Global Ship Lease, Inc. (GSL), a containership charter owner, announced yesterday its unaudited results for the three months and six months ended June 30, 2014.

Second Quarter and Year To Date Highlights

- Reported revenue of $33.5 million for the second quarter 2014. Revenue for the six months ended June 30, 2014 was $67.5 million

- Reported net loss of $2.3 million for the second quarter 2014. For the six months ended June 30, 2014, net loss was $0.4 million after a $1.9 million non-cash mark-to-market gain and non-cash $3.0 million accelerated write off of deferred financing costs

- Generated $19.8 million of Adjusted EBITDA(1) for the second quarter 2014. Adjusted EBITDA for the six months ended June 30, 2014 was $40.6 million

- Normalized net loss(1) is the same as reported net loss at $2.3 million for the second quarter 2014. Excluding the non-cash items normalized net income was $0.6 million for the six months ended June 30, 2014

- Commenced a new time charter with Sea Consortium, doing business as X-press Feeders, on May 7, 2014 for Ville d’Aquarius, a 4,113 TEU vessel, at a gross rate of $7,490 per day for 180 days plus or minus 30 days at charterer’s option

- Expanded the Board of Directors by appointing on May 8, 2014 Alain Wils and John van de Merwe, nominated by the company’s largest shareholder, CMA CGM

- Commenced a new time charter with Sea Consortium, on July 17, 2014 for Ville d’Orion, a 4,113 TEU vessel, at a gross rate of $8,000 per day for six to 12 months at charterer’s option

Ian Webber, Chief Executive Officer of Global Ship Lease, stated, “In the second quarter of 2014, during which our two 4,113 TEU vessels, Ville d’Aquarius and Ville d’Orion, were redelivered at the conclusion of charters to CMA CGM, our fleet generated Adjusted EBITDA of $19.8 million. We are pleased to have agreed to new time charters with Sea Consortium for these vessels, thereby again achieving 100% contract coverage. By establishing and expanding our commercial relationship with Sea Consortium, we have taken meaningful steps in diversifying our charter portfolio and increasing our contracted revenue stream.”

Mr. Webber continued, “We remain confident in the long-term, underlying fundamentals of the industry and believe the Company is well-positioned for growth. Drawing on our strong financial flexibility, we continue to actively pursue accretive opportunities to expand our fleet and future earnings power while enhancing shareholder value.”

Revenue and Utilization

The 17 vessel fleet generated revenue from fixed rate, mainly long-term time, charters of $33.5 million in the three months ended June 30, 2014, down $2.4 million on revenue of $35.9 million for the comparative period in 2013 due mainly to reduced revenue for four vessels, following charter extensions by three years at a lower daily rate of $15,300 compared to $18,465 previously, effective February 1, 2014 and from 48 days idle time in the quarter for Ville d’Aquarius and Ville d’Orion from their redelivery by the previous charterer, CMA CGM, in late April and in late May respectively, until the commencement of new charters on May 7, 2014 and July 17, 2014 respectively. There were 1,547 ownership days in the quarter, the same as the comparable period in 2013. There was one day of unplanned offhire and 48 days idle in the three months ended June 30, 2014 giving a utilization of 96.8%. In the comparable period of 2013, there was one unplanned day offhire, for utilization of 99.9%.

For the six months ended June 30, 2014, revenue was $67.5 million, down $3.6 million on revenue of $71.1 million in the comparative period, mainly due to lower revenue on the four extended charters and idle time on the two 4,113 TEU vessels, offset by lower offhire from planned drydockings.

Vessel Operating Expenses

Vessel operating expenses, which include costs of crew, lubricating oil, spares and insurance, were $12.1 million for the three months ended June 30, 2014. The average cost per ownership day in the quarter was $7,853 compared to $7,504 for the comparative period, up $349 or 4.7%. Second quarter average cost per ownership day was up $434 or 5.9% on $7,419 for the rolling four quarters ended March 31, 2014. The increases are mostly from higher spend on maintenance due to the phasing of generator overhauls and from the cost of bunkers consumed, for owners account, while the two 4,113 TEU vessels were idle and for positioning Ville d’Aquarius for the commencement of her new charter on May 7, 2014.

For the six months ended June 30, 2014 vessel operating expenses were $23.7 million or an average of $7,696 per day compared to $23.2 million in the comparative period or $7,525 per day.

Depreciation

Depreciation for the three months ended June 30, 2014 was $10.0 million, compared to $10.1 million in the second quarter 2013.

Depreciation for the six months ended June 30, 2014 was $20.1 million, compared to $20.2 million in the comparative period.

General and Administrative Costs

General and administrative costs were $1.7 million in the three months ended June 30, 2014, compared to $1.5 million in the second quarter of 2013.

For the six months ended June 30, 2014, general and administrative costs were $3.4 million compared to $3.1 million for 2013. The increase is due mainly to costs associated with the issuance of the Notes which could not be capitalized.

Other Operating Income

Other operating income in the three months ended June 30, 2014 was $0.1 million, compared to $0.2 million in the second quarter 2013.

For the six months ended June 30, 2014, other operating income was $0.2 million, the same as for the comparative period.

Adjusted EBITDA

As a result of the above, Adjusted EBITDA was $19.8 million for the three months ended June 30, 2014, down from $22.9 million for the three months ended June 30, 2013.

Adjusted EBITDA for the six months ended June 30, 2014 was $40.6 million, compared to $45.1 million for the comparative period.

Interest Expense

Until March 19, 2014, the Company’s borrowings comprised amounts outstanding under its credit facility, which carried interest at US $ LIBOR plus a margin, most recently 3.75%, and $45 million preferred shares, which carries interest at US $ LIBOR plus a margin of 2.00%. The Company hedged its interest rate exposure by entering into derivatives that swapped floating rate debt for fixed rate debt to provide long-term stability and predictability to cash flows.

On March 19, 2014, the outstanding borrowings under the credit facility totaling $366.4 million were repaid out of the proceeds of $420.0 million aggregate principal amount of 10.0% First Priority Secured Notes due 2019 (the “Notes”). In addition, the $277.0 million nominal amount of interest rate derivatives outstanding were terminated on March 19, 2014 for a final payment of $19.3 million.

Interest expense for the three months ended June 30, 2014, including interest and the amortization of deferred financing costs and of the original issue discount on the Notes, interest on the $45.0 million preferred shares and the commitment fee on the Company’s new and undrawn $40.0 million revolving credit facility, was $12.0 million.

In the second quarter 2013, interest expense, including amortization of deferred financing costs, was $4.8 million, on borrowings averaging $410.9 million under the Company’s credit facility and the $45.0 million preferred shares.

For the six months ended June 30, 2014, interest expense (including the amortization of deferred financing costs and from March 19, 2014 of the original issue discount on the Notes) on borrowings under the credit facility up to March 19, 2014, on the Notes from that date, on the $45.0 million preferred shares and including the commitment fee on the million revolving credit facility was $20.2 million. Amortization of deferred financing costs includes accelerated write off of $3.0 million being the balance of such costs associated with the credit facility.

Interest expense for the six months ended June 30, 2013 was $9.7 million on an average amount outstanding on the credit facility during that period of $418.2 million and $45.0 million of preferred shares.

Interest income for the three and six months ended June 30, 2014 and 2013 was not material.

Change in Fair Value of Financial Instruments

The Company hedged its interest rate exposure by entering into derivatives that swap floating rate debt for fixed rate debt. These hedges did not qualify for hedge accounting under US GAAP and the outstanding hedges were marked to market at each period end with any change in the fair value being booked to the income and expenditure account. The Company’s derivative hedging instruments were terminated on March 19, 2014 and consequently had no effect in the three months ended June 30, 2014. They gave a realized loss of $2.9 million in the three months ended June 30, 2013 for settlements in the period, as US $ LIBOR rates were lower than the average fixed rates. Further, there was a $5.0 million unrealized gain for revaluation of the balance sheet.

For the six months ended June 30, 2014, the realized loss from hedges was $2.8 million and the unrealized gain was $1.9 million. This compares to a realized loss of $8.3 million and an unrealized gain of $10.4 million in the six months ended June 30, 2013.

Taxation

Taxation for the three months ended June 30, 2014 was $22,000, compared to $16,000 in the second quarter of 2013.

Taxation for the six months ended June 30, 2014 was $41,000, compared to $39,000 for the comparative period in 2013.

Net Loss/Income

Net loss for the three months ended June 30, 2014 was $2.3 million. For the three months ended June 30, 2013, net income was $10.1 million, after the $5.0 million non-cash interest rate derivative mark-to-market gain. Normalized net loss, which excludes, when applicable, the effect of the non-cash interest rate derivative mark-to-market gains and losses was $2.3 million, or the same as net loss, for the three months ended June 30, 2014 and $5.1 million for the three months ended June 30, 2013.

Net loss was $0.4 million for the six months ended June 30, 2014 after a $1.9 million non-cash mark-to-market gain on interest rate derivatives and a non-cash $3.0 million accelerated write off of deferred financing costs. For the six months ended June 30, 2013, net income was $17.4 million after a $10.4 million non-cash interest rate derivative mark-to-market gain.

Dividend

The board of directors is committed to paying a meaningful dividend once this can be sustained and provided that it is in the best interests of shareholders at the time. In the meantime, Global Ship Lease is not paying a dividend on common shares.