Shipping trusts at a glance

	Rickmers Maritime	Pacific Shipping Trust	First Ship Lease Trust
IPO	2007	2006	2007
Sponsor	Rickmers	Group Pacific Intl Lines	Schoeller Holdings/ HSH Nordbank AG/Bayerische Hypo-und Vereinsbank
Sponsor role	Acquisition pipeline, ship management	Acquisition pipeline, ship management, customer	Customer, ship management if needed
Sub-segment focus (as of today)	Containerships	Containerships	None. Owns containerships, dry bulk carriers and tankers
Charter type	Time charters	Bareboat & time charters	Bareboat charters
Charter duration	7 - 10 yrs	5 - 10 yrs	7 - 12 yrs
Leases include vessel purchase option	No	No	Yes (end of lease/early buy-out)
Leases include early termination option	Yes (one)	No	Yes (most)
Customers	Maersk, CMA CGM, Hanjin Shipping, Evergreen, Mitsui O.S.K Lines	Pacific Intl Lines, CSAV	Evergreen, Geden, Groda Shipping, James Fisher, PT Berlian Laju, Schoeller Holdings, Siba Ships
Distributions	USD/quarterly	USD/quarterly	USD/quarterly
Pay out policy	Fixed DPU amount	90% of cash earnings after debt repayment (~about 50% of cash income)	New quarterly guidance for payout: 75-80% of cash income for 1Q09 (100% previously)
Cash earnings retained	Yes	Yes	Yes (from 1Q09 onwards)
Growth plans	US$1.1b of acquisitions contracted over 2009-2010	No explicit target set for 2009 (prev: US$200m p.a.)	No explicit target set for 2009 (prev: US$300m p.a.)
Debt repayment	No (not immediately)	Yes (immediately amortizing)	No (bullet repayment) except for latest loan. Intends to repay debt with retained cash from 1Q09.

Source: OCBC, 10 Feb 2009

Rickmers Maritime: Deadlocked by order book

Previous Day Closing price: $0.395
Recommendation: Hold (maintained)
Target price: $0.40

Rickmers Maritime (RMT) posted a 11.4% QoQ increase in 4Q08 revenue to US$29.6m. The results met our expectations except for a surprise US$3.5m non-cash provision for vessel impairment on Maersk Djibouti (about 5.5% of FY09F revenue). It is the trust's only vessel at risk for early lease termination, from February 2010 onwards, per its charter terms. As a result, net profit fell 25.7% QoQ to US$7.2m. RMT will pay out 2.25 US cents for the quarter, flat QoQ and up 5.1% YoY. This translates to an annualized yield of 34% and a distribution payout of 63%. The manager said that given current conditions, it would not provide any guidance on FY09 DPU.

RMT's gearing has increased from 1.1x debt-toequity at 30 September to 1.5x as at 31 December. In January, RMT took delivery of its 14th vessel, MOL Destiny for US$72m. Including the January vessel, RMT is contracted to acquire US$1.1b worth of containerships over the next two years. RMT has credit facilities in place to fund the FY09 vessels costing US$420m in all. If the FY09 buys are fully debt-funded, we estimate RMT's gearing will hit an unsustainable 2.7x on existing equity levels by year end.

Assuming the existing facilities are fully utilized, we estimate RMT would need to repay around US$17.9m of debt in FY09 and another US$157m in FY10. Additionally, RMT has yet to arrange funding for the US$711.6m vessels due in FY10. We believe the market value of those vessels would have taken a hit versus the asset cost pre-fixed by RMT. So even if lenders provide 100% loan-to-market value, it would not cover the cost of the vessel. The time for a fresh equity issue is fast approaching. An equity issue in FY09 itself is, in our opinion, necessary to strengthen RMT's negotiating position with lenders.

Source: OCBC, 10 Feb 2009

Rickmers Maritime: Financing remains key

Previous Day Closing price: $0.40 (STI: 1,682.34)
Recommendation: Hold (maintained)
Price Target : 12-Month S$ 0.40 (Prev S$ 0.63)

Rickmers Maritime did not surprise and maintained its quarterly DPU payout of 2.25 UScts, in line with steady operating performance. We believe the payout can be sustained in FY09. However, RMT still needs to find a solution to its committed FY10 capex needs of US$711m. In addition, near term refinancing needs include a US$130m bullet repayment due in 1H10. With spot charter rates currently hovering around 50-60% below contracted long term charter rates, the risk of renegotiations cannot be ruled out either. Hence, we maintain HOLD at a reduced target price of S$0.40.

In a prudent move, RMT took a US$3.5m impairment charge on the Maersk Djibouti vessel to account for the risk that Maersk may exercise the early termination option by Feb’10. No other vessel has this clause, however.

Data from Clarksons Research indicates that newbuilding prices for similar vessels as those on RMT’s orderbook may have fallen 10-12%. We estimate one of the loan tranches, a US$288m facility financing the 5 Mitsui ships, may be at risk of technical default.

RMT will add 5 vessels to its portfolio this year, fully financed by existing credit lines. This should ensure enough cash flows in FY09 for RMT to maintain the 2.25 UScts quarterly payout, even while conserving cash. However, with financing uncertainties looming, dividend visibility may be clouded beyond that. In our forecast numbers alongside, we assume a 60% debt-funded potentially dilutive acquisition scenario. But our target price of S$0.40 is derived as the average of fair values under 3 probable scenarios – I) as described above, ii) non-realization of above acquisition and cash flows accruing only from portfolio as of end-FY09 and iii) inability to conclude near-term refinancing deals.

Source: DBS, 10 Feb 2009