Rickmers Maritime Trust

[nextwave]

Hi Nextwave,

I don't quite understand what you are driving at.

the trust manager is getting a free ride through
using shareholder money to buy a notoriously volatile asset like ships, value of which is known to no one, if demand is high one can techinically create as many ships as possible unlike creating as many orchard road or 5th avenue condos or shopping malls, thus fundamental value of a ship= cyclically adjusted price of steel+ other raw materials + labor, in bad times, value of ship= ZERO, study shipping cylces over a hundred years and you will know what i mean, the best of shipping titans have been unable to time the markets

No one is disputing that the vessel industry are commodity-like in nature since ship-builders can easily create vessels of any specifications within 2-3 years. But I don't understand how does this translate to vessels having 0 value ? At the moment, we are in a midst of a shipping recession and many well-run shipping liners did report a profit so if the value of their ships are zero, wouldn't their ROE be infinity ? As for shopping malls and residential properties, a property crash will wipe them out too as we can see in USA, Japan and recently in Europe. Half-completed buildings and townships due to poor capital management.

What does this mean ? It is not the type of asset that determines the Trust fate - it is the Trust's capital structure. I would consider PST assets to be crap compared to Saizen REIT 'defensive' residential properties but one managed to grow its NAV while another is under-going fire-sale.

the conversation ends right here as "dividends" are mainly an illusion that is paid through the book value of ships as long as a greater fool values the ships at that price- THERE IS ZERO VALUE CREATION

So the cash received by the Trust is false ? So the vessels owned has zero value ? So bankers are lending paper money at 80% LTV to Trust this year ? So the growth in NAV is purely fictional ? And a ghost ship transports our goods and raw materials across the high seas ?

Unless I am mistaken, the greater fool theory only holds for asset class which cannot generate any cash-flow on its own ie gold.

for those that that still like this business model, i have a proposition for you- me and my business partner are looking for 5m$ to buy a fleet of taxis in India to be run professionally, we will pay you part of the taxi rentals as dividends (yield 7%+) and charge you just 3% of total assets as mgmt fees....

I just glanced through Comfort Delgro taxi rental business which has operations in Singapore, Vietnam, Australia and the UK.

Taxi Assets: $1.214 billion
Taxi Revenue: $0.927 billion
Taxi Operating Profits: $102.1 million
Operating Profit to Asset Yield: 8.4%

Assuming Comfort charges 3% of the taxi revenue as part of its Management fees, this will cost $27.1 million. This value is a mere 2.9% of its real staff cost of the entire Comfort Group ($960 million) even though taxi revenue accounts for 39.7% of the Group's revenue. In other words, it is extremely likely, Comfort staff cost (or Management fees) exceed the 3% mark by a huge margin.

So by your logic, Comfort Delgro Management is even worst than the shipping trust Manager since its 'management fees' percentages are many times larger. And taxis are easily manufactured so again, it has zero value especially when oil prices soars. And lastly, their dividends are a mere illusion since we cannot determine its value with any certainty ? And the growth in book value is fictitious ? And so investing in Comfort is 'greater fool theory' ?

I apologize for poking fun but unless you clarify your stance on 'zero value creation' in all leasing businesses (but strangely not on leasehold assets), I think I am misinterpreting your points.




Hi Blackjack,

The shipping trust industry in Singapore is pathetic. A quick glance in the US listed shipping trust and you can see the huge disparity in quality and size. For this reason, I think it is more prudent to wait for this sector grow and attract better players before diving straight in (unless you can stomach the risk). This applies to all of the business trust here including property development and utilities. The local REIT sector is more developed and matured and hence carries a lower risk profile.

Cheers to all

nick,

the bigger point is this- for an aset manager to earn fees and create value the asset should be enhanced similar to what is done in good reits e.g CMT buying bugis junction or IMM at market value but creating strong value through asset enhancement (e.g increasing yield by more than 200bps in a few years), or the asset should have strong potential for capital appreciation because of scarcity e.g someone that bought an orchard road property during the asian crisis.

Just buying ships and putting it on your balance sheet creates no value hence it is zero value creating although the actual asset does have residual value, please understand the difference between $ value of assets and value creation- what value does a shipping trust create?

comparison with comfort delgro is irrelevant, as the value in comfort delgro is owning taxi licences ( can you and I start a taxi service in Singapore?) and managing fleets not the value of taxis

good property values never get destroyed in crisis they always rebound ( no point using third tier names like Saizen to make a point on reits) unlike ships where if the crisis is long lasting like happened in the mid eighties, the values litererally fall to zero, book value has no meaning for ships given the volatility

btw, not sure how much you know about ship financing, but if you know anyone in the industry ask them about it- they will tell you how difficult it is to get a loan, it is max for 10 years for new ships and that too for very credit worthy borrowers , for second hand it is virtually not availiable

I don't want to argue as everyone has their own idea of what a good business is, i am just telling you a shipping trust does not qualify as a value creating business for me and i have given you the reasons, it may for you , all the best!