Seaspan Reports Second Quarter 2019 Results

Closes innovative $1 billion portfolio financing program, and finishes the quarter with over $868 million of liquidity

Revising guidance upward on stronger than expected first half performance

HONG KONG, China, Aug. 7, 2019 /PRNewswire/ - Seaspan Corporation ("Seaspan") SSW announced today its financial results for the three and six months ended June 30, 2019.

Highlights for the Second Quarter and First Half of 2019:

• Closed innovative new $1.0 billion portfolio financing program
• Achieved vessel utilization of 98.7% for the second quarter and 98.4% for the first half
• Operating earnings of $110.4 million for the second quarter and $454.5 million for the first half
• Earnings per diluted share of $0.10 for the second quarter and $1.34 for the first half; changes in fair value of financial instruments contributed a loss of $0.07 per diluted share for the second quarter and a loss of $0.07 per diluted share for the first half
• Cash flow from operations of $369.9 million for the second quarter and $499.2 million for the first half

Mid-Year Guidance Update for Full Year 2019:

• Revenue in the range of $1,115.0 million to $1,120.0 million; lower end of range raised by $15.0 million from $1,100.0 million
• Ship Operating Expense in the range of $240.0 million to $245.0 million; higher end of range reduced by $5.0 million from $250.0 million
• Operating Lease Expense in the range of $155.0 million to $160.0 million; higher end of range reduced by $5.0 million from $165.0 million
• General and Administrative Expense in the range of $30.0 million to $35.0 million; guidance range reaffirmed

Effective second quarter 2019, Seaspan expects to revise annual guidance with each second quarter earnings release. Annual guidance will not otherwise be revised unless adjusting for a material event.

Comments from Management

Bing Chen, President and Chief Executive Officer, commented, "I'm proud of our team for delivering another stronger than expected second quarter operating results. Our continued drive for operational excellence allowed us to deliver better than anticipated operating earnings, while investing in and building on our integrated platform to consistently enhance our customer centric approach. In particular, we've continued to sign multi-year contracts with customers, maintaining our industry leading utilization rate of 98.7%. Our team is building a solid track record for executing on the promises we have made to our customers, employees, financing partners and our shareholders."

Ryan Courson, Chief Financial Officer, said, "The closing of our innovative $1 billion portfolio financing program this quarter marked an important step toward reshaping our capital structure. Beyond an improved cost of debt and maturity profile, this structure provides us with significant financial flexibility to optimize Seaspan's capital structure going forward, while simplifying and consolidating our credit facilities. With the foundation now laid for growth, we intend to continue executing on capital allocation opportunities to drive shareholder value."

Significant Developments During the Quarter Ended June 30, 2019

$1 Billion Portfolio Financing Program

On May 15, 2019, Seaspan entered into a credit agreement with a syndicate of lenders for a $1.0 billion secured credit facility (the "Program"), which consists of a $200.0 million revolving credit facility and an $800.0 million term loan facility. The Program is secured by a portfolio of vessels (the "Collateral Pool") and bears interest at LIBOR plus 2.25% per annum. The revolving credit facility is available for three years, after which it converts to, and forms part of, the term loan facility, which matures on May 15, 2024.  The Program can be increased to an aggregate amount of up to $2.0 billion through additional commitments from lenders, execution of additional secured loan agreements and/or issuing private placement notes, in each case with a corresponding expansion of the Collateral Pool.

Under the Program, Seaspan may add, substitute and remove vessels from the Collateral Pool during the term, subject to a borrowing base, portfolio concentration limits, absence of defaults and compliance with financial covenants and certain negative covenants.

As of June 30, 2019, Seaspan had drawn $874.0 million under the Program and used the proceeds to prepay, in full or in part, credit facilities and for general corporate purposes. 

For additional information about this financing, please read the Report on Form 6-K furnished to the SEC on May 16, 2019.

Unencumbered Vessels

As of August 7, 2019, Seaspan had 43 unencumbered vessels, four of which are pending completion of collateral release documentation.

Subsequent Events

Debt Repayment

In July 2019, Seaspan prepaid $231.3 million of the remaining principal balances of three secured term loan facilities. As a result of the prepayments, three vessels were unencumbered, one of which is pending completion of collateral release documentation.

In August 2019, Seaspan prepaid $17.2 million of the remaining principal balance of one secured term loan facility. As a result of the prepayment, three vessels were unencumbered, pending completion of collateral release documentation.

As of June 30, 2019, $135.8 million of the debt repayments made subsequent to the end of the period were classified as current liabilities due to the issuance of voluntary irrevocable prepayment notices by Seaspan.

Distribution

The Board of Directors declared a quarterly distribution in the amount of $0.125 per share for its Class A Common Shares, paid on July 30, 2019 to shareholders of record as at the close of business on July 22, 2019. Regular quarterly dividends on the Preferred Shares Series D, Series E, Series G, Series H and Series I were also declared.

Class A Common Shares Outstanding

As of August 7, 2019, there were 215.7 million Class A Common Shares outstanding.

Results for the Three and Six Months Ended June 30, 2019

Financial Results

The following table summarizes Seaspan's consolidated financial results for the three and six months ended June 30, 2019 and 2018:

Ownership Days, Operating Days and Vessel Utilization

Ownership days are the number of days a vessel is owned and available for charter.  Operating days are the number of days a vessel is available to the charterer for use. 

The primary driver of ownership days are the increases or decreases in the number of vessels owned, while the drivers of operating days are ownership days and the number of days the vessels are off-hire.

Ownership days increased by 191 days and 1,791 days for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The increase for the three months ended June 30, 2019 was due to the 2018 vessel deliveries. The increase for the six months ended June 30, 2019 was primarily due to the period contribution from the addition of 16 vessels acquired through the acquisition of Greater China Intermodal Investments LLC ("GCI"), which contributed 1,152 days, with the remainder due to the 2018 vessel deliveries.

Vessel utilization represents the number of operating days as a percentage of ownership days. 

The following table summarizes Seaspan's vessel utilization for the three and six months ended June 30, 2019 and for each quarter for the 24 months ended June 30, 2019:

Vessel utilization increased for the three and six months ended June 30, 2019, compared with the same period in 2018. The increase for the six months ended June 30, 2019 was primarily due to a decrease in the number of unscheduled off-hire days and scheduled off-hire days for dry-docking.

During the six months ended June 30, 2019, Seaspan completed dry-docking for one 10000 TEU vessel, one 9600 TEU vessel, two 5100 TEU vessels, one 4250 TEU vessel, and one 2500 TEU vessel.

Revenue 

Revenue decreased by 2.2% to $275.4 million and increased by 10.7% to $560.7 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease in revenue for the three months ended June 30, 2019 was primarily due to the changes in the daily charter hire rates of seven rechartered vessels. In the first quarter, these time charters were modified and Seaspan recognized $227.0 million of income from modification of time charters, which was received on April 1, 2019. These seven charters have been rechartered to other customers, pursuant to new time charters at market rate. The increase in revenue for the six months ended June 30, 2019 was primarily due to the period contribution of additional operating days from the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.

The increase in operating days and the related financial impact thereof for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018, is attributable to the following:

Ship Operating Expense

Ship operating expense decreased by 4.8% to $55.9 million and increased by 4.9% to $113.6 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease for the three months ended June 30, 2019 is primarily due to cost saving initiatives. The increase for the six months ended June 30, 2019 was primarily due to an increase in ownership days from the period contribution of the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.

The following table summarizes Seaspan's operating cost per operating day for the three and six months ended June 30, 2019 and for each quarter for the 24 months ended June 30, 2019:

Ship operating cost per ownership day decreased by 6.7% to $5,743 and by 4.8% to $5,867 for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 2.1% to $63.4 million and by 8.5% to $125.9 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018.  The increase was primarily due to an increase in ownership days from the period contribution of the acquisition of vessels from the GCI transaction and 2018 vessel deliveries.

General and Administrative Expense

General and administrative expense decreased by 24.4% to $6.9 million and by 4.2% to $15.7 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease for the three months ended was primarily due to transition payments paid to the former CFO in 2018.  For the six months ended June 30, 2019, this decrease was partially offset by higher share-based compensation expenses and higher professional fees.

Operating Lease Expense

Operating lease expense increased by 20.0% to $38.8 million and by 22.8% to $78.0 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The increase was primarily due to the amortization of deferred gains related to Seaspan's vessel sale-leaseback transactions, which are no longer recognized through operating leases. Upon adoption of Accounting Standards Update 2016-02 "Leases" on January 1, 2019, the remaining balance of these deferred gains were recognized through opening deficit as a cumulative adjustment.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan's borrowings:

Interest expense and amortization of deferred financing fees decreased by $5.0 million to $50.4 million and increased by $13.1 million to $106.5 million for the three and six months ended June 30, 2019, respectively, compared with the same periods in 2018. The decrease for the three months ended June 30, 2019 was primarily due to the early repayments of long-term debt partially offset by the issuance of the Fairfax Notes. The increase for the six months ended June 30, 2019 was primarily due to the issuance of the Fairfax Notes and debt assumed in connection with the acquisition of GCI.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a loss of $14.5 million and $15.6 million for the three and six months ended June 30, 2019, respectively. The losses were primarily due to a decrease in the forward LIBOR curve as it relates to interest swaps. Included in the change in fair value is an unrealized loss of $6.5 million for the three months ended June 30, 2019 and negligible for the six months ended June 30, 2019, compared with an unrealized gain of $18.3 million and $48.9 million for the three and six months ended June 30, 2018, respectively. The unrealized losses on the interest rate swaps for three and six months ended June 30, 2019 were partially offset by unrealized gains on the put options related to the Fairfax Notes. 

Liquidity and Unencumbered Vessels

As of June 30, 2019, Seaspan had total liquidity of $868.4 million, consisting of $592.4 million of cash and cash equivalents and $276.0 million available under its revolving credit facilities.  Additionally, as of August 7, 2019, Seaspan's unencumbered asset pool included 43 vessels, four of which are pending completion of collateral release documentation.

About Seaspan

Seaspan is the leading independent charter owner of containerships with industry leading ship management services. Seaspan charters its vessels primarily pursuant to long-term, fixed-rate, time charters from the world's largest container shipping liners. Seaspan's operating fleet consists of 112 containerships with a total capacity of more than 900,000 TEU, an average age of approximately seven years and an average remaining lease period of approximately four 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, analysts, and interested parties to discuss its second quarter results on August 7, 2019 at 8:30 a.m. ET. Participants should call 1-877-246-9875 (US/Canada) or 1-707-287-9353 (International) and request the Seaspan call (conference ID: 1359637). The live webcast and slide presentation are available under "Events & Presentations" at www.seaspancorp.com.

A recording will be available at 1-855-859-2056 or 1-404-537-3406 (Conference passcode: 1359637).