Global Ship Lease Reports Results for the First Quarter of 2012
Tuesday, 15 May 2012 | 00:00
Global Ship Lease, Inc., a containership charter owner, announced yesterday its unaudited results for the three months ended March 31, 2012.First Quarter and Year To Date Highlights
Reported revenue of $38.4 million for the first quarter 2012, down from $39.1 million for the first quarter 2011 mainly due to 48 days offhire in the first quarter 2012 for three planned drydockings, compared to three days in the first quarter 2011
- Reported net income of $8.0 million for the first quarter 2012, including a $2.7 million non-cash interest rate derivative mark-to-market gain. Reported net income for the first quarter 2011 was $10.8 million, including $5.0 million non-cash mark-to-market gain
- Generated $25.2 million EBITDA(1) for the first quarter 2012, compared to $26.2 million for the first quarter 2011 due mainly to additional offhire and increased maintenance spend
- Excluding the non-cash mark-to-market items, normalized net income(1) was $5.3 million for the first quarter 2012 compared to normalized net income of $5.9 million for the first quarter 2011
- Repaid $11.8 million of debt in the first quarter 2012 for a total debt repayment of $127.3 million since August 2009, when we commenced amortization of our credit facility balance
Ian Webber, Chief Executive Officer of Global Ship Lease, stated, "We continued to generate strong financial results and achieve high utilization levels during the first quarter of 2012, as our entire fleet remained secured on long-term fixed rate charters. During a time in which we completed three of seven scheduled drydockings for 2012, we achieved EBITDA of $25.2 million and utilization of 97%. Despite continuing macro-economic uncertainty, a welcome positive development in our industry has been the recent successful implementation by the liner companies of freight rate increases. Global Ship Lease remains well positioned for long-term success as our fleet has a weighted average remaining lease term of 8.1 years with a contracted revenue stream of $1.2 billion."
Mr. Webber continued, "Complementing our success generating stable and predictable results, we further strengthened our balance sheet for the benefit of the Company and its shareholders. At a time when we have no purchase obligations, we have used our free cash flow to reduce our debt, paying down $11.8 million in the first quarter and $127.3 million since August of 2009."
The 17 vessel fleet generated revenue from long-term fixed rate time charters of $38.4 million in the three months ended March 31, 2012, down slightly on revenue of $39.1 million for the comparative period in 2011. The decrease in revenue is mainly due to 48 days offhire for three planned drydockings during the three months ended March 31, 2012 offset by 17 additional ownership days due to 2012 being a leap year. There were 1,547 ownership days in the quarter. The 48 days planned offhire and one day unplanned in the three months ended March 31, 2012 gives a utilization of 96.8%. In the comparable period of 2011, there were three days of planned offhire, representing utilization of 99.8%.
The drydocking of three vessels was completed in the first quarter 2012, one of which commenced late December 2011. A further four vessels are scheduled to be drydocked in 2012. Two drydockings are scheduled for each of 2013 and 2014, and none in 2015.
Vessel Operating Expenses
Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $11.7 million for the three months ended March 31, 2012. The average cost per ownership day was $7,535, up $199 or 2.7% on $7,336 for the rolling four quarters ended December 31, 2011. The increase is mainly due to planned increased spend on maintenance. The first quarter 2012 average daily cost was up 4.4% from the average daily cost of $7,218 for the comparative period in 2011 due to increased crew costs partly offset by positive exchange rate movements on the portion of crew costs denominated in euros and higher spend on maintenance.
Vessel operating expenses continue to be at less than the capped amounts included in Global Ship Lease's ship management agreements.
Depreciation for the three months ended March 31, 2012 was $10.0 million compared to $9.9 million in the comparative period in 2011. There have been no changes to the fleet.
General and Administrative Costs
General and administrative costs incurred were $1.6 million in the three months ended March 31, 2012, compared to $1.9 million for the comparable period in 2011.
Other operating income
Other operating income in the three months ended March 31, 2012 was $68,000 compared to $106,000 for the three months ended March 31, 2011.
As a result of the above, EBITDA was $25.2 million the three months ended March 31, 2012, down from $26.2 million for the three months ended March 31, 2011.
Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended March 31, 2012 was $5.5 million. The Company's borrowings under its credit facility averaged $483.6 million during the three months ended March 31, 2012. There were $48.0 million preferred shares throughout the period, giving total average borrowings through the three months ended March 31, 2012 of $531.6 million. Interest expense in the comparative period in 2011 was $5.6 million on average borrowings, including the preferred shares, of $580.8 million.
Interest income for the three months ended March 31, 2012 and 2011 was not material.
Change in Fair Value of Financial Instruments
The Company hedges its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows. As these hedges do not qualify for hedge accounting under US GAAP, the outstanding hedges are marked to market at each period end with any change in the fair value being booked to the income and expenditure account. The Company's derivative hedging instruments gave a realized loss of $4.5 million in the three months ended March 31, 2012 for settlements of swaps in the period, as current LIBOR rates are lower than the average fixed rate. Further, there was a $2.6 million unrealized gain for revaluation of the balance sheet position given current LIBOR and movements in the forward curve for interest rates. This compares to a realized loss of $4.8 million in the three months ended March 31, 2011 and an unrealized gain of $5.0 million.
At March 31, 2012, the total mark-to-market unrealized loss recognized as a liability on the balance sheet was $42.6 million.
Unrealized mark-to-market adjustments have no impact on operating performance or cash generation in the period reported.
Taxation for the three months ended March 31, 2012 and in three months ended March 31, 2011 was not material.
Net income for the three months ended March 31, 2012 was $8.0 million including $2.6 million non-cash interest rate derivative mark-to-market gain. For the three months ended March 31, 2011 net income was $10.8 million, including $5.0 million non-cash interest rate derivative mark-to-market gain. Normalized net income was $5.3 million for the three months ended March 31, 2012 and $5.9 million for the three months ended March 31, 2011.
The container shipping industry has been experiencing a significant cyclical downturn. As a consequence, there has been a continued decline in charter free market values of containerships since mid 2011. While the Company's stable business model largely insulates it from volatility in the freight and charter markets, a covenant in the credit facility with respect to the Leverage Ratio, which is the ratio of outstanding drawings under the credit facility and the aggregate charter free market value of the secured vessels, causes the Company to be sensitive to significant declines in vessel values. Under the terms of the credit facility, the Leverage Ratio cannot exceed 75%. The Leverage Ratio has little impact on the Company's operating performance as cash flows are largely predictable under its business model.
In anticipation of the scheduled test of the Leverage Ratio as at November 30, 2011 when the Company expected that the Leverage Ratio would be between 75% and 90%, the Company agreed with its lenders to waive the requirement to perform the Leverage Ratio test until November 30, 2012. Under the terms of the waiver, the fixed interest margin to be paid over LIBOR increased to 3.50%, prepayments became based on cash flow rather than a fixed amount of $10 million per quarter, and dividends on common shares cannot be paid.
In the three months ended March 31, 2012, a total of $11.8 million of debt was prepaid, leaving a balance outstanding of $471.8 million.
Source: Global Ship Lease Inc.