Global Ship Lease, Inc. — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This annual filing reports full-year results, not standalone fourth-quarter results. Financial statements are prepared under U.S. GAAP.
Business context and key financial metrics
Global Ship Lease owns and charters containerships to liner companies. At year-end, its fleet comprised 65 vessels with aggregate capacity of 342,348 TEU and a TEU-weighted average age of 14.9 years, versus 43 vessels at year-end 2020. The company reported that 2021 demand growth and supply-chain congestion helped drive containership-sector earnings and charter rates to historic highs.
- Revenue: Total operating revenue was $448.0 million, up 58.4% from $282.8 million. This includes $402.5 million of time-charter revenue and $45.4 million of noncash amortization income from acquired below-market charter liabilities.
- Profit: Operating income was $237.5 million, compared with $104.8 million; net income was $171.5 million, compared with $41.6 million. Net income available to common shareholders was $163.2 million, or $4.65 basic and $4.60 diluted per share, versus $37.6 million and $1.23 basic/$1.22 diluted per share.
- Margins: Operating income was approximately 53.0% of total operating revenue, versus 37.0% in 2020. Total operating expenses were $210.4 million, or 47.0% of revenue, versus $178.1 million, or 63.0%.
- Cash flow: Operating cash flow was $263.9 million, versus $104.4 million. Investing cash outflow was $482.2 million, principally reflecting vessel purchases; financing cash inflow was $321.6 million. Year-end cash, cash equivalents and restricted cash were $195.6 million; including $7.9 million of time deposits, total cash and deposits were approximately $203.5 million.
- Debt and liquidity: Gross debt was $1,085.6 million, including $117.5 million of 8.00% notes, $789.7 million of secured credit facilities and $178.4 million of sale-and-leaseback financing. Current debt maturities were $190.3 million. Current assets were $143.4 million and current liabilities were $244.8 million. Credit agreements require at least $20 million of group liquidity; the company reported covenant compliance at year-end.
- Fleet operations: Utilization was 94.3%, up from 93.0%. Vessel operating expenses were $130.3 million, and average vessel operating cost per ownership day increased 4.6% to $6,707. The company recorded 1,100 off-hire days, including planned drydockings and upgrades.
Material changes versus 2020
- Revenue growth reflected 21.1% more ownership days, higher-rate charter renewals, acquired-vessel charter adjustments and $45.4 million of amortization income on acquired charter liabilities. The latter is an important noncash contributor to reported revenue and earnings.
- Operating income and net income increased substantially; there was no vessel impairment charge in 2021, compared with $8.5 million in 2020. The 2021 sale of La Tour generated a $7.8 million gain.
- Cash generation improved, while investing outflow rose sharply with the acquisition of 23 vessels and the sale of one vessel. Net fleet additions were 22.
- The company issued common and preferred equity, converted Series C preferred shares into 12.96 million common shares, and repurchased and retired 521,650 common shares for $10.0 million. Weighted-average common shares outstanding nearly doubled, affecting per-share comparisons.
- In January 2021, the company refinanced and redeemed its remaining 9.875% secured notes due 2022. Interest and other finance expense rose to $69.2 million from $65.4 million, partly due to redemption premiums and refinancing costs, despite a lower reported blended cost of debt.
Outlook, commentary and risks
- Management outlook: Management said operating cash flows and retained funds should be sufficient for operating needs over the 12 months following filing, including working capital, drydockings, interest and debt repayments. It estimated minimum debt amortization of $190.3 million in 2022 and $153.6 million in 2023, before subsequent refinancing activity.
- Charters and dividends: The company reported an average remaining charter term of 2.6 years on a TEU-weighted basis, measured to the midpoint of redelivery and including options under company control. One vessel’s charter could expire before the end of the first half of 2022 and nine more during the second half. Common dividends were $0.25 per share per quarter in 2021; the company announced an increase to $0.375 per quarter from first-quarter 2022. Dividends remain subject to board discretion, cash availability, law and debt restrictions.
- Subsequent financing actions: In January 2022, the company extended the maturity of a syndicated secured facility from September 2024 to December 2026, amended certain covenants and used released vessels as collateral for a new $60 million facility. Proceeds helped repay the $26.2 million Blue Ocean junior facility, which carried a 10% rate. In March 2022, it announced up to $40 million in opportunistic share repurchases and gave notice to redeem $28.5 million of the 2024 Notes at 102% of principal, plus accrued interest.
- Interest-rate exposure: Most borrowings were floating-rate debt linked to LIBOR. The company entered into LIBOR caps with a 0.75% strike covering approximately $484.1 million of debt in December 2021 and a further $507.9 million in February 2022. It also disclosed the need to transition existing LIBOR-linked contracts ahead of LIBOR’s scheduled cessation.
- Principal risks: High leverage, secured borrowing and restrictive covenants; charterer credit and renewal-rate risk; customer and industry concentration; vessel aging, off-hire and regulatory/drydocking costs; COVID-19, geopolitical disruption and supply-chain uncertainty; environmental and decarbonization requirements; and potential limits on financing or dividends. CMA CGM represented 33.8% of 2021 revenue, while Maersk represented 22.8%.
- Governance and unusual items: Technical and commercial management is substantially provided by Technomar and Conchart, both affiliated with the Executive Chairman; management fees were $15.3 million and $3.6 million, respectively. The auditor highlighted initial fair-value recognition of acquired charter liabilities as a critical audit matter; the year-end liability was $55.4 million. The financial-statement audit opinion was unmodified, and the auditor and management concluded internal control over financial reporting was effective. The company reported no material pending or threatened legal proceedings.
Important facts for investors to verify
- Reconcile reported revenue and earnings to the $45.4 million noncash charter-liability amortization benefit, and assess how that benefit changes as it is amortized.
- Review the timing and rates of 2022 charter expiries and extensions, including whether expected high charter rates are secured by firm contracts or depend on options and market conditions.
- Confirm post-year-end debt balances, amortization requirements, covenant headroom, refinancing terms and the treatment of restricted cash; distinguish unrestricted liquidity from total cash and deposits.
- Evaluate whether cash generation can support the increased common dividend, preferred dividends, debt service, vessel upkeep and any share repurchases without additional financing.
- Assess related-party management arrangements, fees and oversight, as well as charterer concentration and counterparty credit exposure.