First Ship Lease Trust

[yeokiwi]

The Yield just dropped to 0% as they'll have to suspend distribution till Jun-13,

I just checked the AR that there were 7045 unitholders as at 28 feb 2012. How many unitholders will hold on to a zero yield shipping trust?

Some of the unitholders seems like financial institutions. Surely they have investment professionals on their payroll who can advise their employers to get out as the situation deteriorate beginning in 2008?

If all the investment professionals of these insitutions are of the kind of standard displayed by our members in this forum, I think I will be eating grass liao.
Maybe not even grass, eat mud.

[karlmarx]

For a cyclical industry, the mistake was to 1) pay out all it's profits at dividends and 2) borrow as much as possible. Looking at the way FSL was run, it seems that the management has deliberately chosen to ignore the fact that shipping companies go through periods of feast and famine. they have to actually believe that freight rates and vessel values will remain elevated invariably, so as to maintain the dividends.

[Nick]

I am not exactly certain what FSLTM was thinking in 2007 - 2008 when it paid out 100% of its cash-flow and took on LTV backed loans with bullet payments (in 2012). Perhaps, they were hoping to follow the REIT model which worked in the similar way - 100% payout, roll over loans and raise equity consistently. In any case, when the shipping recession came and DPU was slashed to 1.5 US cents, they would have probably survived decently if not for 7 vessels defaulting from 2010 - 2012. Not sure why they raised debt to buy Torm vessels though. Strange decisions.

RMT was unfortunate as the falling share price prevented it from raising its US$650 million rights issue which would have probably saved it. Fortunately, a portfolio of strong charterers ensured stable cash-flow. I think the LTV waiver expire next year so this is something to keep an eye out for.

PST took on amortizing loans without LTV so they only had to worry about PIL and CSAV defaulting (which didn't occur). They also raised rights to partially fund the CSAV vessels in 2008 (but PIL took a huge chunk of the rights). A 70% net profit payout allowed NAV and cash to grow allowing for opportunistic acquisition of 9 vessels in 2010.

Please correct any errors in my post...thanks.

(Not vested in any shipping counters)

[KopiKat]

I think the downfall for the both trusts is the fact that management think they can get away with high leverage, it may work for freehold properties but never with ships that have a limited lifesapn

The freehold properties will need to be those that're in high demand ie. close to 100% occupancy even when rents kept increasing such that their cash flow is always enough to pay for all the expenses, even if banks raises interest rates. Also, the banks must not suddenly decide to attach new Loan Covenants that's hard to meet (Good to have a strong majority shareholder that gives the bank confidence),....etc...

[Nick]

I think the downfall for the both trusts is the fact that management think they can get away with high leverage, it may work for freehold properties but never with ships that have a limited lifesapn

The freehold properties will need to be those that're in high demand ie. close to 100% occupancy even when rents kept increasing such that their cash flow is always enough to pay for all the expenses, even if banks raises interest rates. Also, the banks must not suddenly decide to attach new Loan Covenants that's hard to meet (Good to have a strong majority shareholder that gives the bank confidence),....etc...

True. Saizen REIT faced a great deal of liquidity problems in 2008 - 2009 and halted distributions despite owning freehold properties in a 1st World country. High leverage + 100% cash payout is a recipe for disaster during a downturn.

[Stockerman]

should we come in and short this counter? today, a lot of counters went up with things look a bit better on the Euro front..

with a grim prospect of zero yield, price is set to drop further? below 10 cents ??

[money]

should we come in and short this counter? today, a lot of counters went up with things look a bit better on the Euro front..

with a grim prospect of zero yield, price is set to drop further? below 10 cents ??

“The market can stay irrational longer than you can stay solvent.” ~ John Maynard Keynes

I have heard buffett quoting this too.

Personally, i dont think i will ever short any counter cos the downside risk seems unlimited. Who knows if i short today at 17 cents, then some joker with deep pockets thinks otherwise, comes in and bids up the share price to 25 cents, i would be forced to cover my shorts and it may wipe out my savings of like 10 years. (He may be wrong eventually but i would still lose money)

i would prefer to seek out undervalued stocks and patiently hold them than risk losing money that i worked so hard to save. Call me a coward but i can live with it

---

The Yield just dropped to 0% as they'll have to suspend distribution till Jun-13,

I just checked the AR that there were 7045 unitholders as at 28 feb 2012. How many unitholders will hold on to a zero yield shipping trust?

Some of the unitholders seems like financial institutions. Surely they have investment professionals on their payroll who can advise their employers to get out as the situation deteriorate beginning in 2008?

Hmmm, i guess never rely too much on these financial institutions. There are some big companies like eastman kodak, nokia, lehman, etc that are mainly held by institutional investors but arent they bleeding cash, some have even filed for bankruptcy.

If we want to call ourselves investors, then at the every least, we can do some due diligence. Check that the company is conservatively financed, have a reasonable earning power relative to price, reasonable ROE, decent management who think like owners. In the case of FSLT, for the past 2-3 years, management has been paying more money in the form of loan interest to the bankers than to shareholders as dividends, i wonder why people still believe in this management.

Of course, i have to admit, once upon a time, i didnt believe that management will do silly things, if they have the confidence to do 100% payout of earnings, then obviously they have to be right. Well, i have changed my opinion, sometimes you do have fools running a business.

[pianist]

in general, anything foreign / external that tries to raise money in cash rich singapore, one ought to be careful...something i learnt from my ex-analyst colleague.

[money]

You can still sell FSL for 17 cents today.. Sell now before it gets too late, it is so overvalued even at 17 cents.. even with its IPO price around USD 0.98.

This trust lives for the bankers, not for shareholders.

if you really want to speculate on this counter, why not wait till it has done a rights issue, or do a private placement first, then buy into it again.

[Underdogger]

with a zero yield and pressing need for capital for ship replacement, this counter is not even worth 10 cents.

if it drops to 5 cents, can buy and speculate