FSL Trust Management Pte. Ltd. (FSLTM), as the trustee-manager of First Ship Lease Trust (FSL Trust), announced that FSL Trust has entered into a memorandum of agreement to purchase a 2007, Japanese-built, 45,998-dwt MR product tanker for $21.8 million.
The acquisition will be financed through existing cash reserves that totaled $41.8 million at June 30, 2015.
The vessel’s delivery is expected between November 1, 2015 and January 31, 2016, bringing FSL Trust’s fleet to 24 vessels: 12 product tankers, three chemical tankers, two crude oil tankers and seven containerships.
The newly acquired ship is to be employed in the spot market through a commercial manager. FSLTM said it expects this to deliver an annual cash-on-cash yield of 14.5 percent based on a conservative TCE of $16,500 per day over the next three years.
Commenting on the acquisition, FSLTM’s chief executive officer, Alan Hatton, said the company has achieved good results in the MR product tanker sector this year, both with vessels in the spot market and on time charter. He added, “This acquisition demonstrates the ongoing execution of our strategy, outlined earlier this year, to renew the fleet and generate incremental revenue ahead of the scheduled redelivery in 2016 of the Panamax containership vessels, currently on bareboat charter to Evergreen.”
Hatton continued, “The acquisition will be entirely cash-financed. This is possible due to strengthened cash generation in the Trust resulting from the improved deployment of redelivered vessels and by attaining new time charters with quality counterparties at higher rates. The new investment will, therefore, have a positive effect on our ability to generate cash moving forward, as well as our overall fleet leverage.”
In April, FSL Trust announced a two-year time charter agreement with U.S. domestic oil company for FSL Hong Kong, a crude oil tanker. Underpinned by the continued improvement in the tanker market, FSL Trust recently secured new time charter agreements, worth up to $61 million over the next three years, for the Aframax crude oil tanker, FSL Shanghai and, MR product tankers, FSL Hamburg and FSL Singapore, with a global commodities trader.
“With the addition of this tanker, we will increase our fleet size and near-term earnings potential. The success of this transaction is a result of our measured and disciplined approach towards managing the Trust’s portfolio,” Hatton said. “We have analyzed the market and determined that the acquisition of an MR tanker of this age and type provides a strong yield for our unitholders and we are comfortable with the fundamentals of the product tanker market.”
FSLTM chairman, Tim Reid, added, “The financial performance of the Trust has improved dramatically in no small part due to the very effective redeployment of the vessels that had been returned to the Trust from defaulting charter parties. The Board is committed to ensuring that projected revenue stream, expenses and principal loan repayments will allow sustained distributions to unitholders in the near future. The cash purchase of this vessel is a significant milestone in the turnaround of the Trust and is demonstrative of the very significant improvement in the Trust’s financial performance and position that has been achieved over the last two years.”