Global Ship Lease reports results for the Q2 of 2012
Global Ship Lease, Inc. (GSL), a containership charter owner, announced yesterday its unaudited results for the three months and six months ended June 30, 2012.
Second Quarter and Year To Date Highlights
- Reported revenue of $39.2 million for the second quarter 2012, up from $38.8 million for the second quarter 2011 due mainly to 11 days offhire less in the second quarter 2012 from fewer drydockings. Revenue for the six months ended June 30, 2012 was $77.6 million compared to $77.9 million for the six months ended June 30, 2011. There were 70 days offhire in first half 2012, of which 60 were for planned drydockings, compared to a total of 35 days offhire in 2011, of which 30 were for drydockings
- Reported net income of $7.5 million for the second quarter 2012, after a $0.9 million non-cash interest rate derivative mark-to-market gain. For the second quarter 2011 the reported net loss was $11.7 million, after a $13.6 million impairment charge relating to the fair value of purchase options on two vessels and a $3.8 million non-cash mark-to-market loss. Normalized net income(1) was $6.6 million for the second quarter 2012 compared to $5.8 million for the second quarter 2011, which excludes the mark-to-market items and the impairment charge in 2011
- For the six months ended June 30, 2012, net income was $15.5 million, after a $3.6 million non-cash mark-to-market gain. The net loss of $0.9 million for the six months ended June 30, 2011 was after $13.6 million impairment charge and a mark-to-market gain of $1.2 million. Normalized net income for the six months ended June 30, 2012 was $11.9 million up on $11.6 million for the six months June 30, 2011
- Generated $26.8 million of EBITDA(1) for the second quarter 2012, up slightly on $25.7 million for the second quarter 2011. EBITDA for the six months ended June 30, 2012 was $52.0 million, the same as for the six months ended June 30, 2011
- Agreed new charters for two 4,113 TEU vessels commencing immediately on expiry of current charters in September 2012 at $9,962 per vessel per day expiring May 23, 2013 plus/minus 22 days at charterer's option
- Repaid $12.1 million in debt during the second quarter of 2012; repaid $23.9 million in the six months ended June 30, 2012 and $139.3 million since the fourth quarter 2009
Ian Webber, Chief Executive Officer of Global Ship Lease, stated, "For the second quarter of 2012, our fleet of 17 vessels operating on long-term fixed rate charters generated EBITDA of $26.8 million and achieved utilization of 99%, during a challenging economic environment. In addition, our sizeable and stable cash flows enabled us to continue to strengthen our balance sheet at a time in which we have no purchase obligations. We reduced our debt by $12.1 million during the quarter, for a total repayment of $139.3 million since the fourth quarter of 2009."
Mr. Webber continued, "We have recently signed new time charters with CMA CGM for two of our vessels whose current contracts expire in September. Consistent with our business model of operating our fleet on fixed rate charters, these vessels will be chartered for approximately eight months at a rate of $9,962 per day. With these new agreements, we now have a contracted revenue stream of $1.1 billion with an average remaining term of 7.8 years. Notably, by keeping these ships with CMA CGM, we will not experience any offhire days, incur any costs associated with repositioning these vessels or pay any third party brokerage fees."
Revenue and Utilization
The 17 vessel fleet generated revenue from fixed rate long-term time charters of $39.2 million in the three months ended June 30, 2012, up $0.4 million on revenue of $38.8 million for the comparative period in 2011 due mainly to 11 days less offhire from one fewer drydocking. During the three months ended June 30, 2012, there were 1,547 ownership days, the same as the comparable period in 2011. The 21 days offhire in the three months ended June 30, 2012, including 12 for planned drydockings, gives a utilization of 98.6%. In the comparable period of 2011, there were 32 days offhire, including 27 for planned drydockings and five unplanned days offhire, for utilization of 97.9%.
For the six months ended June 30, 2012, revenue was $77.6 million, down $0.3 million on revenue of $77.9 million in the comparative period, mainly due to 35 days of additional offhire offset by17 additional ownership days in 2012 due to the leap year.
The table below shows fleet utilization for the three and six months ended June 30, 2012 and 2011 and for the years ended December 31, 2011, 2010 and 2009.
The drydocking of four vessels had been completed by June 30, 2012. Three further drydockings are anticipated before December 31, 2012 for a total of seven vessels to be drydocked in the year. 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 $11.2 million for the three months ended June 30, 2012. The average cost per ownership day was $7,253 down $161 or 2.2% on $7,414 for the rolling four quarters ended March 31, 2012. Increased spend on repairs, maintenance and supplies have been offset by a benefit during the quarter from exchange rate movements on costs denominated in euros. The second quarter 2012 average daily cost was essentially flat on the comparative period, down $22 or 0.3% from the average daily cost of $7,275 for the second quarter 2011.
For the six months ended June 30, 2012 vessel operating expenses were $22.9 million or an average of $7,394 per day compared to $22.3 million in the comparative period or $7,247 per day. The increase of $147 per day, or 2.0%, is mostly for increased spend on repairs, maintenance and supplies offset by benefits from exchange rate movements on costs denominated in euros.
Depreciation
Depreciation for the three months ended June 30, 2012 was $10.2 million, compared to $10.0 million in the comparative period.
Depreciation for the six months ended June 30, 2012 was $20.1 million, compared to $19.9 million in the comparative period.
General and Administrative Costs
General and administrative costs were $1.3 million in the three months ended June 30, 2012, compared to $1.9 million in the second quarter of 2011 due mainly to lower legal and professional fees.
For the six months ended June 30, 2012, general and administrative costs were $2.9 million compared to $3.8 million for 2011. The reduction is due mainly to lower legal and professional fees.
Impairment Charge - Second Quarter 2011
On November 8, 2010, the Company signed agreements with the sellers of two 4,250 TEU newbuildings to (i) terminate the Company's obligations under contracts entered into in September 2008 to purchase the vessels on their delivery to the sellers by the builder, which was anticipated to be at the end of 2010 and (ii) grant the Company options to purchase the vessels on the first anniversary of their delivery by the builder to the sellers. Intangible assets totaling $13.6 million relating to these purchase options were recognized at the fair value of the purchase options on the date of the agreement.
The purchase options were to be declared by September 16, 2011 for one vessel and October 4, 2011 for the other, with the purchases to be completed approximately 90 days later. The purchase of these vessels was always predicated on achieving a strong return for shareholders by acquiring the vessels, which had time charters attached, at an attractive price and securing financing on favorable terms. As obtaining committed finance on acceptable terms was going to be challenging, the Company wrote off the intangible assets relating to these purchase options. Subsequently, both purchase options were allowed to expire.
Other Operating Income
Other operating income in the three months ended June 30, 2012 was $0.1 million, the same as in the second quarter of 2011 period.
For the six months ended June 30, 2012, other operating income was $0.2 million, the same as for the comparative period.
EBITDA
As a result of the above, EBITDA was $26.8 million for the three months ended June 30, 2012 up slightly from $25.7 million for the three months ended June 30, 2011.
EBITDA for the six months ended June 30, 2012 was $52.0 million, the same as in 2011.
Interest Expense
Interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, for the three months ended June 30, 2012 was $5.3 million. The Company's borrowings under its credit facility averaged $471.8 million during the three months ended June 30, 2012. There were $48.0 million preferred shares throughout the period giving total average borrowings through the three months ended June 30, 2012 of $519.8 million. Interest expense in the comparative period in 2011 was $5.1 million on average borrowings, including the preferred shares, of $567.0 million.
For the six months ended June 30, 2012, interest expense, excluding the effect of interest rate derivatives which do not qualify for hedge accounting, was $10.8 million. The Company's borrowings under its credit facility and including the $48.0 million preferred shares, averaged $525.7 million during the six months ended June 30, 2012. Interest expense for the six months ended June 30, 2011 was $10.7 million based on average borrowings in that period, including the preferred shares, of $573.8 million.
Interest income for the three and six months ended June 30, 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 $4.6 million in the three months ended June 30, 2012 for settlements of swaps in the period, as current LIBOR rates are lower than the average fixed rates. Further, there was a $0.9 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 $4.9 million and an unrealized loss of $3.8 million in the three months ended June 30, 2011.
For the six months ended June 30, 2012, the realized loss from hedges was $9.1 million and the unrealized gain was $3.6 million. This compares to a realized loss of $9.7 million and an unrealized gain of $1.2 million in the six months ended June 30, 2011.
At June 30, 2012, interest rate derivatives totaled $580.0 million against floating rate debt of $507.8 million, including the preferred shares. As a consequence, the Company is over hedged which arises from accelerated amortization of the credit facility debt and not incurring additional floating rate debt anticipated to be drawn in connection with the originally intended purchases of the two 4,250 TEU vessels at the end of 2011. $253.0 million of the interest rate derivatives at a fixed rate of 3.40% expire mid March 2013. The total mark-to-market unrealized loss recognized as a liability on the balance sheet at June 30, 2012 was $41.7 million.
Unrealized mark-to-market adjustments have no impact on operating performance or cash generation in the period reported.
Taxation
Taxation for the three months ended June 30, 2012 was $0.1 million, the same as in the second quarter of 2011.
Taxation for the six months ended June 30, 2012 was $0.1 million the same as in 2011.
Net Income/Loss
Net income for the three months ended June 30, 2012 was $7.5 million after $0.9 million non-cash interest rate derivative mark-to-market gain. For the three months ended June 30, 2011 net loss was $11.7 million, after $13.6 million non-cash impairment charge and $3.8 million non-cash interest rate derivative mark-to-market loss. Normalized net income was $6.6 million for the three months ended June 30, 2012 and $5.8 million for the three months ended June 30, 2011, which excludes the effect of the non-cash interest rate derivative mark-to-market gains and losses and the impairment charge.
Net income was $15.5 million for the six months ended June 30, 2012 after a $3.6 million non-cash interest rate derivative mark-to-market gain. For the six months ended June 30, 2011, net loss was $0.9 million after the $13.6 million non-cash impairment charge and a $1.2 million non-cash interest rate derivative mark-to-market gain. Normalized net income was $11.9 million for the six months ended June 30, 2012 and $11.6 million for the six months ended June 30, 2011.
Credit Facility
The container shipping industry is currently experiencing a significant cyclical downturn. As a consequence, there has been a decline in charter free market values of containerships commencing July 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 June 30, 2012 a total of $12.1 million of debt was prepaid leaving a balance outstanding of $459.8 million. In the six months ended June 30, 2012 a total of $23.9 million of debt was prepaid.
Dividend
Under the terms of the waiver of the requirement to perform the Leverage Ratio test, Global Ship Lease is not currently able to pay a dividend on common shares.
Fleet
The following table provides information, as at June 30, 2012, about the on-the-water fleet of 17 vessels chartered to CMA CGM.
New charters have been entered into for Ville d'Aquarius and Ville d'Orion, to come into effect at the expiry of the current charters on September 20, 2012 and September 21, 2012 respectively. The new charters expire May 23, 2013 plus or minus 22 days at charterer's option and are at a rate of $9,962 per vessel per day.
