Seaspan reports 3Q loss

seaspan

Seaspan announced its financial results for the three and nine months ended September 30, 2016. Below is a summary of Seaspan’s key financial results:

Summary of Key Financial Results (in thousands of US dollars):

Three Months Ended

September 30,

Nine Months Ended

September 30,

2016

2015

2016

2015

Revenue

$

224,875

$

212,861

$

664,712

$

600,560

Reported net earnings (loss)

$

(184,034)

$

20,490

$

(140,481)

$

123,179

Normalized net earnings(1)

$

43,562

$

43,364

$

133,543

$

116,883

Earnings (loss) per share, basic and diluted

$

(1.86)

$

0.07

$

(1.77)

$

0.83

Normalized earnings per share, diluted(1)

$

0.29

$

0.30

$

0.92

$

0.76

Cash available for distribution to common Shareholders(1)

$

90,400

$

117,548

$

302,150

$

317,138

Adjusted EBITDA(1)

$

148,354

$

183,463

$

489,159

$

506,354

_____________________________

(1) 

These are non-GAAP financial measures. Please read “Reconciliation of Non-GAAP Financial Measures for the Three and Nine Months Ended September 30, 2016 and 2015—Description of Non-GAAP Financial Measures” for (a) descriptions of Normalized net earnings and Normalized earnings per share, Cash available for distribution to common shareholders, and Adjusted EBITDA and (b) reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (“GAAP”).

Summary of Key Highlights

  • Raised over $1.5 billion from capital markets, sale-leaseback, and other financing transactions during the first nine months of 2016.
  • Achieved 8.9% reduction in ship operating expense per ownership day during the quarter ended September 30, 2016 compared to the same quarter in the prior year, primarily due to a continued focus on cost management initiatives.
  • Achieved vessel utilization of 95.6% and 97.0% for the three and nine months ended September 30, 2016, or 95.9% and 97.5% if the impact of scheduled off-hire days is excluded.
  • Accepted delivery of one vessel on a five-year time charter to Maersk Line A/S (“Maersk”) during the third quarter, bringing Seaspan’s operating fleet to a total of 89 vessels at September 30, 2016.
  • Paid $8.4 million of quarterly dividends to preferred shareholders of record as of July 29, 2016.
  • Paid a quarterly dividend for the 2016 second quarter of $0.375 per Class A common share to all shareholders of record as of July 20, 2016.

Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan, commented, “We continued to enhance our liquidity position and fund our newbuild program by accessing over $400 million in capital during the third quarter, bringing total capital raised year-to-date to over $1.5 billion. Our continued ability to access diverse sources of capital on attractive terms, from multiple markets and geographies, is one of the key factors that differentiates us from competitors.”

Mr. Wang added, “During the third quarter, we continued to modernize our fleet with the delivery of our eleventh 10000 TEU SAVER containership, which commenced a five-year fixed-rate time charter with Maersk Line.  This represents the fifth newbuilding vessel that has been delivered to Seaspan this year.  We are also very pleased with the success of our cost control measures that resulted in a decline in our ship operating expenses while our fleet ownership days continued to increase.”

Mr. Wang concluded, “Seaspan has grown through periods of adversity to become the world’s largest independent containership owner and lessor.  With future contracted revenue of over $5 billion and over $500 million in liquidity, we believe that Seaspan is well positioned to capitalize on opportunities that may arise due to industry challenges. Consistent with our past success, we intend to remain disciplined in pursuing opportunities with a focus on creating long-term value.”

Third Quarter Developments

Vessel Delivery

In September 2016, Seaspan accepted delivery of one 10000 TEU containership, the Maersk Genoa. The Maersk Genoa was constructed at Jiangsu New Yangzi Shipbuilding Co., Ltd. and Jiangsu Yangzi Xinfu Shipbuilding Co., Ltd. using our fuel efficient SAVER design and commenced a five-year, fixed-rate time charter with Maersk upon delivery.

Vessel Disposal

In August 2016, Seaspan sold a 4600 TEU vessel, the Seaspan Excellence, to a ship recycler for net sale proceeds of approximately $5.8 million, resulting in a loss on disposition of approximately $16.5 million.

Equity Financings

In August 2016, Seaspan issued 9,000,000 of its 7.875% Series H preferred shares in a public offering at a price of $25.00 per share, for net proceeds of approximately $217.7 million before expenses.

In August 2016, Seaspan issued 3,200,000 of its 8.2% Series G preferred shares in a follow-on public offering at a price of $25.00 per share, for net proceeds of approximately $76.5 million before expenses.

Revolving Credit Facility

In August 2016, Seaspan increased its 364-day unsecured, revolving loan facility by $10.0 million to a total commitment of $160.0 million.

Lease Financing         

In September 2016, Seaspan entered into a sale leaseback transaction with special purpose companies (“SPCs”) for the Maersk Genoa for gross proceeds of $100.0 million. Under the lease, Seaspan sold the vessel to the SPCs and leased the vessel back over a nine-year term, with an option to purchase the vessel at the end of the lease term for a pre-determined fair value purchase price.  If the purchase option is not exercised, the lease term may be extended for an additional two years, at the option of the SPCs.

Hanjin Shipping Bankruptcy

On August 31, 2016, Seaspan’s customer Hanjin Shipping Co., Ltd. (“Hanjin”) filed for bankruptcy in Korea (the “Hanjin Proceeding”). Charters for three of Seaspan’s 10000 TEU vessels and the Seaspan Efficiency have been cancelled and all four vessels have been returned. Seaspan stopped recognizing revenue on these vessels on September 1, 2016 after Hanjin declared bankruptcy.

Vessel Impairments

During the quarter ended September 30, 2016, Seaspan recognized non-cash vessel impairments of $202.8 million related to ten vessels under 5000 TEU in size.

Subsequent Events

Dividends

On October 11, 2016, Seaspan declared quarterly cash dividends on its common and preferred shares, for total distributions of $55.2 million.

Vessel Sales

In October and November 2011, Seaspan entered into agreements to bareboat charter four 4800 TEU vessels to MSC Mediterranean Shipping Company S.A. (“MSC”), each for a five-year term and MSC agreed to purchase the vessels for $5.0 million each at the end of the bareboat charters. In October 2016, two of the 4800 TEU vessels, the MSC Manu and MSC Leanne, completed their five-year bareboat charter terms and were sold to MSC for $5.0 million per vessel.

Sale of Seaspan Efficiency

In October 2016, Seaspan entered into an agreement for the sale of the Seaspan Efficiency, a 2003-built 4600 TEU class containership, to a ship recycler for gross sale proceeds of approximately $6.4 million.

Results for the Three and Nine Months Ended September 30, 2016

At the beginning of 2016, Seaspan had 85 vessels in operation. Seaspan accepted delivery of three newbuilding vessels, leased in two vessels and sold one 4600 TEU class vessel during the nine months ended September 30, 2016, bringing its operating fleet to a total of 89 vessels as at September 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.

Three Months Ended

September 30,

Increase

Nine Months Ended

September 30,

Increase

2016

2015

Days

%

2016

2015

Days

%

Operating days(1)…………..

7,451

7,176

275

3.8%

22,091

20,438

1,653

8.1%

Ownership days(1)…………

7,794

7,225

569

7.9%

22,781

20,696

2,085

10.1%

The following table summarizes Seaspan’s vessel utilization by quarter and for the nine months ended September 30, 2016 and 2015:

First Quarter

Second Quarter

Third Quarter

Year To Date-
September 30,

2016

2015

2016

2015

2016

2015

2016

2015

Vessel Utilization:

Ownership Days(1)………….

7,375

6,570

7,612

6,901

7,794

7,225

22,781

20,696

Less Off-hire Days:

Scheduled 5-Year
Survey………………………

(75)

(49)

(19)

(66)

(25)

(39)

(119)

(154)

Unscheduled Off-hire(2)

(128)

(21)

(125)

(73)

(318)

(10)

(571)

(104)

Operating Days(1)………….

7,172

6,500

7,468

6,762

7,451

7,176

22,091

20,438

Vessel Utilization………….

97.2

%

98.9

%

98.1

%

98.0

%

95.6

%

99.3

%

97.0

%

98.8

%

___________________________

(1)

Operating and ownership days include leased vessels and exclude vessels under bareboat charter.

(2)

Unscheduled off-hire includes days related to vessels off-charter.

The following table summarizes Seaspan’s consolidated financial results for the three and nine months ended September 30, 2016 and 2015:

Financial Summary

(in millions of US dollars)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2016

2015

2016

2015

Revenue…………………………………………………….

$

224.9

$

212.9

$

664.7

$

600.6

Ship operating expense………………………………..

48.6

49.4

145.4

143.3

Depreciation and amortization expense…………..

52.7

51.5

166.1

150.5

General and administrative expense……………….

8.1

7.0

25.0

20.1

Operating lease expense………………………………

23.8

11.2

59.3

25.9

Interest expense and amortization of deferred 
financing fees…………………………………………….

30.0

29.0

90.2

82.2

Loss on disposal…………………………………………

16.5

16.5

Expenses related to customer bankruptcy……..

18.9

18.9

Vessel impairments……………………………………..

202.8

202.8

Change in fair value of financial instruments…..

(0.7)

44.8

75.1

64.6

Revenue

Revenue increased by 5.6% to $224.9 million and 10.7% to $664.7 million for the three and nine months ended September 30, 2016, respectively, over the same periods in 2015, primarily due to the delivery of newbuilding vessels in 2015 and 2016 and the addition of two leased in vessels in 2016. These increases were partially offset by lower average charter rates for vessels that were on short-term charters, an increase in unscheduled off-hire, primarily relating to vessels being off-charter, and a reduction in revenue on three 10000 TEU vessels as Seaspan stopped recognizing revenue on these vessels on September 1, 2016 after Hanjin declared bankruptcy.  Any future revenue relating to these Hanjin charters will be recognized on a cash basis.

The increases in operating days and the related financial impact thereof for the three and nine months ended September 30, 2016, respectively, relative to the same periods in 2015, are attributable to the following:

Three Months Ended

September 30

Nine Months Ended

September 30

Operating

Days Impact

$ Impact

(in millions)

Operating

Days Impact

$ Impact

(in millions)

2016 vessel deliveries………………………..

387

15.6

632

25.2

Full period contribution for 2015
 vessel deliveries……………………………….

227

9.8

1,417

62.5

Change in daily charter hire rate and
 re-charters………………………………………..

(7.1)

(19.8)

Additional days due to leap year………….

81

2.1

Unscheduled off-hire…………………………..

(308)

(4.9)

(467)

(7.7)

Scheduled off-hire………………………………

14

0.6

35

(1.2)

Supervision fee revenue……………………..

2.6

6.5

Vessel management revenue………………

0.1

1.1

Customer bankruptcy…………………………

(3.9)

(3.9)

Vessel disposal…………………………………

(45)

(0.7)

(45)

(0.7)

Other………………………………………………..

(0.1)

0.1

Total     

275

$

12.0

1,653

$

64.2

Vessel utilization was 95.6% and 97.0% for the three and nine months ended September 30, 2016, respectively, compared to 99.3% and 98.8% for the same periods in 2015.

The decrease in vessel utilization for the three and nine months ended September 30, 2016, compared to the same periods in 2015, was primarily due to increases in unscheduled off-hire of 308 and 467 days, respectively.

Seaspan completed dry-dockings for the following 15 vessels during the three and nine months ended September 30, 2016:

Vessel Class (TEU)

First Quarter

Second Quarter

Third Quarter

Year To Date-

September 30, 2016

2500…………………………….

1

1

3500…………………………….

1

1

4250…………………………….

2

(1)

1

(1)

1

(1)

4

4500…………………………….

1

1

8500…………………………….

1

1

13100…………………………..

5

2

7

9

3

3

15

_______________________

(1)

Dry-docking for these vessels was completed between their time charters.

Ship Operating Expense

Ship operating expense decreased by 1.7% to $48.6 million for the three months ended September 30, 2016, compared to the same period in 2015, primarily due to cost management initiatives. This decrease was achieved while ownership days increased by 7.9% due to the delivery of newbuilding vessels in 2015 and 2016, and the additional two leased in vessels in 2016. As a result, ship operating expense per ownership day declined by 8.9% for the three months ended September 30, 2016, compared to the same period in 2015.

Ship operating expense per ownership day declined by 7.8% in the nine months ended September 30, 2016 compared to the same period in 2015. While ship ownership days increased by 10.1% due to the delivery of newbuilding vessels in 2015 and 2016, ship operating expenses were held to an increase of only 1.5% during the period, primarily due to cost management initiatives.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 2.3% to $52.7 million and by 10.4% to $166.1 million for the three and nine months ended September 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. The increases were partially offset by a reduction in write-offs of replaced vessel equipment.

General and Administrative Expense

General and administrative expense increased by 16.3% to $8.1 million and by 23.9% to $25.0 million for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. The increases were primarily due to an increase in non-cash stock-based compensation, professional fees and other corporate expenses incurred.

Operating Lease Expense

Operating lease expense increased to $23.8 million and $59.3 million for the three and nine months ended September 30, 2016, respectively, from $11.2 million and $25.9 million in the same periods in 2015. The increases were primarily due to the delivery of four vessels in 2015 and three vessels in 2016 that were financed through sale-leaseback transactions and 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:

 (in millions of US dollars)

As at September 30,

2016

2015

Long-term debt, excluding deferred financing fees………………….

$

3,104.4

$

3,347.3

Other long-term liabilities, excluding deferred
 gains, deferred financing fees and other………………………………

505.1

348.7

Total borrowings…………………………………………………………………

3,609.5

3,696.0

Less: Vessels under construction…………………………………………

(300.7)

(154.1)

Operating borrowings………………………………………………………….

$

3,308.8

$

3,541.9

Interest expense and amortization of deferred financing fees increased by $1.0 million to $30.0 million and by $8.0 million to $90.2 million for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. The increases in interest expense 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 nine months ended September 30, 2016, the increase was also due to the full period impact of three 4500 TEU vessels which were refinanced in March 2015.

Loss on Disposal

Loss on disposal was $16.5 million for the three and nine months ended September 30, 2016 due to the sale of the Seaspan Excellence to a ship recycler for net sale proceeds of approximately $5.8 million.

Expenses Related to Customer Bankruptcy

Expenses related to customer bankruptcy were $18.9 million for the three and nine months ended September 30, 2016 due to the recognition of a full reserve for past due accounts receivable as a result of the Hanjin Proceeding.

Vessel Impairments

During the quarter ended September 30, 2016, Seaspan recognized non-cash vessel impairments of $202.8 million related to ten vessels under 5000 TEU in size. Seaspan reviews its vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the vessels may not be recoverable. Seaspan performed an impairment test of its vessels at September 30, 2016 due to the continued weakness in current market rates and declines in the vessels’ market values. Including the $202.8 million non-cash impairment charge Seaspan recognized during the quarter ended September 30, 2016, the aggregate non-cash impairment charge for fiscal 2016 is expected to be in the range of $260.0 million to $290.0 million.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a gain of $0.7 million and a loss of $75.1 million for the three and nine months ended September 30, 2016, respectively, compared to losses of $44.8 million and $64.6 million for the same periods in 2015. The gain of $0.7 million for the three months ended September 30, 2016 was primarily due to increases in the forward LIBOR curve, offset by swap settlements. The loss of $75.1 million for the nine months ended September 30, 2016 was primarily due to decreases in the forward LIBOR curve and the effect of the passage of time.

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