EXPANDING HORIZONS FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

Transcription

1 EXPANDING HORIZONS FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

2 Contents 03 Performance Highlights 04 Letter to Unitholders 06 Corporate Structure 07 FSL Trust s Business 10 Board of Directors 12 Senior Management 13 Investment Advisory Committee 16 Portfolio Overview 21 Operational and Financial Review 24 Risk Management 25 Investor Relations 29 Report of the Trustee-Manager 31 Statement by Trustee-Manager 32 Statement by the Chief Executive Officer 33 Independent Auditors Report 35 Statements of Financial Position 36 Consolidated Income Statement 37 Consolidated Statement of Comprehensive Income 38 Consolidated Statement of Changes in Unitholders Funds 39 Consolidated Statement of Cash Flows 40 Notes to the Financial Statements 74 Corporate Governance 82 Additional Information 84 Lease Portfolio Terms 87 Unit Price and Trading Volume 88 Statistics of Unitholdings 90 Notice of Annual General Meeting of the Unitholders Proxy Form Corporate Information 2 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

3 EXPANDING HORIZONS The course to success is seldom easy, but we have managed to sail bravely ahead, fulfilling one goal after another. Even if the miles that lie ahead may prove challenging, we are ever ready to strive in search of greater, more inspiring achievements. As we set our sights on the distant horizons, there is every reason to believe that we have the means to go further and do better. Backed by solid experience, strong assets and an unwavering focus on prudent risk management, we set sail confidently into a promising future. EXPANDING HORIZONS 1

4 First Ship Lease Trust (FSL Trust) is a Singapore-listed business trust that provides lease financing on a long-term bareboat charter basis to the international shipping industry. FSL Trust presently owns a diversified portfolio of 25 young and high quality ocean-going vessels comprising containerships, tankers and dry bulk carriers. Of these, 20 vessels are leased to reputable shipping companies on long-term bareboat charter basis, two vessels are deployed in the product tanker spot market and three vessels will be deployed in a chemical tanker pool within the first half of The portfolio of substantially fixed-rate leases provides the Trust with stable and predictable long-term revenue and cash flow, as well as protection from the cyclical fluctuations in shipping charter rates. FSL Trust is managed by FSL Trust Management Pte. Ltd., the Trustee-Manager. The Trustee-Manager aims to grow and diversify the Trust s portfolio via accretive acquisitions of vessel with leases, to increase predictable cash flow generation and to provide regular cash distributions to unitholders of the Trust. FSL Trust is listed on the main board of the Singapore Exchange Securities Trading Limited (SGX-ST) and its American Depository Receipts (ADR) are quoted on the PrimeQX tier of International OTCQX. FSL Trust is a component stock of the FTSE ST Maritime Index. OUR VISION is to be the world s leading leasing provider on a bareboat charter basis in the maritime industry. OUR MISSION is to offer maritime operators a financing alternative which is typically not available from commercial banks or public capital markets. 2 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

5 PERFORMANCE HIGHLIGHTS Revenue US$ millions FY 07 * FY 08 FY 09 FY 10 FY Net Cash from Operations US$ millions FY 07 * FY 08 FY 09 FY 10 FY Yang Ming 22.5% Geden Lines 13.1% TORM 7.0% Siba Ships 8.1% James Fisher 13.1% Berlian Laju Tanker # 15.9% Schoeller Holdings 7.2% Evergreen Marine 13.1% Lease Revenue By Charterer for FY2011 (Based on 23 vessels on bareboat charters) Net Profit / (Loss) After Tax US$ millions FY 07 * 6.3 Distribution Per Unit US cents FY 07 * 6.95 Dry Bulk Carrier 8.1% Crude Oil Tankers 13.1% Product Tankers 20.1% FY 08 FY 09 FY 10 FY FY 08 FY 09 FY 10 FY Chemical Tankers # 15.9% Containerships 42.8% Lease Revenue By Vessel Type for FY2011 (Based on 23 vessels on bareboat charters) * For the period from 19 March 2007 (date of constitution) to 31 December # Upon redelivery of the three chemical tankers from Berlian Laju Tanker, all three chemical tankers will be deployed in a chemical tanker pool within the first half of EXPANDING HORIZONS 3

6 Despite a challenging year marked by uncertainties, the Trust s revenue performance for 2011 remained resilient. We remain confident of the Trust s future and believe the measures we have adopted will prepare us for the challenges and opportunities that lie ahead. 4 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

7 LETTER TO UNITHOLDERS Dear Unitholders, Despite a challenging year marked by uncertainties, the Trust s revenue performance for 2011 remained resilient. We achieved revenue of US$110.7 million, which was 10.2% higher than the US$100.5 million posted in the previous year. Net cash generated from operations also increased by 5.6% year-on-year. During the year, we successfully resolved the lawsuit with Daxin Petroleum Pte. Ltd. and secured a US$5.0 million out-of-court settlement for the Trust. Unfortunately, a default by PT Berlian Laju Tanker Tbk ( BLT ), the lessee of our three chemical tankers, in February 2012 resulted in an impairment charge of US$22.1 million. Consequently, we closed the year with a net loss of US$17.1 million. Highlights of 2011 We are pleased to report that the Trust successfully refinanced its credit facility in December 2011 with a US$479.6 million, six-year amortising term loan. This well-structured transaction, completed during extremely challenging market conditions, was awarded Bank Debt Deal of the Year (East) by Marine Money. We are heartened by our lenders support and their confidence in the Trust, and we believe this puts us on a stronger footing to face the challenges ahead. During the year, we increased our portfolio from 23 vessels to 25 with the acquisition of two product tankers from TORM. The two vessels are currently being leased back to TORM on bareboat charters for a base lease term of seven years each. Outlook The shipping industry remains fragile, weighed down by overcapacity that has resulted in depressed freight rates and asset values. Concerned by these factors and the continued turmoil in the euro zone, many banks have reined in their ship financing activities, putting tremendous pressure on highly leveraged shipping companies. Prospects of recovery remain unclear at this stage as the industry undergoes a period of restructuring and adjustment. We believe that 2012 will be another difficult year for the shipping industry. Over the years, our leasing business model has served us well in sheltering the Trust from the cyclical shipping environment. Unfortunately, we have not been spared the widening backlash from the severe downturn. BLT defaulted on its lease payments in February 2012 and cited global economic slowdown, fleet overcapacity and high operating costs as having significantly impacted their financial position. Following the default, we executed our contingency plan and are in the process of taking redelivery of the three chemical tankers leased to BLT so as to ensure that our vessels will continue to generate revenue for the Trust. As at 31 December 2011, the Trust s 20 vessels on long-term bareboat leases has a remaining contracted revenue of US$491.8 million as at 31 December Two of our product tankers are currently trading in the spot market, while our three chemical tankers (pending redelivery from BLT) are expected to be deployed in a revenue pool within the first half of We remain committed to ensuring that all our vessels are deployed in the most profitable manner. A key consideration in our asset deployment strategy is the prevailing and expected market conditions. Our disciplined approach to portfolio diversification has limited our exposure to any single lessee or shipping sub-sector. This decreases the Trust s vulnerability to a significant reduction in revenue arising from default situations, and gives us comfort that we will have the ability to fulfill our debt obligations. The weak industry outlook prompted us to take robust and early measures to build up the Trust s resilience capacity. The Board decided to decrease the distribution per unit (DPU) for the fourth quarter to strengthen the Trust s balance sheet and conserve liquidity. We have learnt that, with prudence and a nimble strategy, we can steer the Trust safely and more effectively through turbulent periods. A larger cash reserve would also reassure lenders of our ability to service debt obligations and meet loan covenants even amidst the difficult environment. The Board will continue to review the distribution policy every quarter, taking into account market conditions and the performance of the Trust. Our priority is to secure the Trust s long-term future and position it to emerge stronger when the market recovers. We remain confident of the Trust s future and believe the measures we have adopted will prepare us for the challenges and opportunities that lie ahead. Finally, we would like to take this opportunity to thank our fellow directors and the Investment Advisory Committee for their guidance, as well as the dedicated staff of the Trustee-Manager for their commitment and efforts over the past year. We would also like to express our appreciation to all our unitholders, customers, business partners and lenders for their continued support. Wong Meng Meng Chairman Philip Clausius President and Chief Executive Officer 29 February 2012 EXPANDING HORIZONS 5

8 CORPORATE STRUCTURE UNITHOLDERS SPONSOR FSL Holdings Pte. Ltd. Holdings of Units Public/Investors - 76% Sponsor - 24% Singapore Tax Exempt Distributions 86% FSL Asset Management Pte. Ltd. (1) Acts on behalf of Unitholders (2) Management & Trustee services Trustee and Incentive Fees Management Services Management Services Fees TRUSTEE-MANAGER FSL Trust Management Pte. Ltd. 100% Ownership Repayments on any shareholder s loan, dividends, and share buy backs Management Fees Special Purpose Companies (SPCs) Ownership Vessels Lease Income Lease Lessees 6 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

9 FSL TRUST S BUSINESS First Ship Lease Trust ( FSL Trust or the Trust ) is a business trust constituted in March 2007 and registered under the Business Trusts Act, Chapter 31A of Singapore, or the Business Trusts Act, to provide long-term lease financing across major maritime segments. FSL Trust is in the business of providing lease financing on a bareboat charter basis to the international shipping industry. The Trust owns a diversified portfolio of 25 vessels, consisting of two crude oil tankers, 11 product tankers, three chemical tankers, seven containerships and two dry bulk carriers with a dollar-weighted average age of six and a half years (based on net book value as at 31 December 2011). Of the 25 vessels in FSL Trust s portfolio, 20 are leased to seven reputable international shipping companies on long-term hell and high water bareboat leases, two vessels are deployed in the product tanker spot market and three vessels will be deployed in a chemical tanker pool within the first half of Under a hell and high water bareboat lease, the vessel is operated by the Trust s lessee, who is responsible for all vessel operating and maintenance costs, and the lessee is obligated to pay FSL Trust even if the vessel is not operating for any reason. The leases in the Trust s portfolio have substantially fixed rates throughout the lease term, which provides protection against shipping cycle risks such as volatility in the spot and short-term time charter markets. This enables the Trust s portfolio to generate stable and predictable long-term revenue and cash flow. As at 31 December 2011, the Trust s portfolio (excluding the two product tankers and the three chemical tankers) has an average remaining lease term of six years (on a dollar-weighted basis by net book value, excluding extensions and buyout options) with aggregate remaining contracted revenue of approximately US$491.8 million. FSL Trust s main competitors are commercial banks in the shipping sector and other ship leasing companies. FSL Trust competes primarily on price, structuring flexibility and its strong market position in the long-term bareboat charter sector. FSL Trust s leasing solutions offer flexibility in structuring the transaction by providing potential lessees with various options such as purchase options, residual upside sharing agreements, lease extension options and fixed or floating rate leases. The lease solutions are attractive to shipping companies who wish to explore operating leases as an alternative financing option. THE TRUSTEE-MANAGER FSL Trust is managed by FSL Trust Management Pte. Ltd. ( FSLTM ), the Trustee-Manager. FSLTM is responsible for the Trust s investment and financing strategies, asset acquisition and disposal policies, the overall management of the Trust s business and safeguarding the interests of FSL Trust s unitholders as a whole. FSLTM is led by a highly-experienced team of shipping and finance professionals, with average of more than 19 years of experience in structured finance, ship financing and the operational and commercial aspects of the shipping industry. FSLTM has an external investment advisory committee, comprising distinguished industry experts who provide FSLTM with perspectives on the maritime industry and advice with respect to assessing and evaluating potential lease transactions. FSLTM has built strong relationships with both the customers and intermediaries in the finance and shipping industries. It works directly with customers of FSL Trust to provide tailored solutions that meet their needs. FSLTM also taps on the extensive networks of industry contacts of its Sponsor s (FSL Holdings Pte. Ltd.) main shareholders to extend its outreach to potential customers. EXPANDING HORIZONS 7

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11 DISCOVERING NEW POSSIBILITIES AT EVERY TURN With foresight and determination, we will bravely sail ahead to explore and seize opportunities that lie amidst a challenging future. EXPANDING HORIZONS 9

12 BOARD OF DIRECTORS The Board of FSLTM, as Trustee-Manager of FSL Trust, comprises individuals with a broad range of commercial expertise including expertise in the structured finance and shipping industry. The Board has five Directors, three of whom are independent. From top Mr Wong Meng Meng Mr Phang Thim Fatt MR WONG MENG MENG Chairman and Independent Director Mr Wong is Chairman and an independent director of the Trustee-Manager and a member of the Audit Committee. Mr Wong graduated from the University of Singapore and was admitted to the Singapore Bar in He was among the pioneer batch of Senior Counsels appointed in January Mr Wong is a consultant with WongPartnership LLP, which he founded in He is an accredited arbitrator with various professional and jurisdictional institutions. He now acts mainly as arbitrator or counsel in selected cases. Mr Wong is an accredited adjudicator under the Building & Construction Industry Security of Payment Act 2004, and a member of the Competition Appeal Board set up to handle appeals concerning the Competition Act. Mr Wong is Chairman of the Energy Market Company Pte. Ltd. and Mapletree Industrial Trust Management Ltd. and he also sits on the Board of several public and other companies including United Overseas Bank Limited and Mapletree Investments Pte. Ltd. Mr Wong is the President of the Council of The Law Society of Singapore. He is also a member of the Advisory Board of the Faculty of Law, National University of Singapore and a Vice President of the Singapore Academy of Law. He had served previously as a member of the Military Court of Appeal. Mr Wong has consistently been identified as one of the world s leading lawyers in leading dictionaries such as The International Who s Who of Commercial Litigators, The Guide to the World s Leading Experts in Commercial Arbitration, AsiaLaw Leading Lawyers, amongst others. MR PHANG THIM FATT Independent Director Mr Phang is an independent director of the Trustee-Manager and Chairman of the Audit Committee. Mr Phang is currently Deputy Managing Director and Chief Financial Officer of BOC Aviation Pte. Ltd., a wholly owned subsidiary of Bank of China and the largest aircraft lessor based in Asia. He has extensive experience in leasing solutions for the aviation industry as well as in corporate finance, treasury management and risk controls. He joined BOC Aviation in 1996 after 17 years with the treasury department in Singapore Airlines. Mr Phang holds a Bachelor of Economics (First Class Honours) from the University of Malaya. 10 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

13 DR MICHAEL JOHN MONTESANO III Independent Director Dr Montesano is an independent director of the Trustee-Manager and a member of the Audit Committee. He is Visiting Research Fellow at the Institute of Southeast Asian Studies in Singapore. Dr Montesano was a lecturer in Southeast Asian Studies at the National University of Singapore from 1999 to He has written widely on Southeast Asia s modern social, economic and business history as well as its politics. He is frequently quoted in international media on Thai and Southeast Asian affairs. He is currently authoring a book on the history of the Thai economy. Dr Montesano holds a doctorate in Southeast Asian history from Cornell University. He was also educated at Yale University and at the University of the Philippines College of Agriculture at Los Baños. MR PHILIP CLAUSIUS President and Chief Executive Officer Mr Clausius is a non-independent director, President and Chief Executive Officer of the Trustee-Manager. Mr Clausius is responsible for the general management of the business with an overall responsibility for the Trustee- Manager s performance. He has 20 years of financial and operational experience in the shipping industry. He co-founded First Ship Lease Ltd. in 2002, and oversaw the constitution of FSL Trust and its successful listing on the Mainboard of SGX in March He currently sits on the Advisory Panel of the Singapore Maritime Foundation. Mr Clausius was formerly the Director of Business Development at Schoeller Holdings Ltd., Cyprus between 1997 and 2003, where he was responsible for developing the company s long-term financing and investment strategy. Prior to this, he founded Philco Security Ltd., a Greek marine insurance and ship broking firm in 1996 and was its Managing Director. Between 1992 and 1995, he held the position of Director of International Broking at Hubertus Clausius, a German marine insurance broker with special expertise in marine hull and liability insurance products. Mr Clausius holds a Diplom Betriebswirt, the German equivalent of a graduate degree in Business Administration from the European Business School, Germany. MR CHEONG CHEE THAM Senior Vice-President and Chief Financial Officer Mr Cheong is a non-independent director and Chief Financial Officer of the Trustee-Manager. Mr Cheong is responsible for the financing, treasury and accounting functions of the Trustee-Manager s operation. He has more than 20 years of experience in accounting, leasing and asset financing. Mr Cheong joined the Sponsor of FSL Trust in 2005 as Chief Financial Officer. He was previously with the Singapore Airlines ( SIA ) Group (1989 to 1997, 2001 to 2005). He was responsible for raising longterm financing for the freighter acquisition programme as well as the financial reporting for SIA Cargo Pte. Ltd., a wholly-owned subsidiary of SIA. Mr Cheong holds a Master of Applied Finance degree from Macquarie University, Australia and a Bachelor of Accountancy (Second Class Honours) degree from the National University of Singapore. From top Dr Michael John Montesano III Mr Philip Clausius Mr Cheong Chee Tham EXPANDING HORIZONS 11

14 SENIOR MANAGEMENT MR PHILIP CLAUSIUS President and Chief Executive Officer MS REBECCA CHENG Legal Counsel and Company Secretary From top Mr Philip Clausius Mr Cheong Chee Tham Ms Kwa Lay San Mr Vijay Kamath From top Ms Rebecca Cheng Ms Ng Yoke Yee MR CHEONG CHEE THAM Senior Vice-President and Chief Financial Officer MS KWA LAY SAN Senior Vice-President and Chief Risk Officer Ms Kwa began her career as a Corporate Banker at DBS Bank in 1995, responsible for the relationship and credit management of large corporate clients in shipping, logistics, communications and property development. From 2003 to 2006, she was a Credit Approver covering the transport and logistics industry with responsibility for approving and supporting credit recommendations and reviews, and counterparty risk ratings. Ms Kwa holds a Master of International Management (Honours) degree from Thunderbird, The American Graduate School of International Management and a Bachelor of Business Administration (Honours and Distinction) degree from the University of Iowa. MR VIJAY KAMATH Senior Vice-President and Chief Commercial Officer Mr Kamath has more than 18 years of maritime industry experience. As Senior Relationship Manager of Marine Finance at the National Bank of Fujairah psc in Dubai, U.A.E. ( ), he was responsible for planning and executing the bank s entry into the ship financing market. Prior to this, he held various positions with Essar Shipping Ltd., in India ( ), with his last position being Joint General Manager responsible for international banking and special projects. Mr Kamath holds a Master of Management Studies degree in Finance and a Bachelor of Science degree in Physics, both from Goa University, India. Ms Cheng was called to the Singapore Bar in 1990 and she joined a law firm where she was involved in general corporate and conveyancing work. From 1997 to 2007, she was Legal Counsel at DelGro Corporation Limited and then ComfortDelGro Corporation Ltd. (after the merger with Comfort Group Ltd.) and was also its Company Secretary in Ms Cheng holds a Bachelor of Law (Honours) degree from the National University of Singapore. MS NG YOKE YEE Financial Controller Ms Ng began her career with KPMG in From 1995 to 2005, she was with GP Batteries International Limited, a SGX-listed multinational company in the manufacturing industry, assisting the Head of Finance in overseeing all financial aspects of the company. Prior to joining FSLTM, Ms Ng was the Financial Controller of EnGro Corporation Limited. Ms Ng holds a Bachelor of Accountancy degree from the National University of Singapore. 12 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

15 INVESTMENT ADVISORY COMMITTEE The investment advisory committee provides the Trustee-Manager with perspectives on the maritime industry and ship financing as well as advice in assessing and evaluating potential lease transactions. The members of the committee are: MR HEINRICH-LEOPOLD FELIX SCHOELLER Mr Schoeller is the Chairman of Schoeller Holdings Limited, a Cyprus-based investment holding company which he founded in Schoeller Holdings Limited engages in a wide range of businesses including ship owning, ship management (Columbia Shipmanagement Ltd.), liner services (Bengal Tiger Line Ltd., Austral Asia Line B.V. and New Pacific Shipping) and hotel services (Columbia Hotels & Resorts). Mr Schoeller was a Superintendent in C.F. Ahrenkiel GmbH ( ), Managing Director of Hanseatic Shipmanagement Ltd ( ) and Technical Director of C.F. Ahrenkiel GmbH ( ). Mr Schoeller was awarded the Cyprus Maritime Award in 2005 by the Government of Cyprus for his contributions to the Cyprus shipping industry. MR PETER MICHAEL KLOPFER Mr Klopfer founded P.M. Klopfer Shipbrokers, Inc. in 1991 and co-founded First Ship Lease Ltd. alongside HSH Nordbank, Bayerische Hypound Vereinsbank and Schoeller Holdings in He was a Line Manager in Hellenic Lines Limited ( ), Joint Managing Partner of LQM Associates, Inc ( ), Partner in Jacq. Pierot Jr. & Sons, Inc. ( ) and Chairman and Chief Executive Officer of Finanshuset (USA) Inc. ( ). Mr Klopfer is currently President of P.M. Klopfer Shipbrokers, Inc. which provides ship brokerage, maritime consulting and financial and securities analysis services to the shipping and financial communities. Mr Klopfer attended Queens College of the City University of New York and Pace College. MR ULF GÄNGER Mr Gänger was a member of the Board of Managing Directors of Hamburgische Landesbank- Girozentrale, the predecessor of HSH Nordbank prior to his retirement in 2003 and was responsible for matters relating to shipping companies, transport, commodity trade and corporate finance. During his employment with the bank, he developed its Asian network and founded, among others, the Singapore branch office of the bank. Under his direction, the ship financing portfolio of the bank became number one worldwide. After his retirement in 2003, Mr Gänger remains active as a business consultant to several international shipping companies. Mr Gänger graduated from the University of Hamburg with a diploma in economics in From top Mr Heinrich-Leopold Felix Schoeller Mr Peter Michael Klopfer Mr Ulf Gänger EXPANDING HORIZONS 13

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17 CASTING FAR YET DOCKING SAFE We will work continuously on creating a viable future for those who have trust in us. That is why while we seek new opportunities, wise management and careful planning remain the beacons that guide us every mile of the way. EXPANDING HORIZONS 15

18 PORTFOLIO OVERVIEW FSL Trust s vessel portfolio is diversified across five shipping sub-sectors. Its portfolio comprises crude oil tankers, chemical tankers, product tankers, containerships and dry bulk carriers. CRUDE OIL TANKERS Crude oil tankers are designed specifically to carry crude oil. They move large quantities of crude oil from its point of extraction to refineries. AQUA Year built: 2007 Builder: Samsung Heavy Industries, Korea Capacity: 115,000 DWT Lessee: Geden Lines Lease Commencement:18 Apr 2008 Lease Term: 10 years Flag: Singapore/Malta ACTION Year built: 2007 Builder: Samsung Heavy Industries, Korea Capacity: 115,000 DWT Lessee: Geden Lines Lease Commencement: 18 Apr 2008 Lease Term: 10 years Flag: Singapore/Malta CHEMICAL TANKERS These are specialised tankers designed to carry chemicals in bulk. They are also called parcel tankers as they can carry many different types of liquid cargo including corrosive chemicals, in a large number of compartmentalised tanks. FSL NEW YORK (formerly Pertiwi) Year built: 2006 Builder: Usuki Shipyard, Japan Capacity: 19,970 DWT Flag: Singapore FSL LONDON (formerly Pujawati) Year built: 2006 Builder: Usuki Shipyard, Japan Capacity: 19,900 DWT Flag: Singapore FSL TOKYO (formerly Prita Dewi) Year built: 2006 Builder: Shin Kurushima, Japan Capacity: 19,998 DWT Flag: Singapore 16 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

19 PRODUCT TANKERS Product tankers, which are equipped with epoxy coated tanks, are designed to transport a variety of refined oil products such as gasoline, jet fuel and heating oil. CUMBRIAN FISHER Year built: 2004 Builder: Samho, South Korea Capacity: 12,921 DWT Lessee: James Fisher Lease Commencement: 23 Dec 2004 Lease Term: 10 years + 5 years extension option Flag: Bahamas CLYDE FISHER Year built: 2005 Builder: Samho, South Korea Capacity: 12,984 DWT Lessee: James Fisher Lease Commencement: 4 Feb 2005 Lease Term: 10 years + 5 years extension option Flag: Bahamas SHANNON FISHER Year built: 2006 Builder: Damen Galati, Romania Capacity: 5,421 DWT Lessee: James Fisher Lease Commencement: 1 Feb 2006 Lease Term: 10 years + 5 years extension option Flag: Bahamas SOLWAY FISHER Year built: 2006 Builder: Damen Galati, Romania Capacity: 5,421 DWT Lessee: James Fisher Lease Commencement: 30 Jun 2006 Lease Term: 10 years + 5 years extension option Flag: Bahamas SPECIALITY Year built: 2006 Builder: Qingshan Shipyard, Wuhan, PRC Capacity: 4,426 DWT Lessee: James Fisher Lease Commencement: 1 Jun 2007 Lease Term: 10 years + 5 years + 5 years extension option Flag: Bahamas SENIORITY Year built: 2006 Builder: Qingshan Shipyard, Wuhan, PRC Capacity: 4,426 DWT Lessee: James Fisher Lease Commencement: 1 Jun 2007 Lease Term: 10 years + 5 years + 5 years extension option Flag: Bahamas SUPERIORITY Year built: 2007 Builder: Qingshan Shipyard, Wuhan, PRC Capacity: 4,426 DWT Lessee: James Fisher Lease Commencement: 1 Jun 2007 Lease Term: 10 years + 5 years + 5 years extension option Flag: Bahamas FSL HAMBURG Year built: 2005 Builder: Hyundai Mipo Dockyard, South Korea Capacity: 47,496 DWT Flag: Singapore FSL SINGAPORE Year built: 2006 Builder: Hyundai Mipo Dockyard, South Korea Capacity: 47,470 DWT Flag: Singapore TORM MARGRETHE Year built: 2006 Builder: Dalian Shipbuilding Industry Co. Ltd, PRC Capacity: 109,672 DWT Lessee: TORM Lease Commencement: 16 Jun 2011 Lease Term: 7 years + 1 year + 1 year + 1 year extension option Flag: Singapore TORM MARIE Year built: 2006 Builder: Dalian Shipbuilding Industry Co. Ltd, PRC Capacity: 109,672 DWT Lessee: TORM Lease Commencement: 24 Jun 2011 Lease Term: 7 years + 1 year + 1 year + 1 year extension option Flag: Singapore EXPANDING HORIZONS 17

20 PORTFOLIO OVERVIEW CONTAINERSHIPS These vessels, also known as boxships, carry their cargo in standard-sized containers, which are 8 feet square and 20 or 40 feet in length, commonly called TEU ( Twenty-Foot Equivalent Unit ) or FEU ( Forty-Foot Equivalent Unit ). DRY BULK CARRIERS These vessels are used to transport dry cargo items such as coal, iron ore, grain, sulphur and scrap metal in bulk. YM EMINENCE Year built: 2008 Builder: CSBC Corporation, Taiwan Capacity: 4,250 TEU Lessee: Yang Ming Marine Lease Commencement:20 May 2008 Lease Term: 12 years Flag: Liberia YM ELIXIR Year built: 2008 Builder: CSBC Corporation, Taiwan Capacity: 4,250 TEU Lessee: Yang Ming Marine Lease Commencement:16 Jun 2008 Lease Term: 12 years Flag: Liberia YM ENHANCER Year built: 2008 Builder: CSBC Corporation, Taiwan Capacity: 4,250 TEU Lessee: Yang Ming Marine Lease Commencement: 9 Oct 2008 Lease Term: 12 years Flag: Liberia STELLA FOMALHAUT Year built: 1999 Builder: Sanoyas Hishino Meisho, Japan Capacity: 46,685 DWT Lessee: Siba Ships Lease Commencement:11 Jan 2007 Lease Term: 10 years Flag: Singapore STELLA ELTANIN Year built: 1999 Builder: Sanoyas Hishino Meisho, Japan Capacity: 46,693 DWT Lessee: Siba Ships Lease Commencement: 11 Jan 2007 Lease Term: 10 years Flag: Singapore EVER RADIANT Year built: 1994 Builder: Mitsubishi Heavy Industries, Japan Capacity: 4,229 TEU Lessee: Evergreen Marine Lease Commencement: 24 Jan 2006 Lease Term: 10 years + 3 years extension option Flag: Panama EVER RESPECT Year built: 1995 Builder: Mitsubishi Heavy Industries, Japan Capacity: 4,229 TEU Lessee: Evergreen Marine Lease Commencement: 24 Jan 2006 Lease Term: 10 years + 3 years extension option Flag: Panama CALYPSO (formerly Cape Ferro) Year built: 2003 Builder: Peene Werft, Germany Capacity: 1,221 TEU Lessee: Schoeller Holdings Lease Commencement: 5 Jul 2005 Lease Term: 9 years Flag: Marshall Islands/Cyprus CAPE FALCON Year built: 2003 Builder: Peene Werft, Germany Capacity: 1,221 TEU Lessee: Schoeller Holdings Lease Commencement: 5 Jul 2005 Lease Term: 9 years Flag: Marshall Islands 18 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

21 PORTFOLIO OVERVIEW Summary of Lease Portfolio Terms lease BASE LEASE TERM + NET DAILY BAREBOAT VESSEl lessee COMMENCEMENT EXTENSION (if any) CHARTER RATE Crude Oil Tanker Aqua Geden Lines 18 Apr US$20,335 * Action Geden Lines 18 Apr US$20,335 * Chemical Tanker FSL New York (formerly Pertiwi) N.A. Vessel will be deployed in a chemical tanker pool within the first half of 2012 FSL London (formerly Pujawati) N.A. Vessel will be deployed in a chemical tanker pool within the first half of 2012 FSL Tokyo (formerly Prita Dewi) N.A. Vessel will be deployed in a chemical tanker pool within the first half of 2012 Product Tanker Cumbrian Fisher James Fisher 23 Dec US$5,277 Clyde Fisher James Fisher 4 Feb US$5,318 Shannon Fisher James Fisher 1 Feb ,240 # Solway Fisher James Fisher 30 Jun ,233 Speciality James Fisher 1 Jun US$4,100^ Seniority James Fisher 1 Jun US$4,100^ Superiority James Fisher 1 Jun US$4,100^ TORM Margrethe TORM 16 Jun US$15,911 TORM Marie TORM 24 Jun US$16,161 FSL Hamburg N.A. Vessel was deployed in the product tanker spot market as at 31 December 2011 FSL Singapore N.A. Vessel was deployed in the product tanker spot market as at 31 December 2011 Containership Calypso (formerly Cape Ferro) Schoeller Holdings 5 Jul ,422 Cape Falcon Schoeller Holdings 5 Jul ,422 Ever Radiant Evergreen Marine 24 Jan US$16,021 Ever Respect Evergreen Marine 24 Jan US$16,021 YM Eminence Yang Ming Marine 20 May US$18,315 YM Elixir Yang Ming Marine 16 Jun US$18,315 YM Enhancer Yang Ming Marine 9 Oct US$18,315 Dry Bulk Carrier Stella Eltanin Siba Ships 11 Jan US$9,900 Stella Fomalhaut Siba Ships 11 Jan US$9,900 * For the first three months, the daily bareboat charter rate is fixed at US$20,335. Thereafter, it will be reset on a quarterly basis in line with changes in the 3-month US$ Libor rate. # The daily bareboat charter rate shown has been fixed for three years to Jan The charter rate for the remaining two years will be reset on an annual basis or such other interest period in excess of one year at the choice of the lessee, based on the then prevailing interest swap rate and currency exchange rates. ^ From year 1 to 5, the daily bareboat charter rate of US$4,100 applies; from years 6 to 10, the daily bareboat charter rate is US$4,500. EXPANDING HORIZONS 19

22 PORTFOLIO OVERVIEW Our Lessees * Evergreen Marine Corporation Ltd (Taiwan) is a publicly-traded (TSEC: 2603) owner and operator of containerships. Evergreen Marine is also involved in a broad range of other marine transportation related businesses, including shipping agency services, building and operation of container terminals and marine skills training institutes. The company operates more than 160 container vessels with more than 240 service locations. Evergreen Marine was founded by Dr. Chang Yung-Fa in 1968 and is controlled by the Chang family. Geden Lines (Turkey) is a privatelyowned shipping company. Geden Lines operates a modern fleet of 40 vessels comprising crude oil tankers, product tankers and dry bulk carriers totaling 3,937,629 dwt with an average age of 2.14 years. The company is part of the Çukurova Group, a leading Turkish business conglomerate group that has interests in numerous industries, including automotive, paper, chemicals, textiles, construction, telecommunications, services to maritime transportation and information technology. Geden Lines was incorporated in James Fisher & Sons plc (United Kingdom), listed on the London Stock exchange (LSE:FSJ), is a leading service provider in all sectors of the marine industry and a specialist supplier of engineering services to the nuclear industry in the UK and abroad. It provides a cohesive range of specialist marine services with its businesses divided into four divisions: Offshore Oil Services, Marine Oil Services, Specialist Technical Services and Defence. Since its beginnings in 1847, James Fisher has developed from a shipowner into a provider of marine and specialist technical services of the highest quality, building on the experience and expertise gained over more than 150 years of operating in the marine environment. Schoeller Holdings Ltd (Cyprus) is a privately-owned investment company. The Chairman and founder of Schoeller Holdings is Mr Heinrich Schoeller, a successful entrepreneur who built the company into a dynamic organisation with more than 8,000 employees worldwide. Schoeller Holdings has diverse interests in the maritime and non-maritime businesses. In the maritime businesses, it is engaged in ship owning, ship management and liner services. It owns one of the world s largest ship management companies, Columbia Ship Management Ltd. and several liner companies including Bengal Tiger Lines, Austral Asia Line and New Pacific Line. In the non-maritime businesses, it is engaged in the hotels and resorts, restaurants and horticulture businesses, primarily in Cyprus, Germany and in Europe. Siba Ships S.p.A. (Italy) is a privately-owned commercial shipping arm of the Balzarini family who has over 50 years of business built on its livestock transportation business. Siba Ships has in recent years diversified its business into the dry and wet bulk carrier market and it now operates a young fleet comprising 23 dry bulk carriers and 7 product tankers. TORM A/S (Denmark) TORM is one of the world s leading carriers of refined oil products as well as a significant player in the dry bulk market. The company runs a fleet of approximately 165 modern vessels in cooperation with other respected shipping companies sharing TORM s commitment to safety, environmental responsibility and customer service. TORM was founded in The company conducts business worldwide and is headquartered in Copenhagen, Denmark. TORM s shares are listed on NASDAQ OMX Copenhagen (ticker: TORM) and on NASDAQ in New York (ticker: TRMD). Yang Ming Marine Transport Corporation (Taiwan) is a publicly-traded (TSEC: 2609) owner and operator of containerships, dry bulk carriers and port terminals. As of mid-2011, Yang Ming operates a fleet of 85 vessels comprising mainly containerships, with aggregate capacity of 4.2 million dwt / operating capacity of 340,000 TEUs. Yang Ming was ranked the fifteenth largest container shipping company in the world by aggregate tonnage as at end-december 2011^. The Taiwan Ministry of Transportation and Communications owns 35.5% of the outstanding stock of Yang Ming as of June 30, * Information concerning our lessees was derived from their respective websites and publicly accessible sources. ^ Source: Alphaliner 20 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

23 OPERATIONAL AND FINANCIAL REVIEW Portfolio Overview Financial Overview For the year ended 31 December 2011 ( FY2011 ), FSL Trust achieved total revenue of US$110.7 million, an increase of US$10.2 million or 10.2% against the previous financial year ( FY2010 ). Excluding the effect of the receipt of US$6.0 million security deposit arising from the re-delivery of FSL Singapore and FSL Hamburg in FY2010, the Trust generated a 17.2% increase in revenue year-on-year. The net increase was contributed by the incremental lease revenue from TORM and higher freight income generated by the two product tankers trading in the spot market. The Trust generated net cash from operations of US$63.8 million, 5.6% higher than FY2010. This was mainly attributable to the US$5.0 million settlement sum received following the successful resolution of the lawsuit between FSL Trust and Daxin Petroleum Pte. Ltd. ( Daxin ). In the first three quarters of FY2011, the Trust maintained a distribution per unit ( DPU ) of US0.95 cents every quarter. In view of the weak outlook of the shipping industry, the Board decided to reduce DPU to US0.10 cents for the fourth quarter of FY2011, bringing the full year DPU for FY2011 to US2.95 cents (FY2010: US4.35 cents). Excluding vessel operating expenses and impairment loss on vessels, total operating expenditure fell marginally by 0.4% (-US$0.3 million) to US$66.9 million compared to FY2010. The decrease was primarily due to (i) higher professional fees incurred in FY2010 mainly from the aborted senior note offering offset by (ii) higher depreciation expense in FY2011 resulting from the acquisition of two TORM vessels in FY2011. Finance expenses in FY2011, excluding exchange gains of US$1.1 million (FY2010: US$223,000), increased by 1.9% (+US$0.5 million) due to recognition of the unamortised debt upfront fees relating to the previous credit facility offset by lower interest expense due to lower interest margins on outstanding indebtedness, following the amendment period which ended on 30 June The Trust recorded an accounting loss of US$17.1 million in FY2011 primarily due to the recognition of US$22.1 million impairment loss for its three chemical tankers. The Trust s cash and cash equivalents stood at US$32.3 million as at 31 December Settlement relating to vessels FSL Hamburg and FSL Singapore In November 2011, the lawsuit between FSL Trust and Daxin was resolved through an amicable out-of-court settlement. The US$1.6 million cash deposit placed with the Japanese court was refunded and the US$2.8 million bank guarantee for the proceedings in the People s Republic of China was released to the Trust. In addition, a settlement sum of US$5.0 million was also received from Daxin and recognised as Other income in FY2011. Events relating to vessels Pertiwi, Pujawati and Prita Dewi In February 2012, subsidiaries of PT Berlian Laju Tanker Tbk, the lessees of three chemical tankers, namely, Pertiwi, Pujawati and Prita Dewi, defaulted on their lease payments. The payment default was an adjusting post-balance sheet event that resulted in an impairment loss of US$22.1 million for FY2011. FSL Trust acquired two product tankers in June 2011, which were each leased back to a subsidiary of TORM A/S for a base lease term of seven years. The bareboat charter agreements are structured with recourse to TORM A/S and each contains a purchase option at the expiry of the base lease term, an early buy-out option on or after the fifth anniversary of the base lease term, as well as three extension options of 1 year each. As at 31 December 2011, the aggregate net book value of the 25 vessels stood at US$779.9 million. The dollar-weighted average age of the vessels is six and a half years. Of these 25 vessels, 20 vessels are employed on long-term bareboat charters, two vessels are deployed in the product tanker spot markets and three vessels will be deployed in a chemical tanker pool within the first half of As at end-december 2011, the Trust s portfolio of long-term bareboat charters (excluding its two product tankers and three chemical tankers) has a remaining contracted revenue of US$491.8 million and a dollar-weighted average remaining lease term of six years (excluding early buyout and extension options). The lease maturities of the vessels on longterm bareboat charters are staggered so that only a small portion of the overall lease portfolio would mature in any one year. The Trust does not have any bareboat lease maturing until June The profiles of the remaining contracted revenue and the lease maturity are shown in Figures 1 and 2. EXPANDING HORIZONS 21

24 OPERATIONAL AND FINANCIAL REVIEW Figure 1 : Remaining contracted revenue stood at US$491.8 million * as at 31 December 2011 US$383 million total remaining contracted revenue to be generated between 2012 and * Based on 20 vessels on long-term bareboat charters, excluding the two product tankers and three chemical tankers, and extension and early buyout options. 4 years: Figure 2: Lease maturity of vessels dollar-weighted average remaining lease term is six years ^ Product Tanker Crude Oil Tanker Containership Dry Bulk Carrier Cumbrian Fisher Clyde Fisher Shannon Fisher Solway Fisher Speciality Seniority Superiority TORM Margrethe TORM Marie Aqua Action Calypso (#) Cape Falcon Ever Radiant Ever Respect YM Eminence YM Elixir YM Enhancer Stella Fomalhaut Stella Eltanin Base Extension ^ As at 31 December 2011, based on the 20 vessels on long-term bareboat charters and on a dollar-weighted average basis by net book value. Excludes the two product tankers and three chemical tankers, and extension and early buyout options. # Formerly known as Cape Ferro. 22 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

25 OPERATIONAL AND FINANCIAL REVIEW 6-year Term Loan Facility The Trustee-Manager has, on behalf of FSL Trust, secured a 6-year amortising term loan of US$479.6 million with a syndicate of eight lenders. This term loan, secured against FSL Trust s 25 vessels, was fully drawn down in December 2011 to refinance the previous loan facility that had an outstanding loan balance of US$483.1 million. The Trust paid down the difference of US$3.5 million in cash from internal funds. Under the new term loan facility, FSL Trust will make quarterly loan repayments of US$11 million, which will progressively reduce its outstanding loan balance and reduce its refinancing risk at the loan maturity in The interest margin on the facility ranges between 2.6% to 3.0% above the US$ 3-month Libor depending on the ratio of the charter-free fair market value of FSL Trust s vessel portfolio over its outstanding indebtedness. As at 31 December 2011, the applicable margin over US$ 3-month Libor was 3.0% as the security value to loan ratio was 130%. The Trust has to ensure that the charter-free valuation of the vessels is at least 125% to the outstanding loan amount. Figure 3: The table shows the interest margins on the new term loan facility Security value to loan ratio Margin over US$ 3-month Libor > 125% to 140% 3.0% >140% to 180% 2.8% >180% 2.6% The covenants for the 6-year term loan facility are as follows: 1) The debt-service coverage ratio shall be at least 1.1:1 during the period of the term loan. If the ratio falls below the threshold of 1.15:1, FSL Trust is required to cease all distributions to unitholders. 2) A minimum cash balance of US$15 million shall be maintained during the period of the term loan. 3) Unitholder s equity shall be more than 30% of the total assets during the period of the term loan. The Trust has hedged its interest rate risk through a combination of interest rate swaps and/or natural hedges to fix the interest rates. The fixed interest rates range from 3.04% per annum to 5.24% per annum. Arising from the recent drawdown under the new term facility, certain tenures of the loan remains unhedged. This unhedged portion will be hedged in accordance with FSL Trust s policy to ensure that 100% of its exposure to changes in interest rates is hedged. EXPANDING HORIZONS 23

26 RISK MANAGEMENT FSLTM, the Trustee-Manager, has developed a set of proprietary internal risk management protocols that it uses in the evaluation of potential lease opportunities. FSLTM believes that these protocols help to better manage the risk profile of the Trust s lease portfolio and the stability of the associated cash flows. Risk Assessment The risk management function is headed by the Chief Risk Officer and supported by a team of experienced credit analysts. The key elements in the risk management protocols are risk assessment prior to entering a transaction, risk monitoring following the completion of the transaction and risk hedging. Prior to entering a lease transaction, the risk assessment process focuses on the assessment of credit risk, asset risk and concentration risks associated with a potential lessee and the transaction. The process involves performing due diligence to ascertain the credit strength of the potential lessee, stress testing of cash flow projections and third party credit report reviews to ensure investment returns commensurate with the lessee s risk profile. The asset risk assessment process also evaluates the asset residual risk and determines an acceptable level of asset residual value based on a statistical analysis of historical transaction data and the asset price, quality and fungibility. The historical transaction data used in the statistical analysis is obtained from independent third party sources and specialised brokers. FSLTM also has established concentration risk limits that it believes will help to maintain a welldiversified lease portfolio in terms of lessee and vessel mix as it invests in additional vessels in the future. Risk Monitoring Following the completion of each transaction, FSLTM monitors risks through regular reviews of the lessees financial performance, lease payment conduct, credit rating and compliance with the respective vessel insurance covenants. It also maintains oversight of the vessels condition through annual vessel inspections. The Chief Risk Officer and her team maintain frequent and regular dialogues with the lessees and monitor their developments. Risk Hedging To manage the interest rate and foreign exchange risks that may arise in the course of FSL Trust s business and the financing for its transactions, FSLTM may from time to time enter into derivative transactions that include interest rate swaps (to convert floating interest rates to fixed rates), foreign currency forward contracts and cross currency swaps. FSLTM believes the use of these risk hedging instruments will help to reduce the volatility of and increase the stability of the cash flows from the lease portfolio. FSLTM does not hedge credit risk related to the lessees. 24 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

27 INVESTOR RELATIONS Maintaining clear, consistent and timely disclosure FSLTM, as Trustee-Manager of FSL Trust, is committed to providing clear, consistent and timely disclosure of information to its unitholders and stakeholders. It releases comprehensive information covering the Trust s financial performance, lease portfolio, credit facility and general outlook statement in its quarterly financial results announcements. All announcements released through SGX- ST are made available on the Trust s website. To ensure that investors receive timely updates, an alert service is available via the website. The Trustee-Manager actively updates the investment community on key developments of the Trust and strategies undertaken by the Trustee-Manager either in response to or in anticipation of changes in the external environment. It also provides investors with market updates as and when necessary to facilitate a better understanding of the Trust s business and the shipping industry. To maintain a high level of transparency and accessibility, the Trust s factsheet, investor presentations and details on its vessel lease portfolio are regularly updated and posted on the website. Other useful online resources for investors include the archive of annual reports and the frequently-askedquestion section. Proactive investor outreach The Trustee-Manager participates in a select spectrum of industry and investor conferences and roadshows in Singapore and overseas. During the year, some of the events attended by the Trustee-Manager included the Marine Money forums held in Singapore, New York City, Dubai, Athens and other cities, as well as the CLSA Corporate Access Forum held in Bangkok and Singapore. It also participates in investment seminars organised by various investment research firms and the Singapore Exchange to reach out to retail investors. The Trustee-Manager maintains regular contact with investors through one-on-one meetings, conference calls and s. Every quarter, a post-results conference call is organised to give investors and analysts an opportunity to listen to the quarterly results presentation and have an in-depth discussion with the Trustee- Manager on the Trust s performance. Through its investor relations activities, the Trustee-Manager strives to engage and build strong relationships with its unitholders and analysts. The various engagement platforms continue to serve as valuable feedback channels to help the Trustee-Manager better understand investors concerns and improve its communications with stakeholders. EXPANDING HORIZONS 25

28 26 FIRST SHIP LEASE TRUST ANNUAL REPORT 2011

29 BUILDING STRENGTH AND CONFIDENCE EVERY STEP OF THE WAY Strong relationships form the core of every successful business. Engaging closely with stakeholders, sharing our vision, and making prudent decisions are our ways of ensuring we go further, together. EXPANDING HORIZONS 27