First Ship Lease Trust

[Nick]

FSL Trust announces new time charter contracts for three tankers worth up to US$61 million

http://www.infopub.sgx.com/FileOpen/2015...%20to%20US$61%20million.ashx?App=Announcement&FileID=358930

Rebuilding continues.

(Not Vested)

[Nick]

FSL Trust achieves 20% revenue increase and 25% cash generation increase in 3QFY15

- Revenue grew 20% from US$23.6 million in 3QFY14 to US$28.4 million in 3QFY15
- Profit increased nearly four times to US$2.8 million from the previous year
- Net cash generated from operations increased by 25% to US$16.0 million
- Entered into an MOA on 26 October 2015 to acquire an MR tanker for US$21.8 million

http://fsltrust.listedcompany.com/newsro...elease.pdf [News Release]
http://fsltrust.listedcompany.com/newsro...tation.pdf [Slides]
http://fsltrust.listedcompany.com/newsro...ements.pdf [SGX Announcement]

I doubt they will pay a dividend this year since cash have been ear-marked for the acquisition of the US$21.8 million MR Tanker. Moreover there are dry docking and special survey expenses to be paid in 4Q 2015 thus further reducing the likelihood of distributions. Personally, I would rather they repurchase shares which are trading at substantial cash yield. Thus far in 2015, the Management has reduced the share float from 654 million to 638 million with their substantial free cash-flow (after amortization). Things have started to turn for the better ever since the new Management team was appointed in 2013. Coupled with a much stronger tanker market, the positive reversion in charter rates and steadily deleveraged balance sheet, the ability to pay a meaningful dividend looks increasingly likely. One must note that 2 container vessels matures in Jan 2016 and will likely lose the annual bareboat charter of nearly US$12 million revenue. It is likely to be scrapped for US$10-12 million if the steel market remains at it is. The income stream will be largely replaced by the positive reversions of 3 vessels and contributions from the new vessel. The key risk is that a substantial portion of their fleet are on short term charters or on spot rates so one must monitor the tanker market.

Loan Amortization: 44 million
Interest Expense: 12 million

The key is to generate at least $65 million EBIT annually (currently 70 - 75 mil) so as to have at least US$9 million distributable income which works out to 1.9 SG cents.

This is a fairly leveraged trust without the long fixed charter coverage so it does carry a great deal of risk if the tanker market turns. 

(Vested)

[Nick]

http://fsltrust.listedcompany.com/newsro..._FSL27.pdf

Vessel likely to be delivered by end of the month. Next step is securing a long term charter for cash-flow visibility.

http://fsltrust.listedcompany.com/newsro...Fraser.pdf

KGI has updated their report with the latest 3Q results.

(Vested)

[Nick]

FSL Trust announces delivery of FSL Osaka

http://fsltrust.listedcompany.com/newsro...FISL.1.pdf

The delivery of the US$21.8 million MR Tanker was earlier than expected and will partially contribute to the 4Q 15 results. The acquisition was entirely cash-financed and is meant to partially replaced the income stream lost from the expiry of the container vessels bareboat charter in Jan 2016. The vessel will trade on the spot market and the Management states that a $16,500 TCE rate (current 3 year TCE rate) translates to over 14% yield. This together with the positive charter rate reversion from the 3 product tankers will largely replace the income stream from the 2 container vessels and hopefully lead to a reinstatement of a meaningful dividend to unitholders (or a massive share buyback). Let's see how it goes.

(Vested)

[krowten]

3Q15 profit is lower than 2Q15 profit mainly due to increase in depreciation expense on two vessels - Ever Radiant and Ever Respect.

Saw the following statement in 31Q15 results.  I guess the depreciation charge for these two vessels will be US$2.4 million more for all subsequently quarters; i.e., not a one-off increase. Can anyone enlighten me?

Depreciation on containerships - Ever Radiant and Ever Respect
The residual value of each of the two vessels was reviewed and revised.
The changes in residual value of the vessels constitute a change in estimates. The effects of the change were applied prospectively from July 2015. As a result of the change, depreciation expense for 3Q 2015 increased by US$2.4 million for the two vessels.

[Nick]

3Q15 profit is lower than 2Q15 profit mainly due to increase in depreciation expense on two vessels - Ever Radiant and Ever Respect.

Saw the following statement in 31Q15 results.  I guess the depreciation charge for these two vessels will be US$2.4 million more for all subsequently quarters; i.e., not a one-off increase. Can anyone enlighten me?

Depreciation on containerships - Ever Radiant and Ever Respect
The residual value of each of the two vessels was reviewed and revised.
The changes in residual value of the vessels constitute a change in estimates. The effects of the change were applied prospectively from July 2015. As a result of the change, depreciation expense for 3Q 2015 increased by US$2.4 million for the two vessels.

It is very likely that the 2 vessels will be scrapped in Jan 2016 after the expiry of their charter. I believe that the change in residual value takes into account of the current value of the scrap metal (US$10-12 million approx). NPAT is not a crucial figure for FSLT IMO. I would prefer to look at its net cash-flow after debt service. Note that the expiry of the 2 charters will reduce its cash-flow by around US$11 million p.a. This will be mitigated by the recent product tanker acquisition and positive reversion of the 3 time charter contracts commencing in Aug and Nov 2015.

(Vested)

[krowten]

Nick,
Thank you for the information. I agree with you that cash flow is more important. Nonetheless, I do not want to miss out anything and am trying to find out any anomalies with past quarters' results and then assess if there should be a concern.

[krowten]

A good summary of the risks involved, written by Motley fool:
1. Market risk
2. Interest rate risk
3. Credit risk (or counterparty risk)

I don't remember seeing anyone posted this write-up in this thread; hence, I post the link here.

These Risks Can Potentially Sink First Ship Lease Trust
https://www.fool.sg/2015/03/23/these-ris...ase-trust/

[Greenrookie]

    I think FSL Osaka already deployed in Asia.

Given recent Spot rates of MR of above 18k per day, think FSL will
Have no problem getting the 16500 rate they talk about

FSL santos and FSL London seem to be idle though

(Vested)

[Nick]

Thanks for the research, Greenrookie.

Ideally, they would lock up FSL Osaka on a long term charter when rates are favourable to provide visibility of income. They do have sufficient cash to make another acquisition so fingers crossed.

The big risk is 2017 - with the exception of the Yan Ming vessels, all other vessels will be on spot rate by end of the year. So either, this is by design (management feels rates will improve) or gross incompetence.

This is a non-core stock for me. The moment charter rate dives I would probably divest. Meanwhile, I hope for further strengthening of charter rates coupled with a reinstatement of distributions in 2016.

(Vested)