Category: FSL
FSL, PST – BT
DPUs fall at First Ship, Pacific Shipping in Q4
Income available for distribution also slips for both trusts
FIRST Ship Lease Trust (FSLT) and Pacific Shipping Trust (PST) both saw their distribution per unit (DPU) fall for the fourth quarter and full year of 2010.
FSLT recorded DPU of 0.95 US cents in Q4, a 36.7 per cent dive from 1.5 US cents for the year-ago period. PST saw a much milder dip, with its DPU down 2 per cent to 0.809 US cents from 0.827 US cent.
Both trusts saw fourth-quarter income available for distribution slipping. FSLT’s fell 36.7 per cent to US$5.68 million from US$8.98 million, while PST’s slid 8 per cent, from US$7 million to US$6.44 million for the quarter.
For the full year, total DPU for FSLT was 4.35 US cents, down from 7.90 US cents. PST’s stood at 3.227 US cents, down from 3.615 US cents.
Full year income available for distribution dropped for FSLT to US$28.48 million from US$50.85 million, whereas PST’s was US$26.52 million, down 2 per cent against 2009’s US$27.07 million.
FSLT posted revenues of US$24.1 million in the fourth quarter, 1.5 per cent down y-o-y, and US$100.5 million for the full-year, up 1.7 per cent from FY2009.
PST’s gross revenue from its 12 long-term charter vessels also stayed flat at US$15.3 million and US$61.3 million, a drop of 2 and 1 per cent, for the quarter and full-year period, respectively.
PST’s net profit shed 8 per cent to US$6.57 million for the quarter and was lower by 1 per cent at US$27.1 million for the full year.
FSLT sank into the red for the fourth quarter, with a loss of US$928,000, from profits of US$1.8 million in the same period last year. It also recorded losses of US$5.69 million for the full year, as compared with profit of US$8.42 a year ago.
Affecting FSLT’s bottom line was the arrest and re-delivery of two of its vessels, FSL Hamburg and FSL Singapore mid-last year.
FSLT took delivery of the vessels after their charterers said in May they ‘did not intend to continue to make full lease payments under the bareboat charter lease agreements’.
In June, they were subsequently arrested by Daxin Petroleum in China and Japan, as Daxin had not been paid for bunkers supplied to these vessels.
The overall financial impact of their arrest and re-delivery was at a cost of US$11.2 million to FSLT.
FSLT units gained half a US cent to end at 47.5 US cents in trading yesterday. PST closed half a US cent up at 37 US cents.
Shipping Trusts – BT
The lowdown on shipping trusts
IT hasn’t been much fun being a shipping trust, lately. If your creditor isn’t leaning on you, your client is reneging on you or asking for a 30 per cent discount on charter rates.
At some point in the past 18 months, at least one or a combination of these three vexing situations has been a reality for all three shipping trusts listed here – Rickmers Maritime Trust, First Ship Lease Trust (FSL) and Pacific Shipping Trust (PST).
Consequently, the past 18 months haven’t been a barrel of laughs for investors either. The share price for PST has lost about 23 per cent of its offer price value since the trust listed in 2006, while FSL and Rickmers have lost 55 per cent and 75 per cent respectively since they went public in 2007.
While the headlines for the trust sector have been glum in general, they have varied for each of the trusts across a spectrum of harrowing news.
Glum news
At one end of the spectrum has been Rickmers, which found itself unable to raise enough equity to buy seven vessels that it had committed itself to for US$918.7 million, even as it scrambled to refinance US$130 million in loan facilities with its banks.
About the same time, charterer Groda Shipping & Transportation told FSL to take back two tankers about four years early in May – but not before running up a US$4.1 million tab for unpaid bunker bills that led to tanker arrests and a 10 per cent dive in FSL’s share price.
Amid renewed fears of counter-party risk, some threw up their hands. OCBC Investment Research’s Meenal Kumar ceased coverage of the entire sector in June, citing ‘subdued trading volumes’. He also noted the difficulty of getting publicly available information on some of the trusts’ clients, such as Groda.
At the opposite end of the spectrum, however, PST’s trials were milder by comparison – and already seem to be receding into the past. Chilean liner CSAV, which charters two vessels from PST, caused a bit of a flap in April last year when it looked likely to negotiate a temporary 30 per cent reduction in charter hire payments.
But now, with CSAV’s turnaround in fortunes – it posted a record Q3 profit earlier this month – the threat of renegotiation has been reduced to a panicky footnote.
It is fitting that for Q3, only PST reported an increase in its distribution per unit (DPU) – albeit a small one of 1.7 per cent year on year.
Of the lot, PST has been favoured by analysts for its conservative financing strategy. It also scored points for its canny move to diversify into bulk carriers and multi-purpose vessels in measured doses that precluded any frantic equity-raising exercises.
FSL, on the other hand, is still being hobbled by the fall in revenue from the two tankers that Groda returned prematurely. Its Q3 distribution per unit of 0.95 US cent was 36.7 per cent lower year on year – and the outlook appears subdued.
DBS Group Research’s Suvro Sarkar cut DPU estimates for FY 2011 by 17 per cent to about one US cent per quarter.
FSL’s payout ratio is at 40 per cent as of Q3 – which is relatively prudent and not abysmal unless you are an investor who remembers getting 100 per cent of distributable cash flow in 2008 before the sector hit an ice patch.
What FSL does have in its favour is its vessel portfolio, which is the most diversified of the three – at a time when diversification has become a hedge against events that the sector cannot control, such as falling vessel values.
Diversification, on the other hand, is not on the immediate horizon for Rickmers’ all-containership fleet. After a period of giddy acquisition that preceded its financing woes – at one point, it had 11 containerships waiting to be delivered within a two-year span – it will be content with its existing 16 while it regroups.
While containership rates have recovered convincingly and are poised to improve next year, the much-dreaded double dip could undo it all.
And all else remaining equal, there is the 0.6 US cent cap on Rickmers’ DPU per quarter. It will be in place for at least as long as the trust is protected by the value-to-loan waiver granted by its creditors for up to three years. Its latest DPU of 0.57 US cents was a payout of just 13 per cent of distributable cash flow.
Stable and boring bet
It could work out for everyone, of course, and the sector could become the more exciting alternative to Reits that it was originally branded – and not in a way that causes indigestion.
But as things stand, PST – which its sponsor’s MD called ‘stable and boring’ in March, according to Lloyd’s List – looks like the sector’s best bet. When ‘boring’ is the best adjective for a sector, investors might just stock up on antacid tablets and move elsewhere.
FSL – BT
FSL Trust’s Q3 DPU drops 36.7%
FIRST Ship Lease Trust has announced a distribution per unit (DPU) of 0.95 US cents for the third quarter – unchanged from the second quarter but 36.7 per cent lower than the year-ago DPU of 1.5 US cents.
The DPU – which represents an annualised tax-exempt yield of 10.3 per cent – works out to a Q3 distribution of US$5.7 million, down 28.6 per cent year on year. The fall was largely due a US$8 million repayment of secured bank loans for the quarter.
Revenue also took a hit from the premature termination of the long-term charters for FSL Hamburg and FSL Singapore – falling 4.9 per cent to US$23.4 million during the quarter due to the loss of US$3.8 million in bareboat charter revenue from the two tankers.
The tankers were arrested in China and Japan respectively by Daxin Petroleum in June on claims Daxin had not been paid by the ships’ lessees for the bunker that it supplied to the vessels.
FSL Hamburg and FSL Singapore were known as Nika I and Verona I, respectively, at the time of their arrest. The lessees of Nika I and Verona I had been Rovina Shipping and Mesino Shipping, respectively.
The trust’s management has since filed a suit claiming losses and damages caused by the arrests of the tankers from Daxin and its officials. The defendants have also filed their defence. ‘Legal proceedings are on-going and there are no material developments at this point,’ the trust’s management said yesterday.
According to it, both tankers were introduced to the product tanker spot market after their re-deliveries during the third quarter and had gained approvals from several oil majors.
‘Despite volatile freight rates in the spot market, the trustee-manager believes the vessels are now well-positioned to attain their full earnings potential,’ said Philip Clausius, chief executive of FSL Trust Management.
For the first nine months, the trust’s DPU stood at 3.4 US cents, 46.9 per cent lower than the previous year’s 6.4 US cents.
Amount available for distribution for the same period fell to US$20.4 million, from US$33 million a year earlier.
‘Asset values have recovered substantially and we are in full compliance with our debt covenants,’ said Mr Clausius.
As of September this year, the trust’s fleet had a charter-free value of US$700.3 million, compared to its outstanding secured debt of US$461.1 million as at Oct 1. This means that the trust has a value-to-loan (VTL) ratio of 152 per cent – satisfying the minimum ratio of 100 per cent stipulated by its credit facility’s debt covenant.
‘Assuming the current charter-free valuation of the vessels remains unchanged, the projected VTL ratio in July 2011 will be 160 per cent,’ the trust’s management said.
FSL – DBSV
A quarter of woes
At a Glance
• 2Q10 DPU down 37% q-o-q to 0.95 UScts as Trust deals with series of recent negative events
• No DPU guidance for 3Q; two product tankers trading on spot market impair income visibility
• Maintain Fully Valued call with revised TP of S$0.40
Comment on Results
The lower DPU payout follows premature re-delivery of two product tankers by customer Groda Shipping, consequent arrest of the vessels and loss of long-term charter-hire from the two vessels. Revenue of US$28.5m included the US$6m security deposit received from defaulting counterparty. Excluding that, revenue would have been down 8% q-o-q owing to the default. Trust expenses were higher as well by about US$3.5m due to one-off expenses. Moreover, given the termination of the long-term lease contracts, the Trust recognised a non-cash impairment loss of US$7.9m and registered an accounting loss of US$6.1m in 2Q10.
Outlook and Recommendation
The product tankers have since been released after FSL Trust put up guarantees amounting to a total of US$4.4m at the respective courts. Lawsuits are now ongoing under respective jurisdictions. Separately, FSL Trust has filed a writ in the Supreme Court of Singapore against Daxin and the bareboat charterers of the 2 vessels but it is unclear at this point what the outcome of theselegal actions will be, and whether FSL Trust will be able to recover the guarantee amounts. Meanwhile, the two product tankers will be deployed on the spot market, but current day rates are much lower than previous rates and utilisation could be volatile. The only positive in this set of results is the charter-free valuation of its fleet, which improved by about 10% q-o-q to US$686m. This implies a safe 156% LTV coverage at the end of waiver period in June 2011.
We raise FY10F DPU forecast by 7% to 4.2UScts to account for the slightly higher-than-expected DPU payout in 2Q10, but given the potential volatility in future cash flows and lack of DPU guidance, we maintain our Fully Valued call at a slightly higher TP of S$0.40 (15% target yield). We recommend a switch to Pacific Shipping Trust (BUY, TP US$0.37) for more stable distributions.
FSL – BT
FSL Trust’s DPU for Q2 slumps 61%
DISTRIBUTION by First Ship Lease Trust (FSL Trust) fell 61.2 per cent year on year to 0.95 US cents per unit for the second quarter, as the trust sank into the red on an impairment charge following the re-delivery of two vessels.
FSL Trust posted a net loss of US$6.11 million for Q2 ended June 30, compared with a US$2.35 million net profit a year earlier.
This resulted from the recognition of a US$7.87 million charge after long-term charters for the vessels FSL Hamburg and FSL Singapore were terminated prematurely.
The trust’s Q2 distribution per unit (DPU) represents 33 per cent of generated net cash, versus a payout of 55 per cent for Q1.
FSL Hamburg and FSL Singapore were re-delivered in May by lessees Rovina Shipping Company and Messino Shipping Company – affiliates of Cyprus-based Groda Shipping & Transportation – after they cited cashflow problems.
The vessels were subsequently seized in China and Japan respectively on claims by Daxin Petroleum that it had not been paid for bunkers supplied to them.
The vessels have seen been released after FSL Trust posted bail for them.
FSL Trust has also sued Singapore-based firm Daxin, three individuals representing Daxin in that period and Rovina and Messino – which FSL Trust says are linked to Daxin – for damages suffered as a result of the arrests of the vessels. It also wants legal action against the vessels dropped and is seeking other forms of relief.
The two vessels will be traded in the product tanker spot market for now and may be locked into charters when the tanker market improves.
FSL Trust’s Q2 lease revenue rose 14.8 per cent year on year to US$28.5 million. But this includes a one-off US$6 million cash payment the trust received from the re-delivery of the two vessels. Stripping this out, revenue fell 9.3 per cent to US$22.5 million due to the premature termination of the charter agreements for the vessels.
FSL Trust’s units closed unchanged at 42 cents yesterday.