Published January 22, 2009

First Ship Lease revises distribution policy Lower 75-78% Q1 payout seen; 4Q08 DPU up 27.3% By NISHA RAMCHANDANI Email this article Print article Feedback THE cloudy outlook for the shipping industry and the capital market have led First Ship Lease (FSL) Trust to revise its distribution policy. Mr Clausius: Retained cash will be handy should the unexpected happen Target distribution per unit (DPU) for the first quarter of this year is 2.45 US cents, representing 75-80 per cent of expected distributable cash flow, compared with 100 per cent usually. The retained cash will be used to reduce the trust's gearing and to seize growth opportunities. FSL Trust Management (FSLTM) chief executive Philip Clausius said the move is a proactive one amid the global uncertainty. 'This is not something we have done because we think there is going to be a default or because our lending banks asked us to,' he said. Rather, the retained funds will come in handy should the unexpected happen. DPU guidance will be provided on a quarterly basis until longer-term visibility returns. Chief financial officer Cheong Chee Tham said: 'Given FSL Trust's secure long-term cash flow and lack of near-term refinancing needs, it is well-placed to take advantage of attractive opportunities that will present themselves in the next 24 months.' For Q4 2008 ended Dec 31, FSL Trust will distribute US$15.4 million, excluding an incentive fee of US$590,000 payable to FSLTM. This works out to DPU of 3.08 US cents, up 27.3 per cent from Q4 2007. FSLTM is confident that FSL Trust will not see any charter rate renegotiations or payment defaults by clients, despite volatility in the industry. FSL Trust's portfolio comprises 23 vessels which are leased out on long-term basis. The earliest lease expiry is in 2014. As at Dec 31, 2008, the lease portfolio had a net book value of US$900 million and remaining contracted revenue of US$858 million. While FSL Trust's leading bankers did not invoke a market disruption clause during the latest round of interest rate re-sets, Mr Clausius does not rule out the possibility of this happening. 'The interbank market is so volatile. The banks are still funding themselves at costs way above the quoted Libor,' he said. FSL Trust's net profit fell 75.8 per cent to US$456,000 in Q4 2008 as vessels acquired post-IPO were wholly financed by debt, and interest and depreciation charges for these vessels were higher than the lease rates. However, revenue jumped 70.2 per cent to US$25.7 million due to the acquisition of two crude oil tankers and three container ships. For FY 2008, net profit was 23.5 per cent lower at US$4.8 million, while revenue came in 113.4 per cent higher at US$86.62 million. DPU for the year was 11.52 US cents. Q4 2008 DPU will be paid on Feb 27. FSL Trust's units closed unchanged at 46.5 cents yesterday.