Category: FSL
Shipping Trusts – OCBC
3Q09 results recap
Results recap. All three shipping trusts reported 3Q results recently. FSL Trust (FSLT) results were in line with our expectations while Rickmers Maritime (RMT)’s were below as the trust did not accept delivery of the latest Hanjin newbuild vessel, which the sponsor will hold on to, while talks continue on challenges regarding the trust’s large debt load; a maturing loan facility; and a large committed order book. Pacific Shipping Trust (PST) results were above our estimates as we had factored in charter rate cuts to CSAV but negotiations on that front have yet to be resolved. All three trusts reported that their charterers have been making charter payments on time so far.
DPU visibility is limited. Only FSLT has given DPU guidance for 4Q09 (1.50 US cents, flat QoQ). In our opinion, the other two trusts are not in a position to give much forward guidance because of ongoing issues. In fact, we believe FSLT has relatively the most visibility on 12 months forward DPU. Counterparty risk – the risk of a charterer defaulting or renegotiation charter terms – remains the major concern for the sector and consequently a major threat to DPU. Still, FSLT has addressed the most immediate threat to distributions by securing loan-to-value (LTV) covenant waivers. On the other hand, the CSAV renegotiation continues to be an overhang on PST. Rate concessions would impact cash flows and potentially give just cause to its other charterer (its sponsor) for demanding similar concessions. Meanwhile, we believe it is more prudent to not expect further distributions from RMT, the most at-risk trust in our view, while negotiations with lenders and its sponsor continue to be unresolved.
Prefer FSLT. We maintain our UNDERWEIGHT rating on the sector. We believe the tide has yet to turn for the container industry, and believe investors should limit their exposure to leveraged asset owners in this space. FSLT [BUY, FV: S$0.72] is our preferred play for the shipping trust sector as it has addressed many of our concerns regarding its balance sheet and previously aggressive payout policy. We also like its diversified portfolio and the relative visibility of its yield. Proceeds from its recent placement have been earmarked for acquisitions, which could be made in the coming months. On the other extreme, we have a SELL rating on RMT [FV: S$0.16] driven by the complex challenges faced by the trust. In our opinion, a resolution here is: uncertain; likely to be time-consuming; and perhaps significantly dilutive to unitholders.
FSL – DBS
DPU guidance maintained at 1.50 Uscts
At a Glance
• Results in line with expectations
• Maintain DPU guidance for 4Q09 at 1.50UScts
• FY10F DPU yield of 13%, best visibility among peers
• Maintain BUY with TP S$0.70
Comment on Results
FSLT delivered another quarter of steady results. Revenue of US$24.6m was stable q-o-q, and the Trust generated cash of US$17.6m, 3% higher than the US$17.1m generated in 2Q09. Of this, the Trust will distribute an aggregate amount of US$8m to its shareholders or a DPU of 1.50UScts for 3Q09.
To recap, a DPU of 1.27UScts for the period 1 July to 16 Sep has already been announced for existing shareholders, while the remaining 0.23UScts for the period 17 Sep – 30 Sep will now be paid to both existing and new shareholders (post placement exercise). The ex-distribution date is 29th October.
Recommendation
Of the US$9.6m cash remaining, the Trust will utilise US$8m towards quarterly prepayment of loans, as per the arrangement following the recent two-year waiver it obtained on its LTV covenants. This will reduce outstanding loans to US$493m, and gearing now stands at 1.3x. Elsewhere, the manager has reiterated that all advance lease payments have been prompt until October 2009 and no request for renegotiation has been received. Hence, risks at FSLT continue to be well managed.
While DPU guidance for 4Q09 has been maintained at 1.50UScts, we continue to project a conservative 1.40UScts DPU per quarter in FY10, given the higher interest costs to be incurred hereon. The Trust is still trading at 13% FY10 dividend yield, more secure and more attractive compared to its peers. Further, the placement proceeds of US$28m, raised during 3Q09, will provide management with a lever to pursue DPU-accretive growth. Thus, we continue to maintain BUY at an unchanged TP of S$0.70.
FSL – BT
FSLT cuts Q3 distribution by 47.8%
FIRST Ship Lease Trust (FSLT) continued to adopt a prudent approach amid the global shipping downturn, slashing its third-quarter distribution to unitholders by 47.8 per cent year-on-year to US$7.96 million. This resulted in a distribution per unit of 1.5 US cents, in line with its guidance. In Q3 2008, DPU was 3.05 US cents.
Based on the equity placement announced on Sept 4, 80 million new units were issued on Sept 17 and a stub distribution of 1.27 US cents was declared for the period July 1 to Sept 16 for the then existing unitholders. The enlarged unitholder base post-equity placement will receive the remaining DPU of 0.23 US cent for the period Sept 17 to Sept 30.
Net cash from operations for the third quarter rose 11.5 per cent year-on-year to US$17.6 million. The lower distribution amount resulted in surplus cash of US$9.6 million, of which US$8 million has been applied towards voluntary loan prepayments on Sept 18 (US$800,000) and Oct 1 (US$7.2 million) respectively, FSLT said.
‘FSLT’s business is robust and has continued to deliver stable and predictable cash flows as the global shipping industry navigates through this challenging period,’ said Philip Clausius, CEO of the trustee-manager FSL Trust Management.
FSLT’s lease revenue rose 4 per cent to US$24.6 million, compared to Q3 2008, primarily driven by contributions from YM Enhancer, the third and final containership acquired in October last year, in the acquisition and leaseback transaction with Yang Ming Marine Transport Corporation.
FSLT reiterated that there has been no attempt by any lessee to re-negotiate lease terms and all lease rentals have been received promptly, including the rentals for October.
Management has provided a DPU guidance of 1.50 US cents for Q4, representing an annualised yield of about 14 per cent based on the closing price of 60.5 Singapore cents on Oct 22.
FSL – CNA
FSL Trust’s DPU down 51% to 1.5 US cents
Mainboard-listed First Ship Lease Trust (FSL Trust) announced on Friday, a 1.5 US cent distribution per unit (DPU) for the third quarter ended in September.
The figure is 51 per cent lower than the 3.05 US cent DPU for the same period last year.
The amount to be distributed is US$7.96 million – an on-year drop of 48 per cent.
Going forward, FSL Trust said that its business is robust and its portfolio of lease contracts will continue to deliver predictable and stable cash flows.
FSL – OCBC
Guides for 1.5 US cents 4Q DPU
Results in line. FSL Trust (FSLT) posted US$24.6m in revenue, up 4% YoY but marginally down 0.9% QoQ. Net cash generated from operations of US$17.6m rose 11.5% YoY and 3.1% QoQ. DPU, however, fell 50.8% YoY and 38.8% QoQ to 1.5 US cents. This was primarily because of the lower payout policy as well as the first effects of dilution stemming from the recent placement. Cash retained for the quarter has been used to prepay loans. Note that 1.27 US cents of the DPU amount has already been declared for the pre-placement units in September. All units will enjoy the outstanding 0.23 US cents amount.
Stitching up the balance sheet. FSLT has had a busy 3Q09. First, it secured loan-to-value covenant waivers from creditors that lower the required market-value-to-loan coverage from 145% to 100% for a two year period. In return, FSLT shifts away from a bullet repayment structure and begins repaying US$8m in loans per quarter. Its cost of debt is also higher. Second, FSLT raised US$28.3m (net) through a placement of new units. The proceeds are earmarked towards acquisitions. These steps coupled with the already enforced lower payout policy coalesce into a strategy of “defensive to be offensive”, marking an important turning point in FSLT’s business model. Moreover, the planned asset buys will give the manager a chance to demonstrate the 1) quality of counterparty; 2) asset yield; and 3) lease structure available to FSLT.
Guidance surprises for 4Q DPU. FSLT has guided for a 4Q DPU of 1.5 US cents or flat QoQ. This is almost 5% higher than our estimate of 1.43 US cents, which was driven by the time lag between the dilution from the placement and the utilization of the proceeds. While we believe this time lag still exists, FSLT’s guidance suggests it has enough surplus cash that was retained in previous quarters to fill any shortfall. In addition, our estimates assume that any acquisition is not completed until 1Q10. If FSLT is able to move faster, early contributions from new vessels could also support the gap.
Still our top pick. Now that the immediate balance sheet overhang has been addressed, we believe our FY10F yield estimate of 14% is fairly defensible. Key risk remains counterparty health in a weak shipping
environment. Nevertheless, FSLT is our top pick in the shipping trust sector for its diversified vessel portfolio as well as its newly restructured business model. Maintain BUY with S$0.72 fair value.