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Global Ship Lease Reports Results for the Second Quarter of 2022

Global Ship Lease, Inc., an owner of containerships, announced its unaudited results for the three and six month periods ended June 30, 2022.

Second Quarter 2022 and Year to Date Highlights
– Reported operating revenue of $154.5 million for the second quarter 2022, almost double revenue of $82.9 million for the prior year period. For the six months ended June 30, 2022, operating revenue was $308.1 million, up 97.6% from $155.9 million in first half 2021.

– Reported net income available to common shareholders of $54.5 million for the second quarter of 2022, an increase of 81.1% or 1.8 times net income of $30.1 million for the prior year period. Normalized net income(3) was $67.4 million almost three times normalized net income of $23.7 million for the prior year period. Normalized net income(3) is adjusted for a $2.1 million fair value adjustment on derivatives, the prepayment fee and associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of our Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of our Hellenic Credit Facility and $0.6 million premium paid on the redemption in April 2022 of $28.5 million aggregate principal amount of our 8.00% Senior Unsecured Notes due 2024 (the “2024 Notes”). Normalized net income(3) for the prior year period is adjusted for a $7.8 million net gain from sale of the 2,272 TEU 2001 built, containership, La Tour and the prepayment fee of $1.4 million on the completion of the refinancing of our Deutsche, CIT, HCOB, Entrust, Blue Ocean Credit Facility (“Odyssia Credit Facilities”).

– For the six months ended June 30, 2022, net income available to common shareholders was $124.7 million. Normalized net income (3) for the same period was $137.0 million, after a $6.6 million positive fair value adjustment on derivatives, the prepayment fee and associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of our Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of our Hellenic Credit Facility, a $0.6 million premium paid on the redemption in April 2022 of $28.5 million aggregate principal amount of our 2024 Notes and the prepayment fee and associated non-cash write off of deferred financing charges of $4.1 million on the full repayment of our Blue Ocean Junior Credit Facility. For the six months ended June 30, 2021, net income available to common shareholders was $34.2 million. Normalized net income(3) was $41.5 million for the same period, after a $5.8 million premium paid on the full optional redemption of our outstanding 9.875% Senior Secured Notes due 2022 (“2022 Notes”) on January 20, 2021, an associated non-cash write off of deferred financing charges of $3.7 million and of original issue discount of $1.1 million, a non-cash charge of $1.3 million for accelerated stock-based compensation expense, the prepayment fee of $1.6 million on the partial repayment of the Blue Ocean Junior Credit Facility, the prepayment fee of $1.4 million on the completion of the refinancing of our Odyssia Credit Facilities and the $7.8 million net gain from sale of La Tour.

– Generated $95.3 million of Adjusted EBITDA(3) for the second quarter 2022, almost twice Adjusted EBITDA(3) of $49.5 million for the prior year period. Adjusted EBITDA(3) for the six months ended 30 June, 2022 was $189.9 million, two times Adjusted EBITDA(3) of $93.8 million for the prior year period.

– Earnings per share for the three months ended June 30, 2022 was $1.50, 1.8 times the earnings per share of $0.83 for the prior year period. Normalized earnings per share for the three months ended June 30, 2022 was $1.85, 2.8 times the Normalized earnings per share of $0.65 for the prior year period.

– Declared a dividend of $0.375 per Class A common share for the second quarter of 2022 to be paid on September 2, 2022 to common shareholders of record as of August 23, 2022. Paid a dividend of $0.375 per Class A common share for the first quarter of 2022 on June 2, 2022 to common shareholders of record as of May 24, 2022.

– Between July 14, 2022 and August 1, 2022 our corporate family credit ratings were improved by Moody’s, from B1 / Stable to B1 / Positive, and by S&P Global, from BB- / Stable to BB / Stable.

-On June 17, 2022, announced the full redemption of our 2024 Notes of $89.0 million aggregate principal amount. The redemption was completed on July 18, 2022 at a price of 102.00% of the principal amount plus accrued and unpaid interest, up to but not including, the redemption date. Previously, on April 5, 2022, completed the partial redemption of $28.5 million principal amount of our 2024 Notes at a price equal to 102.00% of the principal amount plus accrued and unpaid interest.

-On June 16, 2022 our indirect wholly-owned subsidiary closed the private placement of $350.0 million of privately rated investment grade 5.69% Senior Secured Notes due 2027 (the “2027 USPP Notes”) to a limited number of accredited investors. Pricing on June 1, 2022 was based on the 3.2 year Interpolated US Treasury Yield (ICUR3.2) plus a spread of 2.85%. A portion of the net proceeds was used to repay the remaining outstanding balance of the Hayfin Facility (priced at LIBOR + 7.00%), and the outstanding balance of the Hellenic Facility (priced at LIBOR + 3.90%) – with the latter releasing five unencumbered ships. The remaining net proceeds were used to redeem all of the outstanding 2024 Notes in July 2022 and for general corporate purposes.

 

– On May 12, 2022, announced our investment and participation in a carbon capture initiative led by Aqualung Carbon Capture AS (“Aqualung”), an innovator in carbon dioxide capture and separation technology, alongside other industry leaders in shipping, energy generation and infrastructure, and lithium production. We were invited to invest in Aqualung and to pool our technical expertise to support the application of Aqualung’s carbon capture solution to the maritime sector, with a particular focus on the development of containerized carbon capture units to be retrofit-able to containerships and other seagoing vessels.
– In April 2022, repurchased 184,684 Class A common shares at an average price of $26.66 per share for a total of $4.9 million under the authorized program of $40.0 million for opportunistic share repurchases.
– In February 2022, entered into USD 1-month LIBOR interest rate caps of 0.75% through fourth quarter 2026 on $507.9 million of floating rate debt, which reduces over time and represented the remaining balance of the outstanding floating rate debt, after entering a similar interest rate cap in December 2021, on $484.1 million of floating rate debt, which also reduces over time, leaving us fully hedged on our floating rate debt.

– In January 2022, agreed an amendment to the existing $268.0 million Syndicated Senior Secured Credit Facility with an outstanding balance of $213.2 million, to extend the maturity date from September 2024 to December 2026, favorably amend certain covenants, and release three vessels from the facility’s collateral basket, at an unchanged rate of LIBOR + 3.00%. The three vessels were subsequently used as collateral for a new $60.0 million syndicated senior secured debt facility, maturing in July 2026 and priced at LIBOR + 2.75%, which was used to fully repay our 10.00% Blue Ocean junior debt facility and for general corporate purposes.

– Between January 1 and August 3, 2022, contracted approximately $435.5 million of additional revenues, assuming median redelivery dates for the corresponding charters. Included were five forward fixtures of charters of four to five years duration each (one 8,600 TEU ship and four 4,000 – 4,250 TEU ships), one prompt fixture of just over three years for a 2,200 TEU feeder, and three charter extension options of 12 months each exercised by the charterers on three ships of 5,900 – 7,800 TEU.

George Youroukos, Executive Chairman of Global Ship Lease, stated, “By operating our fleet at a high level of utilization and servicing our diversified portfolio of multi-year charters with high-quality counterparties throughout the second quarter, GSL once again generated excellent results and strong profits. Driven by the accretive growth and the extensive new longer term charters at higher rates that we mainly secured last year and which are coming into full effect in 2022, we have shown a substantial uplift in earnings which is largely locked in for multiple years; our adjusted EBITDA for the first half of 2022 is more than double its level in the prior year period. Following near-continuous rate strengthening since mid-2020, the charter market is presently in “wait-and-see” mode, as sources of macro uncertainty have grown more pronounced and charterers have been more inclined to take shorter charters on the very limited number of ships that have come into the charter market. That said, we have been very pleased to forward fix a number of our ships on multi-year charters in recent weeks and remain in active discussions with charterers about the potential for forward-fixing additional ships consistent with our conservative and risk-averse business model.

In the mid-sized and smaller vessel classes where we operate, supply growth in the years ahead is modest compared to that for larger vessels. We believe that the combination of increasing regulation related to decarbonization, a relatively older global fleet, and a near-absence of scrapping in recent years suggests that net fleet growth in the mid-sized and smaller segments will remain very limited through the foreseeable future. As we deploy CAPEX on a disciplined basis to maximize the useful life of our fleet and ensure a continued high level of performance and competitiveness in the evolving regulatory environment, we are focused on utilizing proven solutions to improve fuel efficiency while also monitoring promising new decarbonization solutions, such as the Aqualung carbon capture venture in which we made a limited investment during the quarter. With $1.9 billion of contracted revenue over an average remaining duration of 2.6 years, more than enough to fully cover expenses, debt service, CAPEX, and dividends, while also building cash liquidity to manage any challenges and capitalize on opportunities that may lie ahead, Global Ship Lease is well placed to continue creating additional value for our shareholders.

I would like to take this opportunity to thank Hank Mannix, who recently stood down as a Director of Global Ship Lease. Hank has been a Director since the merger with Poseidon Containers in late 2018, having been a director of Poseidon for many years. During his time, we have greatly valued his advice and wish him well for the future. And I am delighted to welcome Ulrike Helfer to the Board. Ulrike has more than 40 years of experience in the finance industry, of which more than 20 have been in ship finance. Since 2016 Ulrike has been a Member of the Board of Managing Directors of portfoliomanagement AöR, where she and her team have been responsible for the successful wind-down of a €4.2 billion shipping loan portfolio previously spun off from HSH Nordbank AG.”

Ian Webber, Chief Executive Officer of Global Ship Lease, commented, “With our fleet already fully chartered through this year and nearly all of 2023, we have remained highly active in strengthening our balance sheet in a sustainable, long-term manner. In this uncertain macro environment of increased interest rates, we are delighted to have raised in the US private placement market $350 million of privately rated investment grade Senior Secured Notes due 2027 at a total interest cost of 5.69%, based on 2.84% 3.2 year Interpolated US Treasury Yield plus a margin of 2.85%. We have thus unlocked a new pool of capital, secured an attractive, fixed rate financing, and released five unencumbered vessels, while substantially streamlining and enhancing our capital structure by eliminating higher priced debt. Having taken these actions to reduce our average margin from 4.62% at the start of the year to 3.05% today, with floating interest rate exposure fully capped at 0.75% LIBOR, Global Ship Lease is financially stronger and more flexible than we have ever been.”

Revenue and Utilization
Revenue from fixed-rate, mainly long-term, time-charters was $154.5 million in the three months ended June 30, 2022, up $71.6 million (or 86.4%) on revenue of $82.9 million for the prior year period. The period-on-period increase in revenue was principally due to (i) a 39.0% increase in ownership days, due to the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021, resulting in 5,915 ownership days in the second quarter 2022, compared to 4,255 in the second quarter 2021, (ii) increased revenue on charter renewals at higher rates on 12 vessels, (iii) $8.6 million credit from amortization of intangible liabilities arising on below-market charters attached to certain vessel additions partially offset by an increase in unplanned offhire days from 36 in the second quarter of 2021 to 154 days in the same quarter of 2022. The 154 days of unplanned offhire in the second quarter of 2022 include an aggregate of 125 days for main engine damages for two ships and 19 days for damage to a diesel generator in one ship. The 82 days of planned offhire for drydockings in the second quarter 2022 were attributable to four regulatory drydockings in progress or completed, while in the comparative period of 2021, the 168 days of planned offhire were mainly attributable to five regulatory drydockings. Idle time was 30 days in the second quarter of 2022, compared to 12 days in the comparative period. Utilization for the second quarter of 2022 was 95.5% compared to utilization of 94.9% in the same period of the prior year.

For the six months ended June 30, 2022, revenue was $308.1 million, up $152.2 million (or 97.6%) on revenue of $155.9 million in the comparative period, mainly due to the factors noted above.

The table below shows fleet utilization for the three and six months ended June 30, 2022 and 2021, and for the years ended December 31, 2021, 2020, 2019 and 2018.

Two drydockings to meet regulatory requirements were completed in the second quarter 2022 and, as of June 30, 2022, two more drydockings were in progress. In 2022, we anticipate 11 further drydockings.

Vessel Operating Expenses
Vessel operating expenses, which primarily include costs of crew, lubricating oil, repairs, maintenance, insurance and technical management fees, were up 47.3% to $41.4 million for the second quarter 2022, compared to $28.1 million in the comparative period. The increase of $13.3 million was mainly due to 1,660, or 39.0%, net additional ownership days in the second quarter 2022 as the result of the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021. The average cost per ownership day in the quarter was $7,006, compared to $6,609 for the prior year period, up $397 per day, or 6.0% mainly due to increased crew expenses as a result of COVID-19 and the conflict in Ukraine, increased insurance costs and increased lubricant expenses as a result of higher oil prices.

For the six months ended June 30, 2022, vessel operating expenses were $80.9 million, or an average of $6,875 per day, compared to $52.4 million in the comparative period, or $6,450 per day, an increase of $425 per ownership day, or 6.6%.

Time Charter and Voyage Expenses
Time charter and voyage expenses comprise mainly commission paid to ship brokers, the cost of bunker fuel for owner’s account when a ship is off-hire or idle and miscellaneous owner’s costs associated with a ship’s voyage. Time charter and voyage expenses were $5.1 million for the second quarter 2022, compared to $2.1 million in the second quarter of 2021. The increase was mainly due to the commissions of the 22 vessels acquired in 2021, all of which were delivered after March 31, 2021, plus higher costs for bunker fuel for owner’s account due to increase in unplanned off hire days, additional voyage administration costs, and other voyage expenses mainly related to COVID 19 port restrictions and additional operational requests from charterers.

For the six months ended June 30, 2022, time charter and voyage expenses were $9.5 million, or an average of $804 per day, compared to $3.9 million in the comparative period, or $479 per day, an increase of $325 per ownership day, or 67.8%.

Depreciation and Amortization
Depreciation and amortization for the second quarter 2022 was $20.3 million, compared to $13.1 million in the second quarter of 2021. The increase was mainly due to the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021 and the 14 drydockings that have been completed since July 1, 2021, including five drydockings for vessels acquired in 2021.

Depreciation for the six months ended June 30, 2022 was $40.1 million, compared to $25.5 million in the comparative period, with the increase being due to the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021.

Gain on sale of vessel
The 2001-built, 2,272 TEU containership, La Tour, was sold on June 30, 2021 for net proceeds of $16.5 million resulting in a gain of $7.8 million.

General and Administrative Expenses
General and administrative expenses were $2.9 million in the second quarter 2022, compared to $1.9 million in the second quarter of 2021. The increase was mainly due to the non-cash effect of stock-based compensation expense due to vesting recorded in the second quarter of 2022. The average general and administrative expense per ownership day for the second quarter 2022 was $486, compared to $436 in the comparative period, an increase of $50 or 11.5%.

For the six months ended June 30, 2022, general and administrative expenses were $6.7 million, compared to $6.1 million in the comparative period mainly due to the non-cash effect of accelerated stock-based compensation expense recognized in the first and second quarter of 2022. The average general and administrative expense per ownership day for the six-month period ended June 30, 2022 was $572, compared to $755 in the comparative period, a decrease of $183 or 24.2%. The decrease in average general and administrative expenses is due to the increase in ownership days following the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021.

Adjusted EBITDA
Adjusted EBITDA was $95.3 million for the second quarter 2022, up from $49.5 million for the second quarter of 2021, with the net increase being mainly due the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021 and increased revenue from charter renewals at higher rates.
Adjusted EBITDA for the six months ended June 30, 2022 was $189.9 million, compared to $93.8 million for the comparative period, with the increase being due to the net acquisition of 22 vessels in 2021, all of which were delivered after March 31, 2021.
Interest Expense and Interest Income
Debt as at June 30, 2022 totaled $1,125.7 million, comprising $526.7 million of secured bank debt collateralized by vessels, $350.0 million of 2027 USPP Notes collateralized by vessels, $160.0 million under sale and leaseback financing transactions and $89.0 million of unsecured indebtedness on our 2024 Notes which were fully redeemed in July 2022. As of June 30, 2022, five of our vessels were unencumbered.

Debt as at June 30, 2021 totaled $835.4 million, comprising $684.2 million secured debt collateralized by our vessels, $68.7 million from sale and leaseback financing transactions and $82.5 million of unsecured indebtedness on our 2024 Notes. As of June 30, 2021, none of our vessels were unencumbered.

Interest and other finance expenses for the second quarter 2022 was $30.0 million, up from $14.0 million for the second quarter of 2021. The increase was mainly due to $0.6 million premium paid on the partial redemption of the 2024 Notes in April 2022, the prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of Hellenic Credit Facility, compared to a prepayment fee of $1.4 million on the refinancing of the Odyssia Credit Facilities and interest on new loans with Hamburg Commercial Bank AG and new sale and leaseback agreements with Neptune Maritime Leasing and with CMB Financial Leasing Co. Ltd., all for vessel acquisitions, offset by a decrease in our blended cost of debt from approximately 5.08% for second quarter 2021 to 4.51% for second quarter 2022, as a result of the refinancings, although three month Libor has increased in second quarter of 2022 to 1.30% as compared to 0.17% in second quarter of 2021.

Interest and other finance expenses for the six months ended June 30, 2022 was $48.7 million, up from $39.3 million for the comparative period. The increase is mainly due to a prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of the Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of the Hellenic Credit Facility, $0.6 million premium paid on the redemption in April of $28.5 million of 2024 Notes and a prepayment fee and the associated non-cash write off of deferred financing charges of $4.1 million on the full repayment of the Blue Ocean Junior Credit Facility compared to $5.8 million premium paid on the redemption in full of the 2022 Notes in January 2021 plus the acceleration of deferred financing charges of $3.7 million, and the acceleration of amortization of original issue discount associated with the redemption of the 2022 Notes of $1.1 million plus the prepayment fee of $1.6 million paid on the partial repayment of the Blue Ocean Junior Credit Facility, plus the prepayment fee of $1.4 million paid on the repayment and completion of the refinancing of the Odyssia Credit Facilities.

Interest income for the second quarter 2022 was $0.27 million, up from $0.12 million for the second quarter of 2021. Interest income for the six months period ended June 30, 2022 was $0.5 million, compared to $0.4 million for the comparative period.

Other (expenses)/income, Net
Other expenses, net was $0.2 million in the second quarter 2022, compared to an income of $0.5 million in the second quarter of 2021. Other income, net was $0.2 million for the six month period ended June 30, 2022, compared to $0.9 million for the comparative period.

Fair value adjustment on derivatives
In December 2021, we entered into a USD 1 month LIBOR interest rate cap of 0.75% through fourth quarter 2026 on $484.1 million of floating rate debt, which reduces over time and represented approximately half of the outstanding floating rate debt. In February 2022, we entered into two additional USD 1-month LIBOR interest rate caps of 0.75% through fourth quarter 2026 on the remaining balance of $507.9 million of floating rate debt. One of these interest rate caps was not designated as a cash flow hedge and therefore the positive fair value adjustment of $2.1 million for the second quarter of 2022 was recorded through our statement of income. The positive fair value adjustment for the six month period ended June 30, 2022 amounted to $6.6 million.

Earnings Allocated to Preferred Shares
Our Series B Preferred Shares carry a coupon of 8.75%, the cost of which for the second quarter 2022 was $2.4 million, compared to $2.0 million for the second quarter 2021. The increase was due to additional Series B Preferred Shares issued under our ATM program since July 1, 2021. The cost was $4.8 million in the six months ended June 30, 2022, compared to $3.5 million for the comparative period.

Net Income Available to Common Shareholders
Net income available to common shareholders for the three months ended June 30, 2022 was $54.5 million. Net income available to common shareholders for the three months ended June 30, 2021 was $30.1 million.

Earnings per share for the three months ended June 30, 2022 was $1.50, an increase of 80.7% from the earnings per share for the comparative period, which was $0.83.

For the six months ended June 30, 2022, net income available to common shareholders was $124.7 million. For the six months ended June 30, 2021, net income available to common shareholders was $34.2 million.

Earnings per share for the six months ended June 30, 2022 was $3.41, an increase of 241.0% from the earnings per share for the comparative period, which was $1.00.
Normalized net income (a non-GAAP financial measure) for the three months ended June 30, 2022, was $67.4 million adjusting for $2.1 million fair value adjustment on derivatives, the prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of the Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of the Hellenic Credit Facility and $0.6 million premium paid on the redemption in April of $28.5 million of 2024 Notes. Normalized net income for the three months ended June 30, 2021, was $23.7 million, adjusting for the $7.8 million net gain on the sale of La Tour and the prepayment fee of $1.4 million paid on the repayment of the Odyssia Credit Facilities.

Normalized earnings per share (a non-GAAP financial measure) for the three months ended June 30, 2022 was $1.85, an increase of 184.6% from Normalized earnings per share for the comparative period, which was $0.65.

Normalized net income for the six months ended June 30, 2022, was $137.0 million adjusting for $6.6 million fair value adjustment on derivatives, the prepayment fee and the associated non-cash write off of deferred financing charges of $14.1 million on the full repayment of the Hayfin Credit Facility, the non-cash write off of deferred financing charges of $0.3 million on the full repayment of the Hellenic Credit Facility, $0.6 million premium paid on the redemption in April of $28.5 million of 2024 Notes and the prepayment fee and the associated non-cash write off of deferred financing charges of $4.1 million on the full repayment of the Blue Ocean Junior Credit Facility. Normalized net income for the six months period ended June 30, 2021 was $41.5 million adjusting for the $7.8 million net gain on the sale of La Tour, the prepayment fee of $1.6 million on the partial repayment of the Blue Ocean Junior Credit Facility, the prepayment fee of $1.4 million on the completion of the refinancing of the Odyssia Credit Facilities, the non-cash effect of $1.3 million for accelerated stock-based compensation expense, $5.8 million premium paid on the redemption in full of the 2022 Notes in January 2021, and the associated accelerated amortization of $3.7 million deferred financing charges and $1.1 million original issue discount. Normalized net income in the comparative period was $24.4 million, adjusting for $8.5 million non-cash impairment charges associated with the decision to dispose of GSL Matisse and Utrillo, the non-cash effect of $0.4 million for accelerated stock-based compensation expense and $2.3 million premium paid on the redemption of $46.0 million of the 2022 Notes in February 2020.

Normalized earnings per share for the six months ended June 30, 2022 was $3.75, an increase of 207.4% from Normalized earnings per share for the comparative period, which was $1.22.

Fleet
As at August 3, 2022, we had 65 containerships in our fleet.
Source: Global Ship Lease Inc.

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