Rickmers Maritime Trust

[Zelphon]

RMT increased its DPU to 0.6 US cents which represents a 14% payout based on its operating cash-flow. Debts continues to be paid down. 2011 should see an increase in revenue and cash-flow due to the re-chartering of the CSAV vessel at three times the current charter rates. Not too sure what the LTV ratios are at the moment. De-leveraging (and not growth) remains the Trust priority.

http://info.sgx.com/webcoranncatth.nsf/V...700343DA7/$file/Press_Release_Rickmers_Maritime_delivers_strong_4Q10_results_increases_DPU_to_0_6_US_Cents.pdf?openelement [Press Release]

http://info.sgx.com/webcoranncatth.nsf/V...70035E673/$file/4Q2010_Results_Presentation.pdf?openelement [PPT Slides]

RMT cannot raise its DPU beyond 0.6 US cents as long as the LTV waiver remains. Judging by its high debts and how volatile the shipping sector is, I think it is unlikely the waiver will be lifted soon. Moreover, the loan repayment plan prevents a return to pre-crisis payouts. There is substantial room for DPU appreciation but I doubt it will occur this year barring an equity fund raising. Feel free to disagree.

(Not Vested)

Well, I agree..

I divested Rickmers and shifted to AIMS AIMP REITS..

Some new development today...

[Nick]

If I have time, I have to figure out how the conversion of the convertible bonds will impact the distribution assuming the DPU cap is lifted. Don't really like the CB - the issue price is just too low !

[iff]

If I have time, I have to figure out how the conversion of the convertible bonds will impact the distribution assuming the DPU cap is lifted. Don't really like the CB - the issue price is just too low !

Hi Nick,
I'm still vested in Rickmers and also being interested on this CB matter,

I checked their EGM slides and find out that the CB is only convertible at Mar 2014, which is same time as the 3 year top-up loan waiver period ends.

The conversion price is set at around 0.48SGD, and loan amt being $49M USD,
By factoring that in, current price is still good in my view. 3 Years is still quite long time and the Trust may initiate acquisition moves and might pay down the CB which cannot be foreseen for now.

I'm more interested in the VTL waiver,
They are releasing more info on this, and the VTL covenant is set at 133% for the topup loan, and 125% for the IPO facility,
Based on the latest Q1 results, it seems the Ships value is already quite close to fulfill this VTL covenant,
Though the broker house reports also say unlikely the waiver will be lifted within one year, but I kind of think it would depend on Rickmers' decision as the VTL is met
Maybe there is something or info I have missed out, appreciate if can point it out on this VTL covenant issue for me to understand better.

[freedom]

ship valuation appreciation could be temporary.

what if ship valuation goes down? can't go back to VTL waiver easily any more once out.

[Nick]

There is no way they will lift the VTL cap without further de-leveraging. It is just too risky. So for the moment, the bulk of the cash-flow will still go to the banks (instead of the unit-holder). Since they are taking long term amortizing loans, wonder why they still agree to a LTV covenant ? I believe the CFO said it will be 1-2 years before the waiver is lifted.

[Nick]

RMT ID steps down to become SGX VP -

http://info.sgx.com/webcoranncatth.nsf/V...0002C00C6/$file/Press_Release_RTM_Board_Member_Steps_Down_31_May_11.pdf?openelement

RMT is trading at 7.15% yield.

(Not Vested)

[MattAtelier]

All -

Here is my buy argument for RMT at S$0.40. IN a nutshell, RMT meet's the Klarman "deep value" principles, in my view:

* Net asset value: the value of RMT's vessels today (less outstanding liabilities, including the CB) equates to a US$200mn market cap. In other words, the replacement cost today is much greater than the entry price
* Dividend yield: a ~7% yield relative to other Trusts is competitive albeit not very attractive. That said, from the information from the filings, RMT's contracted cash flows cover debt and principal (and pay down additional in excess) through 2017. Thus, the dividend is supported
* The VTL covenant: the most recent disclosures are really important. The Top up facility (US$73mn) has a VTL of 133%; once the Top Up is repaid, the VTL drops to 110%. Based on 110%, RMT is in compliance. This means that as the US$73mn is repaid, the potential for a lift in dividends (or for new ship acquisitions) is high
* IRS: the Trust has IRS swaps in place that protect it from rising interest rates, which is a big risk in my view

If vessel prices collapse (as well as charter rates), I believe I am protected by a solid dividend yield. If vessel prices remain strong (and new build prices rise due to inflation), then the potential for an uptick of the dividend is real.

The biggest risk to RMT is 1) the sponsor -- is Rickmers Group going to do something shareholders would regret? 2) is there overbuilding in the container market?

What am I missing?

Matt

I am invested in the name

[yeokiwi]

All -

Here is my buy argument for RMT at S$0.40. IN a nutshell, RMT meet's the Klarman "deep value" principles, in my view:

* Net asset value: the value of RMT's vessels today (less outstanding liabilities, including the CB) equates to a US$200mn market cap. In other words, the replacement cost today is much greater than the entry price
* Dividend yield: a ~7% yield relative to other Trusts is competitive albeit not very attractive. That said, from the information from the filings, RMT's contracted cash flows cover debt and principal (and pay down additional in excess) through 2017. Thus, the dividend is supported
* The VTL covenant: the most recent disclosures are really important. The Top up facility (US$73mn) has a VTL of 133%; once the Top Up is repaid, the VTL drops to 110%. Based on 110%, RMT is in compliance. This means that as the US$73mn is repaid, the potential for a lift in dividends (or for new ship acquisitions) is high
* IRS: the Trust has IRS swaps in place that protect it from rising interest rates, which is a big risk in my view

If vessel prices collapse (as well as charter rates), I believe I am protected by a solid dividend yield. If vessel prices remain strong (and new build prices rise due to inflation), then the potential for an uptick of the dividend is real.

The biggest risk to RMT is 1) the sponsor -- is Rickmers Group going to do something shareholders would regret? 2) is there overbuilding in the container market?

What am I missing?

Matt

I am invested in the name

What about depreciation? RMT's ships are depreciating day by day and at the end of their lifespans, they will be sent to scrapyards.
If RMT uses the earning to repay loans and give dividend, the NAV will drop yearly. IN another word, some money has to be allocated to buy new ships or RMT will have to raise a right issues to raise fresh funds to buy ships.

Do a search on shipping trust in this forum, I think there is a great thread on it.

[iff]

I have recently reduced my holding of this counter, mainly due to uncertainty of the whole shipping industry.

The good part is the 7% yield is backed by long term lease contracts and the container rates have recovered from crissis and has a better shape than dry bulk rates.

I agree the mgmt is a risk factor. So far the shareholders have been screwed hard, and mgmt need to prove themselves by making good developments to reward the shareholders in order to boost confidence.

I would watch closely for next 2 quarters company announcements

[Nick]

All -

Here is my buy argument for RMT at S$0.40. IN a nutshell, RMT meet's the Klarman "deep value" principles, in my view:

* Net asset value: the value of RMT's vessels today (less outstanding liabilities, including the CB) equates to a US$200mn market cap. In other words, the replacement cost today is much greater than the entry price
* Dividend yield: a ~7% yield relative to other Trusts is competitive albeit not very attractive. That said, from the information from the filings, RMT's contracted cash flows cover debt and principal (and pay down additional in excess) through 2017. Thus, the dividend is supported
* The VTL covenant: the most recent disclosures are really important. The Top up facility (US$73mn) has a VTL of 133%; once the Top Up is repaid, the VTL drops to 110%. Based on 110%, RMT is in compliance. This means that as the US$73mn is repaid, the potential for a lift in dividends (or for new ship acquisitions) is high
* IRS: the Trust has IRS swaps in place that protect it from rising interest rates, which is a big risk in my view

If vessel prices collapse (as well as charter rates), I believe I am protected by a solid dividend yield. If vessel prices remain strong (and new build prices rise due to inflation), then the potential for an uptick of the dividend is real.

The biggest risk to RMT is 1) the sponsor -- is Rickmers Group going to do something shareholders would regret? 2) is there overbuilding in the container market?

What am I missing?

Matt

I am invested in the name

What about depreciation? RMT's ships are depreciating day by day and at the end of their lifespans, they will be sent to scrapyards.
If RMT uses the earning to repay loans and give dividend, the NAV will drop yearly. IN another word, some money has to be allocated to buy new ships or RMT will have to raise a right issues to raise fresh funds to buy ships.

Do a search on shipping trust in this forum, I think there is a great thread on it.

As long as cash-flow from depreciation is retained, the Trust is sustainable. This cash can be used to repay debt and once dept is repaid, it will be sufficient to replace the equity value of the fleet. The Trust doesn't need to recapture the entire fleet value - it just needs to regenerate the equity value to preserve NAV. In RMT case, it is retaining a lot more than its depreciation, so its NAV will rise significantly in the coming years. PST has been retaining 30% of its net profit for the past 2 years while using cash-flow from depreciation to repay its loans, its NAV has been trending upwards:

PST NAV

FY 2008: US$223 mil
FY 2009: US$238 mil
FY 2010: US$244 mil

RMT NAV (post-restructuring)

3Q 2010: US$322 mil
4Q 2010: US$352 mil
1Q 2010: US$363 mil

NAV has been trending up since both trust are retaining more than cash-flow from depreciation. If they paid out all of their P/L profit, NAV will stagnate which is also acceptable. If they paid out more than their P/L profit, then NAV will shrink - FSLT pre 2009 with 100% cash payout or KGT currently.

(Not Vested)