Global Ship Lease Reports Results for the Third Quarter of 2014

Global Ship Lease, Inc. (GSL), a containership charter owner, announced yesterday its unaudited results for the three months and nine months ended September 30, 2014.

Third Quarter and Year To Date Highlights

Reported revenue of $34.2 million for the third quarter 2014. Revenue for the nine months ended September 30, 2014 was $101.8 million
Reported net income(1) of $6.4 million for the third quarter 2014, including $8.6 million non-cash gain on redemption of preferred shares. For the nine months ended September 30, 2014, net income was $5.9 million after the gain on redemption of preferred shares together with a $1.9 million non-cash mark-to-market gain and non-cash $3.0 million accelerated write off of deferred financing costs
Generated $20.1 million of adjusted EBITDA(2) for the third quarter 2014. Adjusted EBITDA for the nine months ended September 30, 2014 was $60.8 million
Excluding the non-cash items, normalized net loss(1)(2) was $2.2 million for the third quarter 2014. Normalized net loss was $1.6 million for the nine months ended September 30, 2014
Commenced a new time charter with Sea Consortium, doing business as X-press Feeders, on July 17, 2014 for Ville d’Orion, a 4,113 TEU vessel, at a gross rate of $8,000 per day for six to 12 months at charterer’s option
Redeemed Series A Preferred Shares with a liquidation value of $45.0 million for a cash payment of $36.4 million on August 22, 2014. The purchase was funded with the net proceeds of an offering of $35.0 million Series B Cumulative Perpetual Preferred Shares (“Series B Preferred Shares”), which closed on August 20, 2014 and cash on hand
Agreed to purchase the OOCL Tianjin, an 8,063 TEU containership, from Orient Overseas Container Lines Limited (“OOCL”) for $55 million. Immediately upon delivery on October 28, 2014, the vessel commenced a fixed-rate timecharter back to OOCL for a period of 36 to 39 months at $34,500 per day, which is expected to generate annual EBITDA of approximately $9.4 million and increases contracted revenue by between $37.7 million and $40.9 million

Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “In the third quarter of 2014, we generated adjusted EBITDA of $20.1 million while achieving a number of strategic objectives that substantially strengthened our near-term operating results, longer-term contracted revenue stream and earnings power. Following our transformative refinancing earlier this year, we are pleased to have capitalized on favorable market conditions, entering into an attractive purchase and leaseback that meets our strict criteria and is immediately accretive to cash flow. The addition of this 8,063 TEU vessel on October 28, 2014, stands as an important milestone in the execution of our growth strategy and adds approximately $40 million to our contracted revenue stream and over $9 million to annual EBITDA. With the successful commencement of the vessel’s timecharter earlier this week, we have established an important relationship with an additional top tier charterer, further diversifying our customer base.”

Mr. Webber continued, “Our sizable contracted revenue stream and strong balance sheet provide us with a solid platform to continue to take advantage of attractive opportunities to further grow the fleet and create value for our shareholders. As we move forward, we will continue to focus on transactions that are immediately accretive to cashflow and earnings, diversify our charter portfolio with high quality counterparties and increase our capacity to pay a sustainable dividend to our shareholders.”

Revenue and Utilization

The 17 vessel fleet generated revenue from fixed rate, mainly long-term time, charters of $34.2 million in the three months ended September 30, 2014, down $1.9 million on revenue of $36.1 million for the comparative period in 2013, due mainly to reduced revenue on four vessels, following charter extensions by three years at a lower daily rate of $15,300 compared to $18,465 previously, effective February 1, 2014 and from 16 days idle time in the quarter for Ville d’Orion due to her redelivery by the previous charterer, CMA CGM, in late May, until the commencement of the new charter on July 17, 2014, together with 29 days off-hire for two planned dry-dockings. There were 1,564 ownership days in the quarter, the same as the comparable period in 2013. In the third quarter 2014, there was a total of 50 days off-hire of which five days were unplanned, 29 days were for planned drydockings and 16 days were from idle time between charters, giving an overall utilization of 96.8%. There was no offhire in the comparable period of 2013, giving utilization of 100.0%.

For the nine months ended September 30, 2014, revenue was $101.8 million, down $5.4 million on revenue of $107.2 million in the comparative period, mainly due to lower revenue on the four extended charters, a total of 64 days idle time on the two 4,113 TEU vessels pending re-deployment on new charters and lower hire on Julie Delmas for 155 days during the period of reduced capability due to a damaged crane.

Vessel Operating Expenses

Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $12.5 million for the three months ended September 30, 2014. The average cost per ownership day in the quarter was $7,984 compared to $7,127 for the comparative period, up $857 or 12.0%. The increases are primarily attributable to a $0.4 million repositioning cost for one vessel on commencement of a new charter, equivalent to $261 per day across the fleet for the quarter, and to higher crew costs. Third quarter 2013 also benefitted from prior period adjustments for port costs. Third quarter 2014 average cost per ownership day was up $478 or 6.4% on $7,506 for the rolling four quarters ended June 30, 2014 mainly from the cost of bunkers consumed, for owners account, while the two 4,113 TEU vessels were idle and for positioning Ville d’Aquarius and Ville d’Orion for the commencement of their new charters in May and July, 2014 respectively.

For the nine months ended September 30, 2014 vessel operating expenses were $36.2 million or an average of $7,793 per day, compared to $34.3 million in the comparative period or $7,391 per day.

Depreciation

Depreciation for the three months ended September 30, 2014 was $10.0 million, compared to $10.1 million in the third quarter 2013.

Depreciation for the nine months ended September 30, 2014 was $30.1 million, compared to $30.3 million in the comparative period.

General and Administrative Costs

General and administrative costs were $1.7 million in the three months ended September 30, 2014, compared to $1.5 million in the third quarter of 2013.

For the nine months ended September 30, 2014, general and administrative costs were $5.1 million, compared to $4.5 million for 2013. The increase is due mainly to costs associated with the issuance in March 2014 of our 10.0% First Priority Secured Notes, which could not be capitalized.

Other Operating Income

Other operating income in the three months ended September 30, 2014 was $0.1 million, the same as in the third quarter 2013.

For the nine months ended September 30, 2014, other operating income was $0.3 million, the same as for the comparative period.

Adjusted EBITDA

As a result of the above, Adjusted EBITDA was $20.1 million for the three months ended September 30, 2014, down from $23.5 million for the three months ended September 30, 2013.

Adjusted EBITDA for the nine months ended September 30, 2014 was $60.8 million, compared to $68.6 million for the comparative period.

Interest Expense

Until March 19, 2014, the Company’s borrowings comprised amounts outstanding under its credit facility, which carried interest at US $ LIBOR plus a margin, most recently 3.75%, and $45 million preferred shares, which carried interest at US $ LIBOR plus a margin of 2.00%. The Company hedged its interest rate exposure by entering into derivatives that swapped floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows.

On March 19, 2014, the outstanding borrowings under the credit facility totaling $366.4 million were repaid out of the proceeds of $420.0 million aggregate principal amount of 10.0% First Priority Secured Notes due 2019 (the “Notes”). In addition, the $277.0 million nominal amount of interest rate derivatives outstanding were terminated on March 19, 2014 for a final payment of $19.3 million.

Interest expense for the three months ended September 30, 2014, including interest and the amortization of deferred financing costs and of the original issue discount on the Notes, interest on the $45.0 million series A preferred shares until their redemption on August 22, 2014 and the commitment fee on the Company’s undrawn $40.0 million revolving credit facility, was $11.9 million.

In the third quarter 2013, interest expense, including amortization of deferred financing costs, was $4.7 million, on borrowings averaging $400.1 million under the Company’s credit facility and $45.0 million series A preferred shares.

For the nine months ended September 30, 2014, interest expense (including the amortization of deferred financing costs and from March 19, 2014 of the original issue discount on the Notes) on borrowings under the credit facility up to March 19, 2014, on the Notes from that date, on the $45.0 million series A preferred shares and including the commitment fee on the $40.0 million revolving credit facility was $32.1 million. Amortization of deferred financing costs includes accelerated write off of $3.0 million being the balance of such costs associated with the credit facility.

Interest expense for the nine months ended September 30, 2013 was $14.4 million on an average amount outstanding on the credit facility during that period of $412.1 million and $45.0 million of series A preferred shares.

Interest income for the three and nine months ended September 30, 2014 and 2013 was not material.

Change in Fair Value of Financial Instruments

The Company hedged its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt. These hedges did not qualify for hedge accounting under US GAAP and the outstanding hedges were 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 were terminated on March 19, 2014 and consequently had no effect in the three months ended September 30, 2014. They gave a realized loss of $2.9 million in the three months ended September 30, 2013 for settlements in the period, as US $ LIBOR rates were lower than the average fixed rates. Further, there was a $1.4 million unrealized gain for revaluation of the balance sheet.

For the nine months ended September 30, 2014, the realized loss from hedges was $2.8 million and the unrealized gain was $1.9 million. This compares to a realized loss of $11.2 million and an unrealized gain of $11.8 million in the nine months ended September 30, 2013.

Gain on redemption of Series A Preferred Shares

On August 22, 2014, the Company repurchased all of its outstanding Series A Preferred Shares for cash of $36.4 million, a discount to their liquidation value of $45.0 million, giving rise to a non-cash gain of $8.6 million.

The purchase was funded with the net proceeds from the Company’s offering of $35.0 million Series B Cumulative Perpetual Preferred Shares (“Series B Preferred Shares”), which closed on August 20, 2014, and cash on hand.

Taxation

Taxation for the three months ended September 30, 2014 was $16,000, compared to $24,000 in the third quarter of 2013.

Taxation for the nine months ended September 30, 2014 was $58,000, compared to $63,000 for the comparative period in 2013.

Earnings allocated to Preferred Shares

The new Series B Preferred Shares carry a coupon of 8.75%, the cost of which from the closing of the offering on August 20, 2014 to the end of the quarter was $349,000. This was paid on October 1, 2014.

Net Loss/Income Available to Common Shareholders

Net income for the three months ended September 30, 2014 was $6.4 million, after the non-cash gain on redemption of the Series A Preferred Shares of $8.6 million. For the three months ended September 30, 2013 net income was $7.3 million, after the $1.4 million non-cash interest rate derivative mark-to-market gain. Normalized net loss, which excludes, where applicable, the effect of the non-cash gain on redemption of the preferred shares and the interest rate derivative mark-to-market gain was $2.2 million for the three months ended September 30, 2014, while normalized net income was $5.9 million for the three months ended September 30, 2013.

Net income was $5.9 million for the nine months ended September 30, 2014 after a $1.9 million non-cash mark-to-market gain on interest rate derivatives, a non-cash $3.0 million accelerated write off of deferred financing costs and the $8.6 million gain on redemption of the preferred shares. For the nine months ended September 30, 2013, net income was $24.6 million after an $11.8 million non-cash interest rate derivative mark-to-market gain.

Dividend

The board of directors is committed to paying a meaningful dividend once this can be sustained and provided that it is in the best interests of shareholders at the time. In the meantime, Global Ship Lease is not paying a dividend on common shares.

Source: Global Ship Lease