Ship Finance continues fleet renewal programme

Nov 24 2017

Mixed fleet owner Ship Finance International reported net income of $29 mill and $150 mill in charter revenues during the third quarter of this year, compared with $20 mill and $150 mill recorded in the previous quarter, respectively.

Adjusted EBITDA was $115 mill in 3Q17, compared to $118 mill in 2Q17.

Total US GAAP operating revenues on a consolidated basis were $93.7 mill in 3Q17. This excluded $7.9 mill of charter revenues classified as ‘repayment of investment in finance leases’ and $48 mill of charter revenues earned by 100% owned assets classified as ‘investment in associates’. Inclusive of those revenues, the total charter revenues were $150 mill.

Reported net operating income under GAAP for the quarter was $37.6 mill and reported net income was $28.7 mill.

Ole Hjertaker, Ship Finance Management CEO, said: “Including the announced dividend, Ship Finance has made aggregate dividend payments in excess of $23 per share since 2004, and we have remained profitable every quarter from our inception. Our track record and significant industry relationships provide access to a consistent stream of investment opportunities, and we remain committed to continuing to build the company and return value to our shareholders.

“The fleet renewal continues and we have strengthened our balance sheet through amendments to certain loan facilities, the issuance of new unsecured notes in the market and the early conversion of a large portion of our convertible notes. These proactive measures significantly enhance our financial profile, allowing us to intensify our focus on growth,” he said.

As of 30th September, 2017, the fixed rate charter backlog from the company’s fleet of 70 vessels and rigs was around $3.3 bill, with an average remaining charter term of nearly five years, or more than eight years if weighted by charter revenue.

Some of the charters include purchase options which, if exercised, may reduce the fixed rate charter backlog and the average remaining charter term, but will increase capital available for new investments. In addition, several charters include a profit sharing feature that may increase operating results.

As for Ship Finance’s tanker segment, this includes 15 crude oil, product and chemical tankers, 13 of which are employed on long term charters.

The crude oil tanker market remained soft during 3Q17 and the vessels chartered to Frontline did not earn average daily rates sufficient to generate a profit share above the contracted base charter rate of $20,000 per day.

However, the market has improved since the end of the third quarter, but based on guidance provided by Frontline, the recovery may not be sufficient to expect to earn a profit share from these vessels in 4Q17.

The average daily TCE rate of the company’s two modern Suezmaxes trading in a pool with two sister vessels owned by Frontline, was about $24,800 during 3Q17, down from $26,900 per day on average in the previous quarter. Three of the four vessels in the pool have been chartered out until late 2017 with a profit share above a floor rate, mitigating a soft spot market during the third quarter.

During 3Q17, the company sold the 1997-built Suezmax ’Front Ardenne’ to an unrelated third party for net proceeds of around $12 mill, including compensation for the early termination of the charter, and Ship Finance recorded a minor book gain from the sale. Following this sale, Ship Finance has nine VLCCs on long term charter to Frontline.

Ship Finance took delivery of two 114,000 dwt LR2s in August, 2017, both of which have commenced long term time charters to Phillips 66. The total EBITDA contribution from these vessels is estimated to be around $11 mill per year, with full cash flow effect expected from 4Q17.

As of 30th September, 2017, Ship Finance had about $254 mill of available liquidity, including around $248 mill in cash. In addition, the company had marketable securities of about $116 mill, based on prevailing market prices at quarter end.

Ship Finance’s long term strategy is to continue building distribution capacity on the back of an asset portfolio consisting of high quality vessels and strong counterparties. Since the start of 2017, the company has proactively taken a series of steps to significantly strengthen its balance sheet and position it to pursue growth opportunities.

The company has significant investment capacity available for new accretive deal opportunities. Investing in cyclical markets requires discipline, both in terms of market timing and in the manner in which transactions are structured. The company claimed that its approach is dynamic and focused on minimising downside risk while maximising revenues to support distribution capacity.

The near term focus will mainly be on the tanker, bulker and container markets, and significant flexibility is available for the structuring of new deals, Ship Finance said. 

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