Category: FSL
Shipping Trusts – OCBC
4Q09 results review
Results in line; payouts lower. Full year results for the three Singapore-listed shipping trusts were in line with our expectations, with FY09 distributable income within 4% of our estimate for each trust. The trusts all declared significantly lower payouts for 4Q09 vis-à-vis 4Q08. FSL Trust’s (FSLT) payout represented 56% of cash earnings compared to 100% in the corresponding quarter. Pacific Shipping Trust’s (PST) 4Q09 payout was equivalent to 43% of cash earnings versus 53% in 4Q08. Meanwhile Rickmers Maritime’s (RMT) quarterly distributions amounted to 13% of cash earnings versus 59% a year ago. The trusts used the retained cash to repay loans and/or bolster cash reserves.
No movement on key issues. The results were fairly uneventful with limited or little progress on the outstanding fronts. PST has not re-opened talks with charterer CSAV on the liner’s request for rate renegotiations. On a positive note, CSAV’s debt re-structuring and equity fund-raising plans are coming along on target, which PST’s manager was “encouraged” by. FSLT, meanwhile, continues to scout acquisition opportunities that will utilize the funds raised through the recent placement. The manager also kept its options open for another attempt to diversify its funding sources through a senior unsecured notes offering. RMT is still in talks with its bankers and sponsor on loan-to-value covenants, a US$130m loan facility maturing in April, and large capex commitments. While talks continue, completed newbuilds are being warehoused by sponsor Rickmers Group.
Too soon to call for a recovery. There are arguments for both sides. The bull case for containers: 1) inventory restocking; 2) some economic growth; 3) slow steaming; 4) scrapping and order book management. The bear case: 1) uneven economic data pointing to the likelihood of a slow, ‘benign’ recovery; 2) a still substantial order book; 3) financing difficulties; and 4) precarious industry discipline – laid up vessels are already being re-introduced into service, and it’s unclear who controls the tap. The broader industry’s stance on the ‘knife-edge’ of recovery moves us to upgrade our sector view from UNDERWEIGHT to NEUTRAL. Nevertheless, we leave our ratings on the individual trusts unchanged for now, as we wait to see more sustained evidence of a recovery. A cautious approach in the coming weeks may be prudent considering that RMT’s US$130m loan facility is maturing just next month. How that maturity is handled may drive sector valuations and sentiment in the near-term.
FSL – DBS
All set for a take off
• 4Q09 DPU payout of 1.50 UScts in line with expectations, maintains similar guidance for 1Q10
• Potential bond issue may be expensive, but will provide acquisition war chest in excess of US$100m
• Poised for re-rating, share price lagging the recovery in shipping stocks across the world
• Limited downside; maintain BUY; TP raised to S$0.78
No surprises in 4Q09. FSLT delivered another quarter of steady results. Revenue of US$24.5m was stable q-o-q, and the Trust generated cash of US$16.2m, 8% below US$17.6m in 3Q09, owing to the higher interest costs. Of this, the Trust will distribute US$9m to shareholders, or a DPU of 1.50UScts for 4Q09.
Bond issue still in the offing. FSLT had to can its earlier US$200m bond offering owing to the higher spreads in the wake of the Dubai debt crisis last year. However, management plans to go ahead with the same offering when market improves. Key concern for the bond is pricing. About half of the bond proceeds will be used to repay existing borrowings, which will help resolve the LTV covenants issue to a greater extent. The rest will build up to a US$130m war chest, together with US$30m from the share placement last year, to pursue DPU accretive acquisitions.
Laggard stock, poised for re-rating. With economic numbers improving and container freight rates on the rise, most container shipping stocks have seen a steady reversal in fortunes of late. Even the US-listed shipping trusts have risen 10-20% since the beginning of 2010, whereas FSLT has stayed largely flat, despite promising much better yields in excess of 13%. Thus, we re-iterate our BUY call at a revised TP of S$0.78 (pegged to 10% target yield). Even if we assume the whole US$200m bond is used to repay existing (cheaper) bank debt, with continuing loan amortization payments and no acquisitions, the worst outcome would be higher interest expenses of ~US$12m p.a, which would imply a FY10 DPU of ~5.0Scts, or a worst case yield of 8.3%.
FSL – OCBC
Manager offers a more positive outlook
Results in line. FSL Trust (FSLT) announced US$24.5m in 4Q09 revenue, down 4.6% YoY and 0.6% QoQ. The revenue decline was because of the Geden charters that are pegged to US$ LIBOR and re-set quarterly (this volatility is offset by the interest costs on the two vessels which are also floating). Net cash generated from operations of US$16.2m rose 0.8% YoY but fell 8.4% QoQ. The QoQ decline was due to higher interest margins as per the amended loan facilities which lowered loan-to-value covenant requirements from 145% to 100% for two years. FY09 revenue and cash earnings were within 0-3% of our estimates.
4Q DPU of 1.5 US cents; 1Q guidance the same. DPU was flat QoQ but fell 51.3% YoY to 1.50 US cents because of a lower payout policy. The current payout represents 55.6% of net cash generated from operations versus 96.3% a year ago. FSLT is using the retained cash to repay roughly US$8m in loans per quarter. FSLT is guiding for a 1Q10 DPU of 1.50 US cents (flat QoQ, down 39% YoY), equivalent to an annualized yield of about 14%. The manager said it would continue to limit guidance to one quarter ahead until FSLT was “well and truly through” the crisis.
What next? The manager said it was “well advanced” to deploy the US$28.3m net proceeds from the Sep 09 placement towards acquisitions. FSLT re-iterated its focus on attaining asset yields of about 15% and unlevered IRR of 11-12%. The manager also said its minimum threshold for charterer credit health is BB- or equivalent. Note we don’t expect FSLT to gear up on the proceeds in the near-term.
Manager offers a more positive outlook. In Nov 09, FSLT had to postpone its senior unsecured notes offering but it said it is open to re-visiting the offering in coming months. While the cost of unsecured debt is likely to be significantly higher vis-à-vis the current facilities, it would benefit FSLT (in our view) by reducing the ratio of secured debt to collateral. The manager presented a fairly positive outlook of both the industry and its prospects in 2010. FSLT believes it has “moved past the point of highest counterparty default risk in this cycle”. It further guided that while 2009 was about “putting its house in order”, 2010 would be about slowly returning to a growth strategy. Maintain HOLD with S$0.53 fair value or 2.2% total return.
FSL – BT
Q4 distribution per unit halves at First Ship Lease Trust
1.5 US cent payout unchanged from preceding quarter’s
FIRST Ship Lease Trust (FSLT) has declared a fourth-quarter distribution per unit (DPU) of 1.5 US cents, unchanged from that of the preceding quarter but down by half from 3.08 US cents a year ago. For the full year of 2009, DPU came to 7.9 US cents per unit, down nearly a third from the year before.
Q4’s distribution amount of US$9 million was 42 per cent lower while FY09 total distribution dropped by just over a quarter to US$42 million. The retained cash from the lower distribution payout was mainly used for voluntary debt prepayment as well as for scheduled loan amortisation following the credit facility amendment.
Net cash generated from operations grew 15 per cent to US$67.9 million for FY09 from US$59.1 million for FY08, due to the full-year impact of the acquisition of five vessels between April and October 2008. For Q4, net cash generated was flat at US$16.2 million.
‘2009 proved to be the most difficult year for the global shipping industry since the mid 1980s,’ said Philip Clausius, CEO of FSLT trustee-manager, FSL Trust Management.
‘2010, however, started on a significantly more positive note: major container liner companies, following various successful freight rate restoration efforts and capacity reductions, are at or close to cashflow breakeven levels; the tanker freight market is enjoying a mini-bull run with current rates at 12-month highs; the dry bulk market has come off somewhat but is still well above long-term historical averages,’ he added.
Lease revenue for Q409 fell 4.6 per cent from Q408 to US$24.5 million, mainly due to lower lease payments received from two vessels leased to Geden Lines. The Geden leases are pegged to the US dollar three-month Libor and reset on a quarterly basis and this has plunged compared to the previous year.
Looking ahead, FSLT expects its lease portfolio to continue to deliver predictable and stable cashflow. FSLTM has indicated that Q1FY10 DPU would remain at 1.5 US cents, representing an annualised yield of about 14 per cent based on yesterday’s closing price of 60 cents.
The distribution for Q4FY09 will be paid on March 1.
FSL – BT
FSL Trust holding back US$200m notes issue
It says Dubai World fallout impacted fixed-income investor sentiment
FIRST Ship Lease Trust (FSLT) has put plans to issue up to US$200 million senior notes on hold amid poor investor sentiment in the wake of the Dubai World credit crisis.
FSLT had said, when it announced the notes issue last month, that the proceeds would be used to repay existing indebtedness, fund future vessel acquisitions and for its general corporate purposes.
However CEO of trustee-manager FSL Trust Management, Philip Clausius, yesterday said: ‘The start of the investor roadshow coincided with the outbreak of the Dubai World credit crisis. This impacted fixed-income investor sentiment, particularly in Asia and Europe.’
‘We could most likely have concluded this offering, but only on terms that would not have been in the best interests of FSLT unitholders. Since we have no external pressure, including that from our bank lenders, to conclude this offering, we have decided to suspend it for now. We will revisit it when market circumstances change,’ he added.
In its SGX statement, FSLT said that it has stable and predictable cashflow from its portfolio of long-term lease contracts, which has remaining contracted revenue of US$782 million as at Sept 30 this year. It does not have any outstanding capital expenditure that requires additional funding and it has no loan maturing before April 2, 2012.
A share placement in September raised some US$28.3 million for FSLT and the shipping trust at its third quarter results had said that it was evaluating a number of attractive acquisition-and-leaseback proposals which would enable the trust to further diversify its portfolio by investing in modern vessels with good quality counterparties.
The extra US$200 million would have come in handy to pre-pay loans and improve its cash position as well as take advantage of buying opportunities. However, these are not absolutely critical to FSLT’s business as it does not have newbuilds on order.
Another shipping trust, Rickmers Maritime Trust, however may be concerned over this development as it does have serious fund raising needs in the near future. With this being the first fallout in the local shipping finance sector directly blamed on the Dubai woes, some will wonder whether there are more lurking in the shadows.