Performance Shipping Inc. Expects Tanker Market Rates to Recover Over the Rest of the Year, After First Quarter Loss

Performance Shipping Inc., a global shipping company specializing in the ownership of tanker vessels, reported net loss and net loss from continuing and discontinued operations attributable to common stockholders of $2.9 million for the first quarter of 2021, compared to net income and net income from continuing and discontinued operations attributable to common stockholders of $1.3 million and $2.8 million, respectively, for the same period in 2020. Loss per share for the first quarter of 2021 was $0.57, while earnings per share for the first quarter of 2020 was $0.60 (basic) and $0.58 (diluted).

Voyage and time charter revenues from continuing and discontinued operations were $8.4 million ($3.5 million net of voyage expenses) for the first quarter of 2021, compared to $13.5 million ($9.2 million net of voyage expenses) for the same period in 2020. This decrease was mainly attributable to the decreased time-charter equivalent rates (TCE rates) achieved during the quarter as a result of the depressed market conditions. Fleetwide, the average time charter equivalent rate for the first quarter of 2021 was $7,691, compared with an average rate of $21,386 for the same period in 2020. During the first quarter of 2021, net cash used in operating activities of continuing and discontinued operations was $1.4 million, compared with net cash provided by operating activities of continuing and discontinued operations of $7.1 million for the first quarter of 2020.

Commenting on the results of the first quarter of 2021, Mr. Andreas Michalopoulos, the Company’s Chief Executive Officer, stated:

“Spot charter rates during the first quarter of 2021 remained at very low levels, as a result of a combination of weak consumer and industrial demand coupled with low crude oil and refined petroleum products production. Therefore, in accordance with our dividend policy, we will not declare and pay a dividend for our Q1 2021 results from operations. We expect spot charter rates, which continue to be at very low levels, to gradually recover over the successive quarters of 2021 as the COVID-19 pandemic recedes and demand for crude oil and refined petroleum products recovers. During the first quarter of 2021, we became a signatory of the Neptune Declaration and the UN Global Compact, and released our inaugural sustainability report, which can be found on our website. We remain keenly focused on our ESG efforts, which are an integral part of who we are, as we firmly believe they will meaningfully contribute to a better future for everyone.”

Tanker Market Update for the First Quarter 2021:

• Fleet supply was 647.6 million dwt, up 0.9% from 641.7 million dwt from the previous quarter, and up 2.9% from Q1 2020 levels of 629.2 million dwt.
• Tanker demand in billion tonne-miles is projected to increase by 4.1% in 2021, recovering from the lows experienced in 2020.
• Tanker fleet supply in deadweight terms is estimated to grow by a moderate 3.0% in 2021.
• Crude tanker fleet utilization was estimated at 82.0%, up from 79.6% from the previous quarter and down from Q1 2020 levels of 89.0%.
• Newbuilding contracting at 9.7 million dwt resulted in the tanker orderbook remaining close to record low levels and representing 8.1% of the tanker fleet.
• Daily spot charter rates for Aframax tankers averaged $10,527, up 84.3% from the previous quarter average of $5,713 and down 75.0% from Q1 2020 average of $41,610.
• The value of a 10-year-old Aframax tanker ended the quarter at $23.5 million, up 14.6% from the previous quarter assessed value of $20.5 million, and down 24.2% from Q1 2020 assessed value of $31.0 million.
• Tankers used for floating storage (excluding dedicated storage) was 180 (28.7 million dwt), down 21.4% from 229 (37.8 million dwt) from the previous quarter and up 176.9% from Q1 2020 levels of 65 (15.9 million dwt).
• Global oil consumption was 94.8 million bpd, down 0.7% from the previous quarter level of 95.4 million bpd, and down 0.7% from Q1 2020 levels of 95.4 million bpd.
• Global oil production was 92.5 million bpd, up 0.2% from the previous quarter level of 92.4 million bpd and down 7.8% from Q1 2020 levels of 100.3 million bpd.
• OECD commercial inventories were 2,922.7 million barrels, down 3.4% from the previous quarter level of 3,025.8 million barrels, and down 1.4% from Q1 2020 levels of 2,962.8 million barrels.

Novel Coronavirus Risks:

On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where the Company conducts a large part of its operations, have implemented measures to combat the outbreak, such as quarantines, travel restrictions, and other emergency public health measures in an effort to contain the outbreak. Such measures have resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets, which has reduced the global demand for oil and oil products, which the Company’s vessels transport.

Despite the global gradual recovery from COVID-19, the Company continues to take proactive measures to ensure the health and wellness of its crew and onshore employees while maintaining effective business continuity and uninterrupted service to its customers. The overall impact of COVID-19 on the Company’s business, and the efficacy of any measures the Company takes in response to the challenges presented by the COVID-19 pandemic, will depend on how the outbreak further develops, the duration and extent of the restrictive measures that are associated with the pandemic and their impact on global economy and trade, which is still uncertain.

(1)The table above includes data both from our Continuing and Discontinued Operations. Discontinued Operations refer to our container vessels segment that we disposed of in 2020.

(2)Operating days, including ballast leg, are the number of available days in a period less the aggregate number of days that our vessels are off-hire. The specific calculation does not count as off-hire the days of the ballast leg of the spot voyages, as long as a charter party is in place. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.

(3)Time charter equivalent rates, or TCE rates, are defined as our voyage and time charter revenues, less voyage expenses during a period divided by the number of our available days during the period, which is consistent with industry standards. Voyage expenses include port charges, bunker (fuel) expenses, canal charges and commissions. TCE is a non-GAAP measure. TCE rate is a standard shipping industry performance measure used primarily to compare daily earnings generated by vessels despite changes in the mix of charter types (i.e., voyage (spot) charters, time charters and bareboat charters).

(4)Daily vessel operating expenses, which include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the costs of spares and consumable stores, lubricant costs, tonnage taxes, regulatory fees, environmental costs, lay-up expenses and other miscellaneous expenses, are calculated by dividing vessel operating expenses by ownership days for the relevant period.

Dividend Policy – Quarterly Calculations

Our Board of Directors has adopted a variable quarterly dividend policy, pursuant to which we may declare and pay a variable quarterly cash dividend. If declared, the quarterly dividend is expected to be paid each February, May, August and November and will be equal to available cash from operations during the previous quarter after cash payments for debt repayment and interest expense and reserves for the replacement of our vessels, scheduled drydockings, intermediate and special surveys and other purposes as our Board of Directors may from time to time determine are required, after taking into account contingent liabilities, the terms of any credit facility, our growth strategy and other cash needs as well as the requirements of Marshall Islands law. The declaration and payment of dividends is, at all times, subject to the discretion of our Board of Directors. Our Board of Directors may review and amend our dividend policy from time to time, in light of our plans for future growth and other factors.

In accordance with our dividend policy, and taking into account the above-listed factors, we expect to pay dividends only if during the preceding quarter Quarterly Cash Flow is positive and Quarter-End Excess Cash is also positive. As a general guideline, the amount of any such dividends is expected to be based on a pay-out ratio of the lower of i) Quarterly Cash Flow; and ii) Quarter-End Excess Cash. So long as our end of quarter outstanding debt exceeds our equity market capitalization our pay-out ratio is expected to be 50%. We will consider increasing the pay-out ratio gradually up to a maximum level of 90% that we may achieve when our end of quarter outstanding debt is less than 10% of our equity market capitalization. Quarter-End Excess Cash is defined as actual end of quarter Cash and Cash Equivalents over our Minimum Cash Threshold. Minimum Cash Threshold is defined as the sum of minimum liquidity pursuant to our loan agreements and $1.5 million per vessel. Our bank facilities currently require us to maintain minimum liquidity of $9.0 million.

Quarterly Cash Flow is equal to voyage and time charter revenues less voyage expenses, less vessel operating expenses, less general and administrative expenses, less – the greater of i) net interest expense and repayment of long-term bank debt or ii) fleet replacement reserves – and less maintenance reserves for our fleet.

We believe the above approach will ensure the sustainability of our Company and replacement of our fleet as during quarters where either Excess Cash is negative or Quarterly Cash Flow is negative, we will not pay dividends until Quarterly Cash Flow is positive and Excess Cash is also positive. Below are our calculations of Quarter-End Excess Cash and Quarterly Cash Flow for the first quarter of 2021.