Teekay Tankers Ltd. (Teekay Tankers or the Company) today reported its second quarter results for 2010. During the quarter, the Company generated $16.7 million in Cash Available for Distribution(1), up from $13.8 million in the quarter ended March 31, 2010. Today, Teekay Tankers declared a dividend of $0.34 per share for the second quarter of 2010, representing a total cash dividend of $14.7 million(2), which will be paid on August 27, 2010 to all shareholders of record on August 20, 2010.
Teekay Tankers' policy is to pay a variable quarterly dividend equal to its Cash Available for Distribution, subject to any reserves its board of directors may from time to time determine are required. Since the Company's initial public offering in December 2007, it has declared a dividend in 11 consecutive quarters, which now totals $5.615 per share on a cumulative basis (including the $0.34 per share dividend to be paid on August 27, 2010).
Summary of Recent Accretive Transactions
In July 2010, Teekay Tankers loaned for three years a total of $115 million to another shipping company, with the loans secured by first-priority ship mortgages on two Very Large Crude Carrier (VLCC) newbuildings. The term loans earn an annual interest rate of 9.0 percent and include a repayment premium feature which provides Teekay Tankers with a total yield of approximately 10 percent per annum. Teekay Tankers financed the loans using a portion of its undrawn revolving credit facility, which bears interest at a rate of LIBOR plus 0.60 percent.
Subsequent to making these loans, the Company entered into interest rate swap agreements with a weighted-average maturity of 2.4 years and a weighted- average interest rate of approximately 1 percent (or approximately 1.6 percent including the margin on the underlying loans). Based on its current capitalization, Teekay Tankers expects these loans to increase its annual dividend by approximately $0.20 per share during the three-year loan term.
(1) Cash Available for Distribution represents net income (loss) plus depreciation and amortization, unrealized losses from derivatives, non-cash items and any write-offs or other non-recurring items, less unrealized gains from derivatives and net income attributable to the historical results of vessels acquired by the Company from Teekay Corporation (Teekay), referred to herein as the Dropdown Predecessor, for the period when these vessels were owned and operated by Teekay.
(2) Please refer to Appendix A to this release for the calculation of the cash dividend amount.
In addition, as previously announced, in April 2010 Teekay Tankers acquired two Suezmax tankers and one Aframax tanker for a total purchase price of $168.7 million, and sold one 15-year old Aframax tanker for $17.3 million. To finance the vessel acquisitions, Teekay Tankers used net proceeds of $103.2 million from a follow-on public offering of its Class A common stock, proceeds from a $32 million concurrent private placement to the Company's sponsor, Teekay Corporation, and borrowings under the Company?s revolving credit facility for the balance.
As a result of the April and July 2010 transactions, and assuming an illustrative average Aframax spot rate of $15,000 per day and an illustrative average Suezmax spot rate of $25,000 per day, the Company estimates that it would be able to pay a dividend of approximately $1.20 per share for the four- quarter period ending June 30, 2011. This represents an increase of over 30 percent compared to the dividend using the same illustrative example prior to the April and July 2010 transactions. This estimate is based on the Company's current capitalization, fleet size, time-charter contracts, anticipated expenses and certain assumptions, including that the board of directors establishes no additional reserves other than those established for scheduled drydockings and debt repayments.
Tanker Market
Average freight rates for crude oil tankers during the second quarter of 2010 were relatively unchanged from the previous quarter, in contrast to the seasonal decline which typically occurs at the end of the winter season. Second quarter tanker rate strength was primarily driven by the continued recovery in global oil demand, led by China, where crude oil imports reached a record high of 5.4 million barrels per day (mb/d) in June 2010. Large crude oil tanker rates were aided by the temporary removal from the active trading fleet of approximately 25 VLCCs to be used as floating storage off the coast of Iran while the Suezmax sector was supported by strong Asian demand for crude oil sourced from West Africa, a relatively ton-mile intensive trade route.
The world tanker fleet grew by 11.9 million deadweight tonnes (mdwt), or approximately 2.7 percent, in the first half of 2010. This compares to fleet growth of 20.3 mdwt, or 5.0 percent, in the same period of 2009. A higher level of fleet removals compared to recent years has dampened tanker fleet growth in 2010 to date. In total, 10.6 mdwt of tanker capacity was removed for scrapping or conversion in the first half of the year. The ongoing phase-out of the world's remaining single-hull tankers should continue to dampen tanker fleet growth in the near- to medium-term.
Tanker freight rates have declined during the third quarter to date due to seasonal factors such as increased oil field maintenance in the North Sea, and the unwinding of floating storage contracts which has the effect of increasing the actively trading tanker fleet.
In July 2010, the International Monetary Fund (IMF) raised its forecast for global GDP growth in 2010 from 4.2 percent to 4.6 percent, its fifth upward revision since its April 2009 forecast of 1.9 percent GDP growth. The International Energy Agency (IEA) is forecasting 2010 global oil demand of 86.5 mb/d which constitutes growth of 1.8 mb/d, or 2.1 percent, over 2009 levels, the fastest rate of oil demand growth since 2004. China is expected to account for approximately 40 percent of global oil demand growth this year.
Financial Summary
The Company reported adjusted net income(1) of $7.6 million, or $0.18 per share, for the quarter ended June 30, 2010, compared to adjusted net income of $6.4 million, or $0.20 per share, for the quarter ended March 31, 2010. The reduction in the adjusted net income per share is primarily the result of the scheduled drydocking of two vessels in the second quarter of 2010, partially offset by the accretive vessel transactions completed in April 2010. Adjusted net income for the three months ended June 30, 2010, excludes an unrealized loss relating to changes in the fair value of an interest rate swap of $5.4 million, or $0.12 per share and a net loss attributable to the Dropdown Predecessor of $0.1 million, or $nil per share. Adjusted net income for the three months ended March 31, 2010 excludes an unrealized loss of $1.3 million, or $0.04 per share, relating to changes in the fair value of an interest rate swap and $1.1 million, or $0.03 per share, related to net income attributable to the Dropdown Predecessor. These adjustments are detailed in note (4) to the Consolidated Statements of Income included in this release. Including these items, the Company reported net income, on a GAAP basis, of $2.1 million, or $0.05 per share, for the quarter ended June 30, 2010, compared to net income, on a GAAP basis, of $6.1 million, or $0.16 per share, for the quarter ended March 31, 2010. Net voyage revenues(2) for the second quarter of 2010 were $31.1 million compared to $33.8 million in the prior quarter.
(1) Adjusted net income is a non-GAAP financial measure. Please refer to Note (4) to the Consolidated Statements of Income included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP) and information about specific items affecting net income that are typically excluded by securities analysts in their published estimates of the Company's financial results.
(2) Net voyage revenues represents voyage revenues less voyage expenses. Net voyage revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Company's website at www.teekaytankers.com for a reconciliation of this non- GAAP financial measure to the most directly comparable GAAP financial measure.
Teekay Tankers' policy is to pay a variable quarterly dividend equal to its Cash Available for Distribution, subject to any reserves its board of directors may from time to time determine are required. Since the Company's initial public offering in December 2007, it has declared a dividend in 11 consecutive quarters, which now totals $5.615 per share on a cumulative basis (including the $0.34 per share dividend to be paid on August 27, 2010).
Summary of Recent Accretive Transactions
In July 2010, Teekay Tankers loaned for three years a total of $115 million to another shipping company, with the loans secured by first-priority ship mortgages on two Very Large Crude Carrier (VLCC) newbuildings. The term loans earn an annual interest rate of 9.0 percent and include a repayment premium feature which provides Teekay Tankers with a total yield of approximately 10 percent per annum. Teekay Tankers financed the loans using a portion of its undrawn revolving credit facility, which bears interest at a rate of LIBOR plus 0.60 percent.
Subsequent to making these loans, the Company entered into interest rate swap agreements with a weighted-average maturity of 2.4 years and a weighted- average interest rate of approximately 1 percent (or approximately 1.6 percent including the margin on the underlying loans). Based on its current capitalization, Teekay Tankers expects these loans to increase its annual dividend by approximately $0.20 per share during the three-year loan term.
(1) Cash Available for Distribution represents net income (loss) plus depreciation and amortization, unrealized losses from derivatives, non-cash items and any write-offs or other non-recurring items, less unrealized gains from derivatives and net income attributable to the historical results of vessels acquired by the Company from Teekay Corporation (Teekay), referred to herein as the Dropdown Predecessor, for the period when these vessels were owned and operated by Teekay.
(2) Please refer to Appendix A to this release for the calculation of the cash dividend amount.
In addition, as previously announced, in April 2010 Teekay Tankers acquired two Suezmax tankers and one Aframax tanker for a total purchase price of $168.7 million, and sold one 15-year old Aframax tanker for $17.3 million. To finance the vessel acquisitions, Teekay Tankers used net proceeds of $103.2 million from a follow-on public offering of its Class A common stock, proceeds from a $32 million concurrent private placement to the Company's sponsor, Teekay Corporation, and borrowings under the Company?s revolving credit facility for the balance.
As a result of the April and July 2010 transactions, and assuming an illustrative average Aframax spot rate of $15,000 per day and an illustrative average Suezmax spot rate of $25,000 per day, the Company estimates that it would be able to pay a dividend of approximately $1.20 per share for the four- quarter period ending June 30, 2011. This represents an increase of over 30 percent compared to the dividend using the same illustrative example prior to the April and July 2010 transactions. This estimate is based on the Company's current capitalization, fleet size, time-charter contracts, anticipated expenses and certain assumptions, including that the board of directors establishes no additional reserves other than those established for scheduled drydockings and debt repayments.
Tanker Market
Average freight rates for crude oil tankers during the second quarter of 2010 were relatively unchanged from the previous quarter, in contrast to the seasonal decline which typically occurs at the end of the winter season. Second quarter tanker rate strength was primarily driven by the continued recovery in global oil demand, led by China, where crude oil imports reached a record high of 5.4 million barrels per day (mb/d) in June 2010. Large crude oil tanker rates were aided by the temporary removal from the active trading fleet of approximately 25 VLCCs to be used as floating storage off the coast of Iran while the Suezmax sector was supported by strong Asian demand for crude oil sourced from West Africa, a relatively ton-mile intensive trade route.
The world tanker fleet grew by 11.9 million deadweight tonnes (mdwt), or approximately 2.7 percent, in the first half of 2010. This compares to fleet growth of 20.3 mdwt, or 5.0 percent, in the same period of 2009. A higher level of fleet removals compared to recent years has dampened tanker fleet growth in 2010 to date. In total, 10.6 mdwt of tanker capacity was removed for scrapping or conversion in the first half of the year. The ongoing phase-out of the world's remaining single-hull tankers should continue to dampen tanker fleet growth in the near- to medium-term.
Tanker freight rates have declined during the third quarter to date due to seasonal factors such as increased oil field maintenance in the North Sea, and the unwinding of floating storage contracts which has the effect of increasing the actively trading tanker fleet.
In July 2010, the International Monetary Fund (IMF) raised its forecast for global GDP growth in 2010 from 4.2 percent to 4.6 percent, its fifth upward revision since its April 2009 forecast of 1.9 percent GDP growth. The International Energy Agency (IEA) is forecasting 2010 global oil demand of 86.5 mb/d which constitutes growth of 1.8 mb/d, or 2.1 percent, over 2009 levels, the fastest rate of oil demand growth since 2004. China is expected to account for approximately 40 percent of global oil demand growth this year.
Financial Summary
The Company reported adjusted net income(1) of $7.6 million, or $0.18 per share, for the quarter ended June 30, 2010, compared to adjusted net income of $6.4 million, or $0.20 per share, for the quarter ended March 31, 2010. The reduction in the adjusted net income per share is primarily the result of the scheduled drydocking of two vessels in the second quarter of 2010, partially offset by the accretive vessel transactions completed in April 2010. Adjusted net income for the three months ended June 30, 2010, excludes an unrealized loss relating to changes in the fair value of an interest rate swap of $5.4 million, or $0.12 per share and a net loss attributable to the Dropdown Predecessor of $0.1 million, or $nil per share. Adjusted net income for the three months ended March 31, 2010 excludes an unrealized loss of $1.3 million, or $0.04 per share, relating to changes in the fair value of an interest rate swap and $1.1 million, or $0.03 per share, related to net income attributable to the Dropdown Predecessor. These adjustments are detailed in note (4) to the Consolidated Statements of Income included in this release. Including these items, the Company reported net income, on a GAAP basis, of $2.1 million, or $0.05 per share, for the quarter ended June 30, 2010, compared to net income, on a GAAP basis, of $6.1 million, or $0.16 per share, for the quarter ended March 31, 2010. Net voyage revenues(2) for the second quarter of 2010 were $31.1 million compared to $33.8 million in the prior quarter.
(1) Adjusted net income is a non-GAAP financial measure. Please refer to Note (4) to the Consolidated Statements of Income included in this release for a reconciliation of this non-GAAP measure to the most directly comparable financial measure under United States generally accepted accounting principles (GAAP) and information about specific items affecting net income that are typically excluded by securities analysts in their published estimates of the Company's financial results.
(2) Net voyage revenues represents voyage revenues less voyage expenses. Net voyage revenues is a non-GAAP financial measure used by certain investors to measure the financial performance of shipping companies. Please see the Company's website at www.teekaytankers.com for a reconciliation of this non- GAAP financial measure to the most directly comparable GAAP financial measure.