Global Ship Lease, Inc., an owner of containerships, announced today its unaudited results for the three months ended March 31, 2023.
First Quarter 2023 Highlights
– Reported operating revenue of $159.3 million for the first quarter 2023, an increase of 3.7% on operating revenue of $153.6 million for the prior year period.
– Reported net income available to common shareholders of $72.2 million for the first quarter of 2023, an increase of 6.5% on net income of $67.8 million for the prior year period. Normalized net income (a non-U.S. GAAP financial measure, described below) for the same period was $75.6 million, up 12.3% on Normalized net income of $67.3 million for the prior year period.
– Generated $104.9 million of Adjusted EBITDA (a non-U.S. GAAP financial measure, described below) for the first quarter of 2023, up 16.0% on Adjusted EBITDA of $90.4 million for the prior year period.
– Earnings per share for the first quarter of 2023 was $2.02, up 8.6% on earnings per share of $1.86 for the prior year period. Normalized earnings per share (a non-U.S. GAAP financial measure, described below) for the first quarter of 2023 was $2.12, up 14.6% on Normalized earnings per share of $1.85 for the prior year period.
– Declared a dividend of $0.375 per Class A common share for the first quarter of 2023 to be paid on June 2, 2023 to common shareholders of record as of May 24, 2023. Paid a dividend of $0.375 per Class A common share for the fourth quarter of 2022 on March 6, 2023.
– On May 8, 2023, announced an agreement to purchase four post-panamax containerships, each with carrying capacity of approximately 8,500 TEU ships for $123.3 million, and charter them back to a leading liner operator. Contract cover for each vessel is for a minimum firm period of 24 months from the date each vessel is delivered, anticipated to be late second quarter / early third quarter 2023, followed by a 12-month extension at the charterer’s option. The vessels are expected to generate aggregate Adjusted EBITDA of approximately $76.6 million over the minimum firm period, implying an average Purchase Price/Annual Adjusted EBITDA multiple of approximately 3.2x. If all options are exercised, the vessels are expected to generate approximately $95.3 million of aggregate Adjusted EBITDA.
– Between January 1, 2023, and May 9, 2023, including the four 8,500 TEU ships we have contracted to purchase, added $188.8 million of firm contracted revenues to forward charter cover, calculated on the basis of the median firm periods of the respective charters. For vessels in our pre-existing fleet, new charter fixtures or extensions were agreed on seven ships between 2,200 and 3,500 TEU, and a forward fixture was agreed for one ECO 9,100 TEU ship; charter terms range from a few months to two years.
– Continued to utilize the $40.0 million authorization (the “Buy-back Authorization”) for opportunistic share repurchases, repurchasing a total of 582,178 Class A common shares during January 2023 for a total investment of $10.0 million. During April 2023 we repurchased a further 203,140 Class A common shares for a total investment of $3.8 million. Re-purchase prices in 2023 ranged between $16.12 and $18.69 per common share, with an average price of $17.50. A total of 1,845,958 Class A common shares have been repurchased under the Buy-back Authorization, for approximately $33.8 million, with approximately $6.2 million of capacity remaining.
– In March 2023, completed on the previously-announced sale of GSL Amstel, a 1,100 TEU feeder and non-core asset with imminent special survey and dry-docking requirements, for net proceeds of approximately $5.9 million.
George Youroukos, Executive Chairman of Global Ship Lease stated: “The ongoing normalization of charter rates and asset values in the container shipping sector continued into early 2023, although the rate of change has moderated in recent months. It remains to be seen whether this trend can be sustained, but there have recently been signs of potential stabilization at rate levels that, despite being well below recent peaks, are still attractive by historical standards. The availability of tonnage, and overall liquidity, within the charter market remains comparatively limited, incentivizing liner companies to continue securing tonnage on term charters, albeit for durations that rarely extend beyond a year or two.
In this environment, and with a highly specified fleet focused on the “workhorse” size segments, we have continued to have success in agreeing new charters and extensions. We have recently also returned to value-focused growth with the purchase and charter back of four 8,500 TEU post-panamax containerships, GSL’s first vessel acquisitions in nearly two years. These high-specification, enhanced-efficiency vessels will provide GSL with immediate cash flow from a top-tier counterparty and are being acquired on attractive terms, reflecting the recent normalization of asset values, while ensuring low residual value risk. All told, we have added almost $190.0 million of contracted revenue so far this year, bringing our forward charter cover to more than $2.1 billion over 2.5 years. Our strong contracted cash flows and discipline throughout the recent period of sharply elevated asset prices have put GSL in a strong position to selectively participate in secondhand acquisition opportunities that meet our strict criteria.”
Ian Webber, Chief Executive Officer, commented: “By remaining disciplined, aggressively deleveraging, and continually identifying opportunities to reduce our cost of debt, including by hedging our interest rate exposure, and enhance our overall financial flexibility, GSL is entering this new phase of the cycle with both good forward visibility on contracted cash flows and a robust balance sheet. This allows us to continue to be nimble with our capital allocation, moving quickly on the right growth opportunities while maintaining our well-supported dividend and capitalizing on stock market volatility to improve shareholder returns by buying back shares. Since third quarter of 2021, in total we have invested almost $44 million in share buy-backs, reducing our share count by nearly 7%. Our financial strength and discipline enable us to create value in multiple ways, and we intend to continue doing so in the manner that we believe best serves the long-term interests of our shareholders.”
Revenue and Utilization
Operating revenue derived from fixed-rate, mainly long-term, time-charters was $159.3 million in the three months ended Μarch 31, 2023, up $5.7 million (or 3.7%) on revenue of $153.6 million for the prior year period. The period-on-period increase in revenue was principally due to charter renewals at higher rates on nine vessels partially offset by (i) $9.5 million reduction in the amortization of intangible liabilities arising on below-market charters attached to certain vessel additions, and (ii) $1.9 million reduction in the credit from straightlining the effect of timecharter modifications. There were 302 days of offhire in the first quarter of 2023 of which 200 were for scheduled drydockings, compared to 309 days of offhire in the prior year period of which 227 were for scheduled drydockings. Utilization for the first quarter of 2023 was 94.8% compared to utilization of 94.7% in the same period of the prior year.
The table below shows fleet utilization for the three months ended March 31, 2023 and 2022, and for the years ended December 31, 2022, 2021, 2020 and 2019.
Vessel Operating Expenses
Vessel operating expenses, which are primarily the costs of crew, lubricating oil, repairs, maintenance, insurance and technical management fees, were up 8.6% to $42.8 million for the first quarter of 2023, compared to $39.4 million in the comparative period. The increase of $3.4 million was mainly due to (i) high inflation impact on all categories, ii) increase in repairs, spares and maintenance expenses for planned main engine maintenance and overhaul of diesel generators as well as main engine annual spares delivery, (iii) increased crew expenses as salaries were higher primarily due to limited crew supply as a consequence of current container market conditions, worldwide inflation and higher crew travel expenses due to increased number of crew changes and higher airfare prices and (iv) increased cost of lubricant consumption due to higher average prices. The average cost per ownership day in the quarter was $7,319, compared to $6,743 for the prior year period, up $576 per day, or 8.5%.
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 $5.5 million for the first quarter of 2023, compared to $4.4 million in the first quarter of 2022. The increase is mainly due to additional voyage administration costs and increased commissions on charter renewals at higher rates.
Depreciation and Amortization
Depreciation and amortization for the first quarter of 2023 was $21.2 million, compared to $19.9 million in the first quarter of 2022. The increase was mainly due to the 11 drydockings completed after March 31, 2022.
General and Administrative Expenses
General and administrative expenses were $4.8 million in the first quarter of 2023, compared to $6.2 million in the first quarter of 2022. The decrease was mainly due to lower stock-based compensation expense in the first quarter of 2023 and a one-off expense that occurred in first quarter of 2022 due to social security charges related to vesting of shares under the stock-based compensation plan. The average general and administrative expense per ownership day for the first quarter of 2023 was $820, compared to $1,066 in the comparative period, a decrease of $246 or 23.1%.
Adjusted EBITDA
Adjusted EBITDA (a non-GAAP financial measure) was $104.9 million for the first quarter of 2023, up from $90.4 million for the first quarter of 2022, with the net increase being mainly due to decrease in amortization of intangible liabilities.
Interest Expense and Interest Income
Debt as at March 31, 2023 totaled $896.5 million, comprising $440.2 million of secured bank debt collateralized by vessels, $323.8 million of 2027 Secured Notes collateralized by vessels, and $132.5 million under sale and leaseback financing transactions. As of March 31, 2023, five vessels were unencumbered.
Debt as at March 31, 2022 totaled $1,078.5 million, comprising $791.8 million of secured debt collateralized by vessels, $169.2 million under sale and leaseback financing transactions and $117.5 million of unsecured indebtedness on the 2024 Notes. As of March 31, 2022, no vessels were unencumbered.
Interest and other finance expenses for the first quarter of 2023 was $11.1 million, down from $18.7 million for the first quarter of 2022. The decrease in interest and other finance expenses was mainly due to lower average amount of debt outstanding and a $4.0 million prepayment fee on repayment of one facility in first quarter 2022. Including the effect of the interest rate caps and refinancing and repayment of certain of our debt using the net proceeds of our 2027 Secured Notes which closed in June 2022, the blended cost of our debt has decreased from approximately 4.72% for the first quarter 2022 to 4.53% for the first quarter 2023, despite an increase in three-month LIBOR/SOFR in first quarter of 2023 to 4.92% as compared to 0.53% in the prior year period.
Interest income for the first quarter of 2023 was $1.8 million, up from $0.3 million for the first quarter of 2022.
Other income, Net
Other income, net was $1.6 million in the first quarter of 2023, compared to an income of $0.4 million in the first quarter of 2022.
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 of 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 the fourth quarter of 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 negative fair value adjustment of $2.8 million for the first quarter of 2023 was recorded through the statement of income as compared to the positive fair value adjustment of $4.6 million in the first quarter of 2022. Interest rate caps will automatically transit to 1 month Compounded SOFR by June 30, 2023.
Earnings Allocated to Preferred Shares
The Series B Preferred Shares carry a coupon of 8.75%, the cost of which for the first quarter of 2023 was $2.4 million, the same as in first quarter 2022. The cost was $2.4 million in both quarters of 2023 and 2022 since there were no additional Series B Preferred Shares issued under our at-the-market program.
Net Income Available to Common Shareholders
Net income available to common shareholders for the three months ended March 31, 2023 was $72.2 million. Net income available to common shareholders for the three months ended March 31, 2022 was $67.8 million.
Earnings per share for the three months ended March 31, 2023 was $2.02, an increase of 8.6% from the earnings per share for the comparative period, which was $1.86.
Normalized net income (a non-GAAP financial measure) for the three months ended March 31, 2023, was $75.6 million. Normalized net income for the three months ended March 31, 2022 was $67.3 million.
Normalized earnings per share (a non-GAAP financial measure) for the three months ended March 31, 2023 was $2.12, an increase of 14.6% from Normalized earnings per share for the comparative period, which was $1.85.
Fleet
As at May 9, 2023, we had 64 containerships in our fleet.
On May 8, 2023, we announced that we had contracted to purchase four ships for an aggregate purchase price of $123.3 million. Contract cover for each vessel is for a minimum firm period 24 months from the date each vessel is delivered, with charterers holding one year extension options. The vessels are expected to generate aggregate Adjusted EBITDA of approximately $76.6 million over the minimum firm period. The vessels and their expected delivery dates are shown in the table below.
Source: Hellenic Shipping News
