Rickmers Maritime Trust

[freedom]

I suggest you read the early prospectus of RMT and all its debt term and conditions.

RMT is not deleveraging ahead of schedule, it is paying its debt according to its original debt repayment schedule.

post-2013, the annual debt repayment will be more than USD68.2 million. post-2013, there is no interest rate swaps any more. post-2013, a few CGM CMA 3,450 TEU container ships long term charter will expire, which commands too high charter rate compared to current charter rate.

[MattAtelier]

I suggest you read the early prospects of RMT and all its debt term and conditions.

RMT is not deleveraging ahead of schedule, it is paying its debt according to its original debt repayment schedule.

post-2013, the annual debt repayment will be more than USD68.2 million. post-2013, there is no interest rate swaps any more. post-2013, a few CGM CMA 3,450 TEU container ships long term charter will expire, which commands too high charter rate compared to current charter rate.

RMT is repaying debt ahead of its new, restructured debt schedule. See quarterly results.

Thanks Freedom

[tanjm]

I just took another quick look at RMT. Here's another way to look at it....

The trust has US$725 million of committed revenue in the next 5 years (on average) of which I have assumed that 562 million will become free cashflow (using the last financial report expenses as a guide). I have assumed no defaults - a not unreasonable assumption given the "stress test" on the charterers in the last financial crisis.

The trust has 609 million of debt, taking out the 49 million convertible loan, which I assume is converted fully.

Then I assume that in 5 years time (on average), the fleet is worth only 60% of its depreciated NAV (depreciated in a straight line with zero value in 25 years), then I get a 528 million valuation on the fleet. I justify the 60% from RMT's IPO prospectus which has shipping rates fluctuating by as much as 30+% in a shipping cycle.

In total I end up with a net amount of 480 million into 558 million shares (including the converted shares) and a value per share of 86 US cents per share or about a dollar SGD. (no discounting was applied).

In other words, if I assume that all committed revenue is received, the convertible loan is fully committed, and we are in a fairly major shipping recession in 5 years time, I still end up with about a dollar per share in value. Other safety margins could still be applied on top of this depending on your view.

[Nick]

I just took another quick look at RMT. Here's another way to look at it....

The trust has US$725 million of committed revenue in the next 5 years (on average) of which I have assumed that 562 million will become free cashflow (using the last financial report expenses as a guide). I have assumed no defaults - a not unreasonable assumption given the "stress test" on the charterers in the last financial crisis.

The trust has 609 million of debt, taking out the 49 million convertible loan, which I assume is converted fully.

Then I assume that in 5 years time (on average), the fleet is worth only 60% of its depreciated NAV (depreciated in a straight line with zero value in 25 years), then I get a 528 million valuation on the fleet. I justify the 60% from RMT's IPO prospectus which has shipping rates fluctuating by as much as 30+% in a shipping cycle.

In total I end up with a net amount of 480 million into 558 million shares (including the converted shares) and a value per share of 86 US cents per share or about a dollar SGD. (no discounting was applied).

In other words, if I assume that all committed revenue is received, the convertible loan is fully committed, and we are in a fairly major shipping recession in 5 years time, I still end up with about a dollar per share in value.

I wish to point out that the total bank debt stands at US$656 million (and not US$608 mil) as of 1Q 2011. Conversion of the US$49 million convertible bond will lead to an estimated 30% increase in the outstanding unit float. It is true that book value will continue to grow significantly since much of the profits are being retained. Charterers - CSAV, MOL, CMA CGM etc - are top container liners which is a good thing for the Trust. But personally, I feel in the case of a business trust, the unit price is a function of the yield rather than its NAV. RMT trades at 7% yield and I don't expect major improvement in the next few years unless they refinance the loans or raise new equity. Its peers are trading at a higher yield (FSL 12% and PST 9.4%) but I guess the market is also looking at their payout ratio as well. What do you think ?

[tanjm]

I already took into account dilution

[Nick]

I already took into account dilution

Currently the book value per unit stands at 86 US cents. Yet the unit price still trades at a big discount to it since it is the distribution yield that determines its valuation. 7% yield for a Trust with 27% payout ratio is deemed to be 'acceptable' to the market for this Trust. I don't expect the DPU to rise unless they refinance the loans and push the maturity dates back to 2020s. I guess another issue will be the renewal of the CMA CGM vessel charter rates when it is due. Let's see how it goes.

(Not Vested)

[tanjm]

Undoubtedly my quick and dirty calculation can be improved on. But I should remind you that the purpose of conducting a valuation exercise is to find valuation mismatches between mr market and the valuation exercise. So saying that "the price is the price" is a null statement.

By the way I said 609 million assumed the 49 million was converted. Hence the share dilution. Either dilution or debt but not both

---

By the way, if there's one easy thing to challenge in my statement it would be the book value of vessels after 5 years. I essentially assumed they would be halved even though with about 18 to 20 years of vessel life left

[Nick]

Undoubtedly my quick and dirty calculation can be improved on. But I should remind you that the purpose of conducting a valuation exercise is to find valuation mismatches between mr market and the valuation exercise. So saying that "the price is the price" is a null statement.

By the way I said 609 million assumed the 49 million was converted. Hence the share dilution. Either dilution or debt but not both

The total bank loan is US$656 million. The convertible loan is another issue altogether.

Bank Loans: US$656 million
Convertible Bond: US$49 million
Total Interest Bearing Loans: US$705 million

Like you, I assumed conversion as well.

The bank loans are secured by the fleet with its VTL ratio being reduced to 100% for the next 2.5 years. After which, it reverts back to 125%. RMT doesn't reveal the charter-free valuation of its fleet so I have no idea what the current VTL ratios are. In any case, it should improve as de-leveraging efforts continue.

I am not saying that RMT is correctly (or incorrectly) valued at the moment. I am just voicing my opinion that book value figure matters little in valuing the shipping trust - instead distributions and its payout ratio matter more (together with gearing etc). A healthy shipping trust should exhibit stagnating (100% earning payout) or a growing book value (< 100% payout ratio). In RMT case, NAV should rise dramatically as it only pays out 27% of its profit to unit-holders (based on 1Q figures). In other words, the NAV should exceed the current value of 86 US cents by 2015 (assuming no conversion) by a wide margin due to the growth in retained earnings ! This also assumes no impairment charges will be done on the vessels.

However, historically (and even today), the market has rarely allowed any shipping trust to trade at a premium to its NAV. Even PST with its growing fleet and stable DPU trade at 20% discount to its NAV and yet a decent 9% yield. Generally, I noticed yield tend to determine the price while the book value figure seems to be ignored.

An extremely good example would be FSLT and its unit price performance for the past 1 year. In Oct 2010, the Management revealed that the charter-free valuation of its fleet amounted to US$700.3 million. This means that the valuers assumed all of the counter-parties defaulted on the charter and FSLT sold its vessels in open market at that time, it would have gotten US$700.3 million. Using this figure to replace the book value of the fleet in its B/S in 3Q 2010, I would attain NAV of US$254 million or 43 US cents yet the unit price rarely traded above 43 SG cents over the past 12 months. I think this is due to the yield since investors purchase FSLT for income rather than in the hopes of liquidation. FSLT units were priced based on its distribution yield rather than its 'worst case NAV' and I think this applies to most shipping trust. Again, this is my own view so feel free to disagree or point out any incorrect assumptions made.

A significant portion of its cash-flow will go to debt amortization to repay its loans (most of it due in 2017 and 2019). Unless they can push the maturity dates back for another 3-5 years, it will be difficult to increase the cash-flow available for distributions. Since it is unlikely RMT will improve on its DPU for the next few years without loan refinancing, I don't expect any improvement in the unit price barring any unforeseen circumstances (like a major shipping revival). I could be wrong - if you believe DPU will rise in the next few years, I would like to hear your views.

I am not vested in any shipping trust at the moment but I am always interested in learning more about yield stocks

[freedom]

I just took another quick look at RMT. Here's another way to look at it....

The trust has US$725 million of committed revenue in the next 5 years (on average) of which I have assumed that 562 million will become free cashflow (using the last financial report expenses as a guide). I have assumed no defaults - a not unreasonable assumption given the "stress test" on the charterers in the last financial crisis.

The trust has 609 million of debt, taking out the 49 million convertible loan, which I assume is converted fully.

Then I assume that in 5 years time (on average), the fleet is worth only 60% of its depreciated NAV (depreciated in a straight line with zero value in 25 years), then I get a 528 million valuation on the fleet. I justify the 60% from RMT's IPO prospectus which has shipping rates fluctuating by as much as 30+% in a shipping cycle.

In total I end up with a net amount of 480 million into 558 million shares (including the converted shares) and a value per share of 86 US cents per share or about a dollar SGD. (no discounting was applied).

In other words, if I assume that all committed revenue is received, the convertible loan is fully committed, and we are in a fairly major shipping recession in 5 years time, I still end up with about a dollar per share in value. Other safety margins could still be applied on top of this depending on your view.

I would remind you that you might have forgotten finance cost, as well as distribution cost? after those cost, the cash is available for debt repayment is around 300 million USD only....


using cash flow statement, 1Q11, cash received from charterers 35 million, cash available for debt repayment would be 12 million only, so 30+% of charter contract revenue can be used for debt repayment.

[MattAtelier]

It make sense for long term charter not to impair anyway. As long the DCF of long term charter is still sufficient to cover operating cost (like increasing fuel cost) and is higher than historical cost or net realizable value, then it should not impair. However for ships that are not on long term charter and subjected to daily rates, why are they not impaired? If there were to be impaired, we should have seen many charterers belly up. So is it a valid point for valuation anyway?

I agree with where you are heading: the asset value of the ships based on IFRS is not a great referent of valuation.