Published November 22, 2008

Shipping trusts neglected despite strong yields

By VINCENT WEE
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DISTRIBUTION yields of Singapore-listed shipping trusts have risen well above 30 per cent as their unit prices slide amid the global stock market turmoil, yet they remain a neglected segment with poor trading volumes.

Shipping trusts, the first of which made its debut in 2006, function much like real estate investment trusts (Reits) in that they raise capital to purchase assets, in this case ships, which they then rent out. Income from the rentals is distributed to investors quarterly in varying amounts, depending on the payout policy of the individual trust managers.

Unit prices of the three shipping trusts, First Ship Lease Trust (FSLT), Pacific Shipping Trust (PST) and Rickmers Maritime are currently hovering between 30 and 40 cents apiece. At yesterday's closing prices of 42 cents for FSLT, 20 US cents (31 cents) for PST and 39 cents for Rickmers, average dividend yields are about 41.9 per cent, 22 per cent and 35.4 per cent respectively.

FSLT's distribution per unit (DPU) rose to 3.05 US cents (annualised 12.2 US cents) in the recent third quarter from 2.23 US cents in the previous corresponding period and has a projected DPU of 3.17 US cents for the first quarter of next year. Rickmers's DPU rose to 2.25 US cents from 2.14 US cents while PST's per unit payout amounted to 1.1 US cents, up from 1.07 US cents.

These yield rates compare with an average Reits yield of about 10 per cent. In addition, lease tenures for most properties are shorter and thus relatively less stable than that for ships. FSLT's portfolio of vessels, for example, has an average remaining lease life of 8.9 years while PST has an average lease term of seven years and Rickmers, almost eight years. The earliest of these leases comes up for renewal in 2014 for FSLT, 2013 for PST and 2012 for Rickmers.

'Our revenue is derived from the long-term fixed-rate charter contracts we have in place with five of the global top 15 container liner companies,' said Thomas Preben Hansen, CEO of Rickmers's trustee-manager Rickmers Trust Management.

PST Management CEO Alvin Cheng said: 'PST is confident that its long-term charters will continue to provide a stable income stream to the trust.'

But the shipping trusts continue to suffer from lack of investor interest and, with the recent overall market weakness, a fall in unit price as well. FSLT, for example, has fallen by two-thirds from a high of $1.30 while Rickmers has fallen over 70 per cent from $1.40 to their current levels. Average volume has hovered at barely one million units. Sentiment may also have been hit by negative perceptions of the shipping industry's prospects and the container line market in particular.

'We are in the midst of a severe bear market and high yielding shipping trusts have so far not been spared despite their transparent business structures and strong financial performances,' said Mr Hansen. 'Rickmers Maritime has so far exceeded its financial forecast every quarter since IPO and has in place a visible pipeline of growth which is set to further increase the cashflow as the new ships are delivered.'