I bought First Ship Lease Trust on 6th Nov 2007

Business Overview

First Ship Lease Trust (“FSL Trust”) is a provider of leasing services on a bareboat charter basis to the international shipping industry. Basically, FSL Trust purchases vessels and lease them out to shipping operators.

Reasons for purchase

1) FSL Trust have stable long term lease contracts of at least 7 years. This provides a stable flow of distributable income. In other words, the dividend yield (in terms of USD) is sustainable of at least 7 years.

2) By leasing ships to operators, the trust do not have to care about ship operating cost (fuel, bunkering etc), technical, maintance issues.

3) Even at a conservative yield calculation of 2.23 USD cents per quarter, the yield is effectively 11.08% at my purchase price of 80.5 USD cents. Assuming the yield is sustainable, this is considered at very high yield!

Valuation

Assuming my required rate of return is 10% (compared to 11.08%), I will say I bought FSL Trust at just slightly below fair value.

Risk

On the surface, a stable dividend yield exceeding 10% is incredible. However, the dividend is paid in USD (converted to SGD when paid out). This results in a FOREX risk that yield might plunge in the future if USD depreciates further.