraft and are vigorously pursuing all available insurance claims.
In October 2022, one Boeing 737-8 MAX aircraft that was detained in Russia was returned to us. The returned 737-8 MAX was not operating and had been in storage in Russia since the 737 MAX grounding. In the fourth quarter of 2022, we will record the aircraft in our owned fleet at fair value with a corresponding offset to the write-off line item in our income statement. We do not currently anticipate the return of any other aircraft that are detained in Russia.
Stock-based compensation
We recorded stock-based compensation expense of $9.8 million for the nine months ended September 30, 2022 compared to stock-based compensation expense of $18.8 million for the nine months ended September 30, 2021. The decrease in stock-based compensation relates to reductions in the underlying vesting estimates of certain book value RSUs as the performance criteria are no longer considered probable of being achieved.
Selling, general and administrative expenses
We recorded selling, general and administrative expenses of $111.0 million for the nine months ended September 30, 2022 compared to $84.7 million for the nine months ended September 30, 2021. The increase in selling, general and administrative expenses was primarily due to the increase in business activity, increased expenses related to insurance premiums and the transition of aircraft. During the nine months ended September 30, 2022, we renewed our insurance which resulted in an annualized increase in our insurance premiums of approximately $16.0 million that we anticipate will increase our selling, general and administrative expenses in future periods. We expect an increase in operating costs due to higher inflation, increased insurance premiums, and certain geopolitical events, such as the Russia-Ukraine conflict. Selling, general and administrative expenses as a percentage of total revenue increased to 6.5% for the nine months ended September 30, 2022 compared to 5.7% for the nine months ended September 30, 2021.
Taxes
For the nine months ended September 30, 2022 and September 30, 2021, we reported an effective tax rate exclusive of any discrete items of 19.9% and 19.2%, respectively. Due to discrete items related to the write-off of our Russian fleet, we reported an overall effective tax rate of 24.0% for the nine months ended September 30, 2022.
Net income/(loss) attributable to common stockholders
For the nine months ended September 30, 2022, we reported a net loss attributable to common stockholders of $273.6 million, or loss of $2.45 per diluted share, compared to a net income attributable to common stockholders of $265.8 million, or $2.32 per diluted share, for the nine months ended September 30, 2021. Despite the growth of our fleet, our net income attributable to common stockholders and diluted earnings per share decreased due to the impact of the write-off of our Russian fleet.
Adjusted net income before income taxes
For the nine months ended September 30, 2022, we recorded adjusted net income before income taxes of $501.7 million, or $4.47 per adjusted diluted share, compared to an adjusted net income before income taxes of $389.5 million, or $3.40 per adjusted diluted share, for the nine ended September 30, 2021. Our adjusted net income before income taxes and adjusted diluted earnings per share before income taxes increased for the nine months ended September 30, 2022 as compared to 2021, primarily due to the continued growth of our fleet and the increase in revenues as discussed above.
Adjusted net income before income taxes and adjusted diluted earnings per share before income taxes are measures of financial and operational performance that are not defined by GAAP. See Note 1 under the “Results of Operations” table above for a discussion of adjusted net income before income taxes and adjusted diluted earnings per share before income taxes as non-GAAP measures and reconciliation of these measures to net income available to common stockholders.
Critical Accounting Estimates
Our critical accounting estimates reflecting management’s estimates and judgments are described in our Annual Report on Form 10-K for the year ended December 31, 2021. We have reviewed recently adopted accounting pronouncements and determined that the adoption of such pronouncements is not expected to have a material impact, if any, on our Consolidated Financial Statements. Accordingly, there have been no material changes to critical accounting estimates in the nine months ended September 30, 2022.