Global Ship Lease, Inc. Price & Performance (GSL)

Twenty twenty four Earnings Conference Call. You can find the slides that accompany today's presentation on our website at www.globalshiplease.com Global. As usual, Slides two and three remind you that today's call may include forward looking statements that are based on current expectations and assumptions and are by their nature inherently uncertain and outside of the company's Actual results may differ materially from these forward looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation. We would also like to direct your attention to the risk factors section of our most recent annual report on our 2023 Form 20 F, which was filed in March of twenty twenty four. You can find the form on our website or on the SECs. All of our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward looking statements. The reconciliations of the non GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP usually refer to the earnings release that we issued this morning, which is also available on our website.

I'm joined as usual today by our Executive Chairman, Georgi Rucos and our Chief Financial Officer, Tasos Seropoulos. George will begin the call with high level commentary on GSL and our industry and then Tassels and I will take you through our recent activity results and financials and the current market environment. After that, we will be pleased to answer your questions. Turning now to Slide four, I'll pass the call over to George. Thank you, Tom.

Good morning, afternoon, or evening to all of you joining us today. 2024 has been another strong year during which we have generated $9.74 earnings per share which rises to just below $10 EPS a normalized basis. The overreaching trends we show throughout 2024 continued in the fourth quarter In particular, geopolitical uncertainty and disruptions around the Red Sea have persisted. Ships have continued transit around the Cape Of Good Hope.

Increasing the EU miles and absorbing effective ship capacity. At this point, the situation there remains unpredictable.

And as such, those liners who have been avoiding the area have continued to do so. Recently, tariffs have once again become a major area of discussion. It is difficult to predict the larger impacts with any conviction. Notably, the tariffs placed on China during the first Trump administration actually led to supply chain diversification throughout Southeast Asia which in fact added to demand for midsize and smaller containerships. Now amidst these conditions, we have continued to make progress in key areas including adding charter coverage, at attractive rates.

We added $7,000,000 of contracted revenues in 2024.

Dollars 118,000,000 of which was in the fourth quarter. With another 171,000,000 added so far in 2025.

We have also remained disciplined and opportunistic financially lowering our outstanding debt overall as well as bringing our cost of debt down to 3.85%, 3.85% and pushing average maturity out to the four point two years Our robust corporate credit rating reflect our ongoing efforts to deliver. The risk and build equity value for shareholders. Now we're pleased to have paid an annualized dividend of $1.8 per share. Reflecting the impact of the supplemental dividend that we put in place from the second half of twenty twenty four. Looking ahead, and beginning with the first quarter of twenty twenty five, dividend which is payable in June We will be doubling supplemental dividend bringing our overall dividend to $52.05 dollars per share per quarter, which is $2.1 per share annualized. An increase of 17% Even more strikingly, this represents 40% increase in our overall dividend since we introduced a supplemental dividend, less than a year ago, As a reminder, this supplemental dividend is additive our underlying long term quarterly dividend, reflecting the extent to which our business has continued to outperform our expectations and provided us with additional cash flows that we're pleased to share with our investors. The increase that we're announcing today is prompted not only by charter fixtures that we are already public but also by the good progress that we are making on additional charters.

As a result, the sustained market appetite for ships like those in the GSL fleet, Now in order to drive our business forward, refresh our asset base and support the continued generation of economic value. For our shareholders over time we're focused on renewing our fleet. To this end, we were pleased to have purchased four high specification high earning, Echo 9,000 TEU ships, while also rotating out three of our oldest ships opportunistic sale all on attractive terms. Overall, we have built the GSL platform to maximize optionality positioning us well to continue to manage risks. And seize opportunities in a complex dynamic world.

We think we allocate capital And we firmly believe that the greatest value accrues to those with both balance sheet strength and the patience and discipline to wait for the right time to deploy it. With that, I will turn the call back to Tom. Thanks, George. Please turn to Slide five.

Here we show the diversification of our charter portfolio. And as of 12/31/2024, we have close to $1,900,000,000 in contracted revenues, which amounts to two point three years of average remaining contract cover. During 2024 and the first couple of months of 2025, we added 50 charters for approximately $885,000,000 of contracted revenues. So as we constantly monitor the market for growth opportunities, when the time is right, this charter cover and our balance sheet give us a solid foundation from which to act. This brings us to Slide six, where we recap our dynamic capital allocation policy. We're in a fundamentally cyclical industry and as such, it's critical that we plan accordingly for both the opportunities and the challenges. The best opportunities that can generate exceptional or expensive. Or both. To capitalize on these opportunities, you need a strong balance sheet, providing both the optionality and the ability to move fast. While staying primed and ready to pounce on the right deals, and we'll come back to this in the next couple of slides, we continue to outsized dividend and also keep opportunistic share buybacks under constant review. And it goes without saying every capital allocation decision is context specific and risk adjusted.

Ultimately, the GSL business model is intended to provide public investors with a stable and liquid platform through which to participate in the cyclical upside and positive volatility of our industry while mitigating exposure to downside risk.

And as George has put it in the past, it's easier for investors to buy and sell GSL shares than it is to buy and sell ships. On Slide seven, we provide a long term view of charter rates and asset values. Our mantra, as you can see clearly from our track record on this chart, is to be patient, disciplined and nimble. Pouncing on purchase opportunities only when the risk and return mix is right. In both the pre pandemic period and then in the recent post pandemic normalization, you can see that we made selective vessel acquisition while stepping back when asset values were at super cyclical highs. More recently, you can see that the four vessels we bought at the tail end of 2024 with charters attached were purchased at a 30% discount to charter free market value, derisking the transaction right out of the gate and providing attractive upside potential on the ship's residual value when these charters roll off. This brings us to Slide eight where we provide more details.

We announced the purchase of these four ECO 9,000 vessels back in December They were delivered on or in fact slightly ahead of schedule, a charter to Hapag Lloyd, are immediately cash generative are accretive to earnings per share and are financed on very attractive terms.

Also, they're young assets with lots of upside earnings potential and option value going forward. Illustratively, long term historic average charter rates for this class of ship are over $50,000 per day and we have a couple of almost identical ships in our fleet on five year charters at $65,000 per day. Returns are further enhanced with attractive financing. Dollars 178,000,000 of ten year debt priced at SOFR plus 2.5% EUR83 million of which benefits from our 64 basis points SOFR caps. [indiscernible] executing on fleet renewal, great ships, great upside earnings potential, great financing and low risk. On the other side of the fleet renewal coin, we're rotating out of three of our oldest ships, which we have contracted to sell on attractive terms. The exact gain on sale will depend upon their respective divestment dates, but the aggregate sale price is at roughly €30,000,000 premium to their respective book values at December 31. So we're managing our cash generating fleet assets in order to protect, maintain and continue to generate shareholder value going forward. We're doing this in accordance with our strict investment criteria and dynamic capital allocation policy.

And we're able to achieve this because our liquid financial position strong balance sheet and access to high quality deals allowed us to move quickly on a $274,000,000 opportunity.

With that, I'll pass the call to Tasos to discuss our financials.

Slide nine shows our full year 2024 financial highlights. I would like to emphasize a few points.

Earnings and cash flow have all risen from 2023 which was already a successful year. We have continued to lower our gross debt, which is down more than $130,000,000 from the end of last year. We are utilizing the remaining headroom under our 64 basis points shelf interest rate cut through 2026 to partially cut the debt related to the recent vessel acquisitions. Our cash position remains healthy at $274,000,000 $106,000,000 is restricted, of which €81,000,000 is advanced receipt of charter hire. The remainder ensures that we can fully cover our covenants work at the capital niche, dividends, while still enabling us to act decisively for the right opportunity. Slide 10 shows our progress on the delivering front. The graph on the left shows our aggressive efforts in reducing our debt. At year end, our outstanding debt on a pro form a basis including finance of the three newly acquired vessels, was about $825,000,000 and we are on track to lower it to around $670,000,000 by the end of twenty twenty five and around $500,000,000 by the end of twenty twenty six. Which is prudent as our fleet is aging. The graph on the right highlights our financial leverage where the story is the same.

We have lowered our adjusted net debt to 1.1 times adjusted EBITDA as of 2024 year end. A far cry from the level we were seeing in the years past. These efforts are further shown on Slide 11. The graph on the left shows our progress in reducing our cost of debt at a time when market rates ten year U. S. Treasuries are shown with a gray line, were actually rising As you can see by year end 2024, our margins were below 2.5% and our blended cost of debt was 3.85% which is actually lower than the ten year treasuries. This has helped bring our breakeven rates down accordingly and these stood at just over $9,200 per day at year end. I will turn it back over to Tom to discuss our market focus and SIP deployment. Thanks, Daphos.

On Slide 12, we reemphasize our continued focus on midsized and smaller containerships between roughly 12,000 TEU Consider the backbone of Global global fleet, vessels in this size range provide unmatched flexibility and global reach, which you can see in the maps on the left. While the larger containerships play a pivotal role in global trade, their access to ports is more limited as they require deepwater and specialized port infrastructure. Crucially, for the current moment, the deployment flex flexibility of our vessel sizes ensures that they can trade widely and are not overly dependent upon any given trade. A great asset as we look at the very real prospect of trade tensions. Escalating. Slide 13 covers the disruptions in the Red Sea and their impact. Pre disruption, 20% of global containerized trade volumes, I. E. The boxes themselves, passed through the Red Sea, absorbing roughly onethree of global fleet capacity. Now these vessels have instead rerouted around the sub tip of Africa. This has added TEU miles and absorbed ship capacity equivalent to around 10% of global supply. This reduced availability of vessels has factored into increased earnings in both freight and charter markets. Hopes for peace in the region accompanied by expectations that the Red Sea might reopen have yo yoed back and forth since July of last year.

Our crystal ball is no better than anyone else's but liner companies have made it clear that they would not wish to go through the considerable cost and disruption of rejigging their networks until there is more clarity and stability and nobody wants to put seafarers at risk. So it's a watching brief. On slide 14, we take a moment to discuss tariffs. It will come as a surprise to no one on this call that the topic of tariffs is one that we are closely following. At the moment, the particulars of what comes next both from The U. S. And in response to it. And then in response to that, and so on remains deeply unpredictable and contingent. That being said, we do believe that an example from 2019 could be instructive, in part because it kicked off a trend that has continued.

Namely, as The U. S. And China, both important players in the global movement of containerized freight, became engaged in an escalating trade war the impacts on container trades were uneven. In particular, flows directly and I emphasize directly from China to The U. S. Did indeed reduce as you might expect. Importantly though, this prompted many ex oriented manufacturers and importers to seek diversification of their manufacturing and supply chains across South And South East Asia. So what were the net impacts?

Well, at the margins, the reduction in China U. S. Direct mainline flows negatively impacted demand for the very large container ships. That were effectively restricted to those very largest trades. In aggregate, however, demand for shipping capacity actually increased with much of the displaced China U. S. Volumes transitioning into more complex and diffuse regional supply chains, that sometimes involved multiple seaborne voyages By necessity, these volumes were carried on midsized and smaller ships which saw increased demand from each of one, an overall increase in inter regional box volumes and moves. Two, some cannibalization of volumes previously flowing directly on the very three, increased inefficiency of the dispersed supply chains use in The U. S, spent more time at sea was the case [indiscernible] Supply chain and efficiency may not sound positive development, But inefficiency of sucks up shipping capacity. And if you're a provider of that capacity, as we are, then inefficiency is supportive of earnings. Will this exact scenario recur? With the exact same repercussions for us? It's impossible for us to make that kind of prediction with any conviction. What we can say, however, with high conviction is that it is simply not the case that a tariff or even an all out trade war is necessarily a negative development for GSL or for the midsized and smaller fleet as is quite clear I hope in this example.

Moving on, Slide 15 recaps the trend we're seeing on the supply side. Idle capacity is still virtually nonexistent. And scrapping activity has been very limited as owners can put older vessels to work in a supply constrained market. Such as this one. That being said, the backlog of scrapping candidates has grown dramatically in recent years and now represents a very material portion of the global fleet that would be expected to exit the market if demand would cool off. Slide 16 shows the order book. While the order book has grown in recent years, it has largely grown in the big ship segment above 10,000 TEU, which is a segment in which GSL does not The order book to fleet ratio in the segments we do focus on is much more modest. 11.3%. And given the age profile of ships in this segment, if we were to assume that all vessels over twenty five years were scrapped out, the net fleet growth in the global sub-ten thousand TEU fleet segment through 2028 would actually be negative with a reduction of up to 6.5%. Slide 17 is a more detailed look at the charter market. [indiscernible] the uplift in earnings resulting from Red Sea disruptions over recent quarters It's clear with the indicative market rates on the right side of the slide I'd like to reiterate that our breakeven rates at the end of twenty twenty four were just above $9,200 per vessel per day.

Given the difference between charter market rates and our breakeven level, we have been more than happy to lock in charter cover order to keep churning out free cash flow in the future. With that, I'll turn the call back to George to conclude our prepared remarks. On Slide 18. Thank you, Tom.

To summarize, our cash flows are strong and growing. And our forward contract cover is now at $1,900,000,000 over point three years. We are pleased that our progress in securing additional forward fixtures at good rates has positioned us to return more capital to our shareholders. Doing this by way of supplemental dividends. Which increased our overall dividend from $1.5 to $1.8 per share annualized in the second half of twenty twenty four and we'll increase it further to $2.1 per share starting in 2025. So that's an increase of 40% of our overall dividend in less than twelve months.

The macro and geopolitical environment is highly uncertain and we do not claim to have a crystal ball to know what will happen next. Instead, we have done a great deal of work to maximize our optionality to manage both challenges and opportunities. Our balance sheet is excellent shape with a healthy cash position, long dated debt maturities among the highest credit ratings in the industry. We continue to reduce our cost of debt now at 3.85% lower financial leverage and optimize our debt structure resulting in breakeven rates just above $9,000.200 per day. Which further supports our optionality. We expect the years ahead to provide attractive opportunities to invest in the business and renew our fleet. As certain of our cash cows begin to age out, These acquisitions will ensure our ability to maintain our long term earnings [indiscernible] Counter cyclical investments are, of course, always interesting to us, But as we have demonstrated, interesting opportunities can arise at any time in the cycle. Where flexibility and the ability to act quickly can produce a unique value proposition. In short, GSL is well positioned to continue creating lasting value for our shareholders with both long term contracted cash flows and the ability to seize opportunities throughout the cycle.

Now we're ready to take your questions.

Thank you. At this time, I would like to remind everyone in order to ask Your first question comes from the line of Lianne Burke of B. Riley. Please go ahead.

Yes. Hi, George, Tom, Tassos, how are you doing? Doing well, Liam.

Thanks very much. Hope for you too.

Thank you, I am.

You have obviously every year vessels coming open for charter.

Short term rates are coming down understanding that you've got a fair amount of installation with your current charter coverage. But could you give us a sense of the appetite of what the liner companies have for your vessels that are opening up for re charter?

Sure. Liam, first of all, actually, I would say that we're not seeing rates coming down in the charter market. At the moment. So although obviously sentiment is very uncertain, we're still seeing appetite for mid size and smaller containerships in the charter market. Which is assisted by the fact that because there's very limited availability of ships coming open in the market and limited liquidity, If a line needs a ship for their network, then they're going to have to pay up for it. So we're still seeing pretty strong charter rates. We're still seeing an appetite for from the lines to fix for decent periods, two to three years depending upon the size of the vessel. And it's really that that sort of positive momentum that we're still seeing despite the uncertainty in the macro environment that has prompted us to sort of share the upside the unexpected upside really in earnings by way of this upsized dividend.

Great. Thanks, Tom. Also on the fleet management, you sold three older vessels. Understanding your acquisition, are longer in duration and don't aren't as easy to predict. Are you looking at any more assets to divest or do you still want to balance the sale and the purchase to keep the fleet Maintain the age, but also maintain the cash flows as well.

Sure. Well, I would say fundamentally the way to make money in containership owning and leasing is by holding on to your assets and continuing to charter them to lock in the cash flows. So So we sold these three ships opportunistically. We always run the numbers on a sort of hold or diversed basis. And although the decision was marginal, we decided that on this occasion, it would make sense to sell these three older ships.

Particularly in the context of buying the four much newer, much younger vessels as part of the sort of two sides of the same coin of fleet So it was opportunistic, but we still remain convinced that the real money to be made through the cycle in containership owning is by Great. Thank you, Tom. Our pleasure. Thanks, Tim.

That ends our Q and A session. Thomas Lester, Chief Executive Officer for closing remarks. Please go ahead.

Thank you very much. And thank you to everyone for joining today's call. We look forward to having the opportunity to talk to you again on our Q1 in due course. Thanks again. Bye bye.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.