HONG KONG, China, July 25, 2016 /PRNewswire/ – Seaspan Corporation (“Seaspan”) (NYSE: SSW) announced today its financial results for the three and six months ended June 30, 2016. Below is a summary of Seaspan’s key financial results:
Summary of Key Financial Results (in thousands of US dollars):
Summary of Key Highlights
Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan, commented, “We continued to generate strong financial and operational results in the second quarter, which was defined by a series of transactions that strengthened our balance sheet and positioned us for further growth. Seaspan secured in excess of $1.0 billion in new capital during the second quarter, comprised of loan, lease and equity financings. Our continued ability to access capital from diverse sources is a strong endorsement of our stress tested business model and disciplined growth strategy.”
Mr. Wang, added, “During the second quarter, we expanded our fleet with the delivery of our eighth 14000 TEU SAVER design containership, which commenced a ten-year fixed-rate contract with Yang Ming. We also grew our operating fleet by entering into leasing arrangements for two newly-delivered vessels that were previously owned by GCI and constructed under our supervision. Each of these vessels has been contracted for long-term fixed-rate charters. Finally, at the end of the second quarter, Seaspan acquired two newbuilding 11000 TEU vessels from GCI and their associated 17-year charters with MSC. With these actions, we have taken significant steps to ensure the stability of our cash flows while increasing our position as the world’s largest independent owner and lessor of containerships.”
Second Quarter Developments
During the second quarter of 2016, Seaspan accepted delivery of one 14000 TEU vessel, the YM Width. The vessel was constructed at CSBC Corporation, Taiwan using our fuel efficient SAVER design and commenced a 10-year fixed-rate time charter with Yang Ming Marine Transport Corp. (“Yang Ming Marine”) on May 29, 2016.
On April 28, 2016, Seaspan entered into a lease financing arrangement with third parties for one 10000 TEU newbuilding vessel, the MOL Beyond. The vessel is being leased from the third parties over a term of 11 years, with an option to purchase the vessel at the nine-year anniversary of the lease for a pre-determined fair value purchase price. Seaspan received the eight-year time charter contract with Mitsui O.S.K. Lines Ltd. for the MOL Beyond from Greater China Intermodal Investment LLC (“GCI”) for no consideration.
On May 6, 2016, Seaspan entered into a lease financing arrangement with third parties for one 14000 TEU newbuilding vessel, the YM Window. The vessel is being leased from the third parties over a term of 12 years, with an option to purchase the vessel at the 9.5-year anniversary of the lease for a pre-determined fair value purchase price. Seaspan received the 10-year time charter contract with Yang Ming Marine for the YM Window from GCI for no consideration.
On June 29, 2016, Seaspan acquired two 11000 TEU newbuilding vessels from GCI for a total purchase price of $195.6 million. These vessels will commence 17-year bareboat charters with MSC Mediterranean Shipping Company S.A. (“MSC”) upon their respective deliveries scheduled in 2017. MSC is obligated to purchase the vessels for a pre-determined amount at the end of their respective charters. These two vessels are sister ships to Seaspan’s three 11000 TEU vessels also scheduled for delivery in 2017 and chartered to MSC.
On May 17, 2016, Seaspan issued to a third-party Asian investor 5,600,000 Series F preferred shares at a price of $25.00 per share, for an aggregate purchase price of $140.0 million. The holder of the Series F preferred shares has the right to convert these shares into common shares at a conversion price of $18.00 per share. The dividend rate is initially set at 6.95%, but will increase by 1.0% annually after the fifth anniversary date up to a maximum of 10.5% by the ninth anniversary date, or in certain circumstances to 10.5% on January 1, 2018. Seaspan has the right to call the Series F preferred shares at par plus any accumulated and unpaid dividends at any time after the dividend increases above 6.95%.
On May 27, 2016, Seaspan issued 5,750,000 Class A common shares in a public offering for net proceeds of approximately $81.1 million before expenses. Concurrently with the closing of the public offering, Seaspan’s chief executive officer and affiliates of one of Seaspan’s directors and of Dennis Washington purchased directly from Seaspan, in a private placement and at the public offering price, an aggregate of $15.0 million additional Class A common shares.
On June 16, 2016, Seaspan issued 4,600,000 Series G preferred shares at a price of $25.00 per share, for net proceeds of approximately $111.4 million before expenses. Dividends are payable on the Series G preferred shares at a rate of 8.20% per annum on the stated liquidation preference of $25.00 per share.
Redemption of Series C Preferred Shares
In June 2016, Seaspan redeemed 13,321,774 Series C preferred shares, representing all of the issued and outstanding Series C preferred shares, using net proceeds from the Series F preferred share issuance and Class A common share public offering and concurrent private placement.
Revolving Credit Facility
On April 29, 2016, Seaspan completed the renewal of its 364-day unsecured, revolving loan facility with various banks for a total commitment of up to $150.0 million. The facility includes features providing for an increase in commitments by up to $30.0 million, enabling a total facility size of up to $180.0 million. The revolving loan facility bears interest at LIBOR plus a margin.
On May 5, 2016, Seaspan entered into 17-year financing arrangements with an Asian-based leasing company, consisting of leases with commitments totalling approximately $253 million to fund the construction and delivery of three 11000 TEU newbuilding containerships and leases with commitments totalling approximately $168 million to fund the construction and delivery of two 11000 TEU containerships. These financing arrangements bear interest at LIBOR plus a margin. The five 11000 TEU newbuilding containerships will commence 17-year bareboat charters upon their deliveries, scheduled during 2017.
On May 25, 2016, Seaspan entered into a sale-leaseback transaction with special purpose companies, (“SPCs”), for the YM Width for gross proceeds of $144.0 million. Under the lease, Seaspan sold the vessel to the SPCs and leased the vessel back for twelve years, with an option to purchase the vessel at the 9.5-year anniversary for a pre-determined fair value purchase price.
Employment Agreement with CEO Gerry Wang
On May 16, 2016, Seaspan entered into an employment agreement with Gerry Wang to replace the existing employment agreement, dated December 7, 2012. Pursuant to the new employment agreement, Mr. Wang has agreed to continue to serve as Seaspan’s chief executive officer and co-chairman through May 31, 2021.
Financial Services Agreement
On May 16, 2016, Seaspan entered into a Financial Services Agreement, with Seaspan Financial Services Ltd., (“SFSL”), an entity owned and controlled by Graham Porter, a Seaspan director, to replace the Financial Services Agreement dated March 14, 2011, between Seaspan and Tiger Ventures Limited, an entity also owned and controlled by Mr. Porter. Under the Financial Services Agreement, SFSL will provide Seaspan with certain strategic services, including negotiating and procuring pre-delivery and post-delivery financing or refinancing for the construction of new vessels or the acquisition of second hand vessels.
On July 12, 2016, Seaspan declared the following quarterly cash dividends on its common and preferred shares, for a total distribution of $47.9 million:
Results for the Three and Six Months Ended June 30, 2016
At the beginning of 2016, Seaspan had 85 vessels in operation. Seaspan accepted delivery of two newbuilding vessels and leased in two vessels during the six months ended June 30, 2016, bringing its operating fleet to a total of 89 vessels at June 30, 2016. Revenue from time charters is determined primarily by the number of operating days, and ship operating expense is determined primarily by the number of ownership days.
The following table summarizes Seaspan’s vessel utilization by quarter and for the six months ended June 30, 2016 and 2015:
The following table summarizes Seaspan’s consolidated financial results for the three and six months ended June 30, 2016 and 2015:
Revenue increased by 12.6% to $224.3 million and 13.4% to $439.8 million for the three and six months ended June 30, 2016, respectively, over the same periods in 2015, primarily due to the delivery of newbuilding vessels in 2015 and 2016 and the additional two leased in vessels in 2016, partially offset by lower average charter rates for vessels that were on short-term charters.
The increases in operating days and the related financial impact thereof for the three and six months ended June 30, 2016, respectively, relative to the same periods in 2015, are attributable to the following:
Vessel utilization was 98.1% and 97.7% for the three and six months ended June 30, 2016, respectively, compared to 98.0% and 98.4% the same periods in 2015.
The decrease in vessel utilization for the six months ended June 30, 2016, compared to the same period in 2015, was primarily due to an increase in unscheduled off-hire by 159 days. The increase in unscheduled off-hire was primarily due to eight vessels that were off-charter for a total of 230 days during the six months ended June 30, 2016, compared to two vessels that were off-charter for a total of 38 days in the same period of 2015.
Seaspan completed dry-dockings for 12 vessels during the three and six months ended June 30, 2016:
During the remainder of 2016, Seaspan expects three vessels to undergo their scheduled dry-dockings.
Ship Operating Expense
Ship operating expense decreased by 0.1% to $49.2 million for the three months ended June 30, 2016, compared to the same period in 2015, primarily due to cost savings initiatives implemented, which resulted in lower crew costs and lower stores and spares purchases. This decrease is partially offset by a 10.3% increase in ownership days due to the delivery of newbuilding vessels in 2015 and 2016, and the additional two leased in vessels in 2016.
Ship operating expense increased by 3.2% to $96.8 million for the six months ended June 30, 2016, compared to the same period in 2015, primarily due to an 11.3% increase in ownership days for the six months ended June 30, 2016. The increase in ownership days is primarily due to the delivery of newbuilding vessels in 2015 and 2016, and the additional two leased in vessels in 2016, partially offset by cost savings initiatives implemented which resulted in lower crew costs.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by 4.1% to $54.5 million and by 14.6% to $113.4 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015, primarily due to an increase in fleet size from vessels delivered in 2015 and an increase in dry-dock amortization from an increase in the number of vessels dry-docked. For the six months ended June 30, 2016, the increase in depreciation and amortization was also due to write-offs of replaced vessel equipment.
General and Administrative Expense
General and administrative expense increased by 42.0% to $9.1 million and by 27.9% to $16.9 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The increases were primarily due to professional fees and other corporate expenses incurred.
Operating Lease Expense
Operating lease expense increased to $20.7 million and $35.5 million for the three and six months ended June 30, 2016, respectively, from $8.6 million and $14.7 million in the same periods in 2015. The increase was primarily due to the deliveries of four vessels in 2015 and two vessels in 2016 that were financed through sale-leaseback transactions. Under these transactions, Seaspan sold the vessels to the SPCs and are leasing the vessels back over a term of 11 or 12 years, with an option to purchase the vessels at the nine or 9.5-year anniversary of the lease for a pre-determined fair value purchase price. The unamortized portion of the deferred gain on all sale-leasebacks was $202.3 million as at June 30, 2016.
In addition, operating lease expense also increased due to the two leases entered into with third parties in April and May 2016 for a 10000 TEU vessel, the MOL Beyond and a 14000 TEU vessel, the YM Window, respectively.
Interest Expense and Amortization of Deferred Financing Fees
The following table summarizes Seaspan’s borrowings:
Interest expense and amortization of deferred financing fees is comprised primarily of interest incurred on long-term debt and other long-term liabilities, excluding deferred gains, relating to operating vessels at either the variable rate calculated by reference to LIBOR plus the applicable margin or at fixed rates. Interest expense also includes a non-cash reclassification of amounts from accumulated other comprehensive loss related to previously designated hedging relationships. Interest incurred on long-term debt and other long-term liabilities for Seaspan’s vessels under construction is capitalized to the cost of the respective vessels under construction. Effective January 1, 2016, in accordance with recent accounting pronouncements, interest expense includes the amortization of debt issuance costs. Previously these amounts were reported as amortization of deferred charges. The comparative figures for the prior period have been reclassified to conform with the current year’s presentation.
Interest expense and amortization of deferred financing fees increased by $1.8 million to $30.1 million and by $7.0 million to $60.2 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. These increases were due to an increase in operating borrowings primarily related to certain vessels that delivered in 2015 and an increase in LIBOR, partially offset by repayments made on existing operating borrowings and lower amortization of deferred financing fees. For the six months ended June 30, 2016, the increase in interest expense was also due to the full period impact of three 4500 TEU vessels which were refinanced in March 2015.
Although Seaspan has entered into fixed interest rate swaps for some of its variable rate debt, the difference between the variable interest rate and the swapped fixed-rate on operating debt is recorded in Seaspan’s change in fair value of financial instruments rather than in interest expense.
Refinancing expenses decreased by $0.4 million to $0.8 million and by $1.5 million to $0.8 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. These decreases were primarily due to deferred financing fees that were written-off in connection with the termination and repayment of term loans.
Change in Fair Value of Financial Instruments
The change in fair value of financial instruments resulted in losses of $23.6 million and $75.8 million for the three and six months ended June 30, 2016, respectively, compared to a gain of $19.5 million and a loss of $19.9 million for the same periods in 2015. The losses for the three and six months ended June 30, 2016 and 2015 were primarily due to decreases in the forward LIBOR curve and the effect of the passage of time.
The fair value of interest rate swap and swaption agreements is subject to change based on the company-specific credit risk of Seaspan and of the counterparty included in the discount factor and the interest rate implied by the current swap curve, including its relative steepness. In determining the fair value, these factors are based on current information available to Seaspan. These factors are expected to change through the life of the instruments, causing the fair value to fluctuate significantly due to the large notional amounts and long-term nature of Seaspan’s derivative instruments. Because these factors may change, the fair value of the instruments is an estimate and may deviate significantly from the actual cash settlements realized during the term of the instruments. Seaspan’s valuation techniques have not changed and remain consistent with those followed by other valuation practitioners.
Seaspan provides many of the world’s major shipping lines with creative outsourcing alternatives to vessel ownership by offering long-term leases on large, modern containerships combined with industry-leading ship management services. Seaspan’s managed fleet consists of 118 containerships representing a total capacity of over 935,000 TEU, including 14 newbuilding containerships on order scheduled for delivery to Seaspan and third parties by the end of 2017. Seaspan’s current operating fleet of 89 vessels has an average age of approximately six years and an average remaining lease period of approximately five years, on a TEU weighted basis.
Seaspan has the following securities listed on The New York Stock Exchange:
Conference Call and Webcast
Seaspan will host a conference call and webcast presentation for investors and analysts to discuss its results for the three and six months ended June 30, 2016 on July 26, 2016 at 6:30 a.m. PT / 9:30 a.m. ET. Participants should call 1-877-246-9875 (US/Canada) or 1-707-287-9353 (International) and request the Seaspan call. A telephonic replay will be available for anyone unable to participate in the live call. To access the replay, call 1-855-859-2056 or 1-404-537-3406 and enter the replay passcode: 51022200. The recording will be available from July 26, 2016 at 9:30 a.m. PT / 12:30 p.m. ET through 8:59 p.m. PT / 11:59 p.m. ET on August 9, 2016. The conference call will also be broadcast live over the Internet and will include a slide presentation. To access the live webcast of the conference call, go to www.seaspancorp.com and click on “News & Events” then “Events & Presentations” for the link. The webcast will be archived on the site for one year.
Description of Non-GAAP Financial Measures
A. Cash Available for Distribution to Common Shareholders
Cash available for distribution to common shareholders is defined as net earnings adjusted for depreciation and amortization, interest expense and amortization of deferred financing fees, refinancing expenses, share-based compensation, change in fair value of financial instruments, bareboat charter adjustment, gain on sales, amortization of deferred gain, foreign exchange gain, dry-dock reserve adjustment, cash dividends paid on preferred shares, interest expense at the hedged rate and certain other items that Seaspan believes are not representative of its operating performance.
Cash available for distribution to common shareholders is a non-GAAP measure used to assist in evaluating Seaspan’s ability to make quarterly cash dividends before reserves for replacement capital expenditures. Cash available for distribution to common shareholders is not defined by United States generally accepted accounting principles (“GAAP”) and should not be considered as an alternative to net earnings or any other indicator of Seaspan’s performance required to be reported by GAAP.
B. Normalized Net Earnings and Normalized Earnings per Share
Normalized net earnings is defined as net earnings adjusted for interest expense, excluding amortization of deferred financing fees, refinancing expenses, foreign exchange gain, write-off of vessel equipment, change in fair value of financial instruments, interest expense at the hedged rate and certain other items Seaspan believes affect the comparability of operating results. Normalized net earnings is a useful measure because it excludes those items that Seaspan believes are not representative of its operating performance.
Normalized net earnings and normalized earnings per share are not defined by GAAP and should not be considered as an alternative to net earnings, earnings per share or any other indicator of Seaspan’s performance required to be reported by GAAP.
C. Adjusted EBITDA
Adjusted EBITDA is defined as net earnings adjusted for interest expense and amortization of deferred financing fees, income tax expense, interest income, undrawn credit facility fees, depreciation and amortization, refinancing expenses, share-based compensation, gain on sales, amortization of deferred gain, foreign exchange gain, bareboat charter adjustment, change in fair value of financial instruments and certain other items that Seaspan believes are not representative of its operating performance.
Adjusted EBITDA provides useful information to investors in assessing Seaspan’s results of operations. Seaspan believes that this measure is useful in assessing performance and highlighting trends on an overall basis. Seaspan also believes that this measure can be useful in comparing its results with those of other companies, even though other companies may not calculate this measure in the same way as Seaspan. The GAAP measure most directly comparable to Adjusted EBITDA is net earnings. Adjusted EBITDA is not defined by GAAP and should not be considered as an alternative to net earnings or any other indicator of Seaspan’s performance required to be reported by GAAP.
Notes to Non-GAAP Financial Measures
This release contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect management’s current views with respect to certain future events and performance, including, in particular, statements regarding: future operating results; time charters; ship operating expense; vessel dry-docking schedules; future contracted revenues; Seaspan’s access to capital and financial strength and flexibility; vessel deliveries and dividends, including the amount and timing of payment thereof for 2016. Although these statements are based upon assumptions Seaspan believes to be reasonable, they are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to: the availability to Seaspan of containership acquisition or construction opportunities; the availability and cost to Seaspan of financing to pursue growth opportunities; the number of additional vessels managed by the Manager in the future; general market conditions and shipping market trends, including chartering rates; increased operating expenses; the number of off-hire days; dry-docking requirements; Seaspan’s ability to borrow funds under its credit facilities and to obtain additional financing in the future; Seaspan’s future cash flows and its ability to make dividend and other payments; the time that it may take to construct new ships; Seaspan’s continued ability to enter into primarily long-term, fixed-rate time charters with customers; changes in governmental rules and regulations or actions taken by regulatory authorities; the financial condition of shipyards, charterers, lenders, refund guarantors and other counterparties and their ability to perform their obligations under their agreements with Seaspan; the potential for early termination of long-term contracts and Seaspan’s potential inability to enter into, renew or replace long-term contracts; conditions in the public capital markets and the price of Seaspan’s shares; the declaration of dividends and related payment dates by Seaspan’s board of directors; and other factors detailed from time-to-time in Seaspan’s periodic reports and filings with the Securities and Exchange Commission, including Seaspan’s Annual Report on Form 20-F for the year ended December 31, 2015. Seaspan expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in Seaspan’s views or expectations, or otherwise.
SOURCE Seaspan Corporation