Singapore Reit News

April loan maturity is the next test

DPU down 5% QoQ. Rickmers Maritime posted US$38.1m in 4Q revenue, up 29% YoY driven by vessel acquisitions and flat QoQ. RMT will distribute 0.57 US cents per unit, down 75% YoY and down 5% QoQ. Note the sponsor Rickmers Group will not defer its right to its share of the distribution as it had in 2Q09 and 3Q09. Full-year distributable income was within 4% of our estimate. RMT said it could not give forward guidance for DPU because of ongoing discussions with lenders, dragging on since 1Q09. RMT is geared at 1.96x debt-to-equity as of 31 Dec.

April loan maturity is the next test. RMT has so far been able to stave off the most immediate crisis points: the last three newbuild deliveries have been warehoused by its sponsor and a loan-to-value covenant review is on hold while discussions with stakeholders including its sponsor and ten lending banks continue. The next test, in our view, is the US$130m top up facility maturing this April, part of a total US$139.8m in loans up for repayment this year. It remains to be seen if lenders HSH Nordbank, DBS Bank and Citibank are willing to refinance the loan – tricky due to the steep fall in vessel values. We note that RMT has US$110.7m in cash as of 31 Dec, but it is unclear if the other seven banks will be willing to let these funds be utilized to pay off the maturity due to competing interests. How RMT handles this loan maturity could be a good signal of the extent of both lender and sponsor support.

We have further refined our valuation methodology. In an effort to parse market expectations, we introduce a best case valuation of RMT under a scenario where the order book ‘disappears’ at no cost to the trust or unitholders and where RMT is easily able to re-finance the top-up facility maturing in two months. We believe existing investors who are playing the waiting game are in a sense betting on this scenario but the chances of it materializing, in our opinion, are slim. While it is quite possible that RMT manages to resolve its debt and order book concerns – we continue to believe such a resolution may come at the expense of unitholders’ interests, for instance if RMT raises funds through a dilutive private placement. Maintain SELL with fair value revised up to S$0.18 from S$0.15 previously due to the methodology adjustments.

April D-day looming up

At a Glance

• 4Q09 DPU payout of 0.57Uscts, 5% lower than 3Q09

• Loan restructuring process drags on; revenue growth stymied by inability to take on vessels on orderbook

• Significant near term liquidity risk in the form of US$130m bullet repayment less than 2 months away

• Limited DPU visibility, maintain SELL with TP of S$0.30

Comment on Results

In spite of the uncertain outlook, RMT’s quarterly report card continued to impress, underpinned by long-term cash flows. On a sequential basis, operations were stable, with revenues coming in flat at US$38m and cash generation of US$18.6m, down 4%. Net profit surged 65% q-o-q to US$15.2m, however, owing to US$6m accelerated amortisation of deferred income from charter contract – resulting from early redelivery of the Maersk Djibouti. Excluding this non-cash gain, net profit would have been at par with 3Q09.

Outlook & Recommendation

While revenues have been steady for the last 3 quarters, we should see some decline from 1Q10, owing to the redelivery of the aforementioned Maersk vessel on 1 Feb 2010. The vessel will be shortly sent for drydocking but employment thereafter is not guaranteed, and neither are freight rates likely to be attractive.

Except the Hanjin Newport, which the Trust took delivery of last year, the remaining 3 Hanjin 4250 TEU vessels have been delivered to and are currently being warehoused by parent, Rickmers Group. We believe it is unlikely that the Trust will be able to recognize revenue from these charters in the near term as well. While RMT has more than US$150m of undrawn credit facility at this point of time, the facility is likely to be frozen, till ongoing multiparty negotiations involving its 10 lenders and its parent are concluded.

RMT has formed a Finance Committee – comprising 4 Independent Directors – to safeguard the interests of minority shareholders in the loan restructuring process, but we are not hopeful of an early resolution to the crisis. Till then, operating cash flows may have to be fully redirected towards loan repayment, and visibility on future DPU payout is extremely limited. Maintain SELL.

Rickmers lowers Q4 DPU on funding shortfalls

RICKMERS Maritime Trust put in a creditable fourth quarter performance despite the cloud of unsecured funding hanging over it, with charter revenue and income available for distribution rising 29 per cent and 12 per cent to US$38.1 million and US$17.7 million respectively.

Distribution per unit (DPU), however, dipped a little further even from its already cut level in the past two quarters to 0.57 US cent from 0.6 US cent in the past two quarters. Year-on-year, it was a 75 per cent drop from the 2.25 US cents it was giving a year earlier. This was due to Rickmers continuing to conserve cash in the face of funding shortfalls for deliveries due later this year.

For FY09, charter revenue rose 43 per cent to US$146.3 million from US$102.1 million the year before. The strong performance came on the back of revenue contributions from three new vessels delivered during the year.

For the full year, income available for distribution grew 36 per cent to US$76.1 million but DPU plunged by more than half to 3.91 US cents. This represents a payout of 14 per cent and 22 per cent of income available for distribution in Q4 and FY09 respectively.

Cash and cash equivalents have been building steadily over the year as Rickmers retained cash and as at Dec 31, 2009 stood at US$110.7 million.

Rickmers maintained high operational efficiency, with only 0.2 off-hire days in the fleet in Q4 and a total of 7.9 days in FY09, thereby maximising charter revenue for the trust. However, the Kaethe C Rickmers, a 5,060 TEU containership (formely Maersk Djibouti), was re-delivered to the trust from Maersk on Feb 1 and is proceeding with its first scheduled dry-docking in Asia, which should last till mid-March, management said. Rickmers is actively marketing the vessel for future employment.

Said Thomas Preben Hansen, CEO of trustee-manager Rickmers Trust Management: ‘With the cooperation of our ship manager, we have succeeded in providing our charterers with the highest level of operating efficiency at 99.9 per cent utilisation rate.’

CFO Quah Ban Huat noted that while the trust has enjoyed a good year in terms of financial and operational performance, its unresolved financing issues makes it necessary to continue with cash conservation efforts.

As negotiations with Rickmers’ lending banks are still ongoing, the trust is unable to provide any forward guidance on distribution. Since the beginning of the year, the trust has actively engaged its creditors in discussions on the resolution of its financing issues including its value-to-loan covenants, the refinancing of its US$130 million top-up loan facility maturing in April and the financing of its orderbook. None of these proposals have been accepted so far.