Rickmers Maritime Trust

[PeterSoh]

One of the most commonly asked questions during the conference call was what are RMT's plans for Kaethe. The CEO said they will hopefully find Kaethe a job ASAP but the rate will be lower which is to be expected due to poor market conditions.

1. So, I believe RMT has already taken into consideration the fact that they will receive a lower revenue for year 2012 compared to 2011 and they will probably make their plans around that.

2. Shipping industry is very risky, especially when charterers default (ie. recent issues with FSL defaults). RMT has probably tried to minimise this risk but taking on large/leading charterers in the world like CMA CGM, MOL, MSC... So these are probably some plus points for RMT

3. It's hard to predict the future so I can't say for sure but with the riskiness of this industry, the returns will be greatly rewarded in good market conditions. Thus this industry is probably more appealing to risk lovers

4. RMT's goal is to reach a debt/equity ratio of 50/50, as well as to pay consistent dividends every quarter. A caller in the conference call asked if the company would use their cash to pay off their debt earlier but the CEO says that they intend to keep the cash for unforeseen circumstances so that the company will still be financially healthy. They are confident in their business model and deleveraging plans, so we'll see if they can slowly work their way to 50/50 debt/equity ratio. In my opinion, I believe that they will aim to pay consistent dividends and it can be seen in their past 4-5 years of dividend history.

5. I thought about this question too. I checked other shipping trusts like Seaspan Corporation (US listed company) that has a similar model to RMT and it seems that 4250 TEUs dominate their portfolio so it's possible that these vessels may still be in demand. Furthermore, it could also be possible that charterers like smaller vessels to take shortcuts via the panamax, suez... canals and hence consume less fuel. I'm a little unsure about this point so maybe you can read up more about it and share it with us.

These are just some of my opinions to answer Nick's questions. I'm quite new to learning all about finance and researching the market so some things I might have said may not make sense. Do let me know so I can improve and learn more, thanks!

[MattAtelier]

Hmm here are some points I wish to raise -

1) The CSAV vessel lease will expire this month and the current freight rates are nowhere near the contracted rate so revenue will drop.

2) The counter-party risk remains high since virtually all container coys are in the red.

3) Leases are starting to expire late next year. If there is no recovery in the container market by then, the revenue will take a huge hit.

4) The debt amortization is rising every year. Is there room for dividend payment in the future ?

5) There is a shift towards > 10,000 TEU vessels - will Rickmers fleet of panamax 4,000 - 5,500 TEU vessels still be attractive to shipping liners ?

6) The conversion of the CB (if the parent converts in 2014) will be dilutive to existing stakeholders.

This are some 'pessimistic points' which I just thought off. Best to understand the risk also ! The reverse is also possible that the container sector will recover and RMT can refinance their debt, raise their dividend and sell new stock to buy new vessels. Let's see how it goes !

(Not Vested)

Hi all,

Here is my cut at Nick's questions:

CSAV lease
* Yes, has already expired. I think new lease rate likely to be only US$1-3k/day above breakeven of US$6k/day, leased out on a 1-year basis. But I believe this is reflected in the share price

Counterparty risk is high
* Yes

Leases start to expire next year
* Not quite. Aside from Kaethe, next round of expiration occurs in Dec 14. Ital Fastosa and then Ital Festosa (i.e. chartered to EVergreen)

Rising debt amortization will crush dividend
* My opinion: in June 2013, could be an issue. Under my numbers, I estimate that the company cannot afford to pay the quarterly US$2.5mn in dividends as of June 2013. I assume on June 2013, they need to accelerate the paydown of the Top Up facility, which is the debt with the most demanding VTL. Even with its paydown, I believe RMT will still need to negotiate with banks to meet its VTL covenants. That said, by my estimate, it will not comply with the VTL by only a matter of ~US$10-15mn. I am basing my estimates on 1) unchanged charters, with Kaethe on US$8k/day; 2) a vessel valuation from a third party on-line service i subscribe to, which values the vessels as of that date in June; 3) RMT's debt paydown schedule.

10,000 TEU vessel threat
Tough question. My view is that there is a role for younger, slow steaming vessels like RMTs. But its my view.

CB conversion
I will be happy if they convert since it will reduce debt load at RMT. I am more concerned they don't convert and RMT really needs to repay it.

My two cents. I have tried to separate fact from opinion above. I got a lot of heat a year or so ago for stating I liked the name (disclosing that I was vested). I am invested now and happily so. I won't re- discuss my views on upside / how to value / how to analyse, but here are the risks I am worried about (what follows is opinion):

* Charter rates beneath 18,000 in 2013 would be a problem for RMT
* The CB could create an overhang; would be tough to have to pay it out. I would prefer a conversion
* The 10,000 TEU vessel issue is real; so are vessels with more efficient engines and ability to slow steam at ~20 knots. RMT's vessels meet almost all of these efficiency requirements (except size), so its a risk
* Write down of vessel value on balance sheet. The vessel value on balance sheet is meaningless. But its too high and needs to be written down. I don't care about a non-cash write off (since the value was destroyed long ago), but it will certainly be very bad for the share price. It will be a day to buy the shares.

Of course there are others. Those are the ones on my mind

Matt

[Nick]

Hi Matt,

Thanks for your well-informed opinions. I too was vested in RMT for a short period of time together with PST in 2010 till early 2011.

I wish to point out that -

Excluding Kaethe Rickmers vessel, the earliest expiration of lease occurs in Dec 2013 followed by early 2014 for the Ital vessels.

This can be seen in page 2 of the Factsheet - http://rickmers.listedcompany.com/misc/f...280212.pdf [Factsheet]. It also provides the estimated revenue for the fixed charter with it declining from US$142 mil in 2012 to US$140 mil in 2013 to US$120 mil in 2014.

If I misunderstood, the factsheet chart, please point out my error.

(Not Vested)

[kng]

Don't think so negative.

The low chartered rate shall not be continue since almost all shipping company are in huge lost in last year. As such, they are forming as a group to raise the container price recently asian and europe route which i believe the similar thing will happen soon for other route.

Let's see how it go. Some company may go bankrupcy, hopefully no Rickmer Maritime, I still believe Germany Company can manage it as per what they did last 2 years, not like FSLT which may be the next one to default.

[MattAtelier]

Hi Matt,

Thanks for your well-informed opinions. I too was vested in RMT for a short period of time together with PST in 2010 till early 2011.

I wish to point out that -

Excluding Kaethe Rickmers vessel, the earliest expiration of lease occurs in Dec 2013 followed by early 2014 for the Ital vessels.

This can be seen in page 2 of the Factsheet - http://rickmers.listedcompany.com/misc/f...280212.pdf [Factsheet]. It also provides the estimated revenue for the fixed charter with it declining from US$142 mil in 2012 to US$140 mil in 2013 to US$120 mil in 2014.

If I misunderstood, the factsheet chart, please point out my error.

(Not Vested)

Nick,

Your information is correct. Damn, sorry about that.

The revenue estimate you mention is an estimated of chartered revenue, and does not include any assumption regarding re-chartering of vessels.

Matt

[money]

Depreciation is a genuine expense.

For companies like First Ship Lease & Rickmers Maritime, their managers have never set aside any funds for buying new ships. They are now desperately setting aside funds to pay down debt. In 10-20 years time, after they have paid down all the debt, the ships would be too old and have to be scrapped. The share price drops to near zero as there is no more cash generating ships.

Well before that day arrives, the operating managers from the above 2 trusts will once again raise $$ via rights from naive shareholders.

Perhaps, we can put things into perspective. buffett has never done a rights issue through berkshire hathaway. Our shipping managers will eventually have to raise rights to replace ships that have reached their lifespan, this could have been avoided if they set aside $$ for buying new ships and they cant do that because they are busy shrinking their leveraged balance sheet.

I would urge all current shareholders to dump their shares in these 2 companies. Off my head, K-Green should generate more real yield than these 2 shipping companies in the long run.

*not invested in FSL, RM or K-green

[Nick]

If I make a bold assumption that they can maintain this level of revenue for the next 15 years (a very bold assumption here), then they can easily repay all the debt and regenerate their equity. Within 10 years, they should be debt-free and another 5 years to replenish their tiny equity. Then use the equity gear up and buy new vessels etc. Easier said than done though. The mistakes started in 2008 - i) FSLT for not retaining cash to repay debt / replenish assets and ii) RMT for not carrying out their $650 million equity fund raising to finance the vessels in 2008. It is no surprise that PST - the only one who repaid its debts from Day 1 and raised rights to finance their acquisitions in late 2008 walked away from the crisis scot-free and could even expand its fleet but alas it has been privatized.

I don't think there is much difference with shipping trust (pre 2008) and KGT (today) besides the lack of debt since both are adopting 100% cash earnings payout. KGT isn't retaining any cash to replenish its assets (which have fixed lifespan).

(Not Vested in any business trust)

[Stockerman]

As liners are now making a collective effort to restore freight rates to more profitable levels, will all these help RMT?

Lower counterparty risk will be lower?
70% of RMT's fleet is chartered out to French liner CMA CGM and Japan's Mitsui OSK lines. These liners have recently announced plans to go into alliances with other carriers to curb losses.

Is repaying USD$608.6 mil over next 9 years too taxing on RMT?
Revenues amount to $581mil between now and 2019 (over next 7 years).

---

Does anyone know where RMT ships ply? Which are the routes with higher charter rates?


Tks.

[Nick]

RMT charters are on fixed rate over a fixed number of years. They don't benefit from any upside or downside (provided there is no default).

As the year goes by, the interest expense will be reduced as loans are amortized. If RMT can renew charters at similar rates in 2014/15, then they should be able to repay the debt within 9 years followed by regenerating equity to replenish its fleet. The bad thing however is that there is hardly any room for DPU upgrade. They shouldn't have paid out so much cash in 2008 nor purchase so many vessels without raising equity.

It is ironic that the only business trust that isn't self liquidating is RMT, Ai-Trust and to some extent FSLT.

(Not Vested)

[Curiousparty]

If the net income is net of depreciation, doesn't this mean that sufficient budget would have been set aside for ship replacement?

Depreciation is a genuine expense.

For companies like First Ship Lease & Rickmers Maritime, their managers have never set aside any funds for buying new ships. They are now desperately setting aside funds to pay down debt. In 10-20 years time, after they have paid down all the debt, the ships would be too old and have to be scrapped. The share price drops to near zero as there is no more cash generating ships.

Well before that day arrives, the operating managers from the above 2 trusts will once again raise $$ via rights from naive shareholders.

Perhaps, we can put things into perspective. buffett has never done a rights issue through berkshire hathaway. Our shipping managers will eventually have to raise rights to replace ships that have reached their lifespan, this could have been avoided if they set aside $$ for buying new ships and they cant do that because they are busy shrinking their leveraged balance sheet.

I would urge all current shareholders to dump their shares in these 2 companies. Off my head, K-Green should generate more real yield than these 2 shipping companies in the long run.

*not invested in FSL, RM or K-green