Latest / Investor Exchange / First Ship Lease Trust's Zero Debt & Paper Profits – FY2025

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First Ship Lease Trust's Zero Debt & Paper Profits – FY2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Okay, I have to be honest with you. Usually when I pick up a stack of financial
• 0:11
  documents for a deep dive, the math is, you know, pretty linear.
• 0:16
  You know the drill. You sell widgets, you make money. You sell fewer widgets,
• 0:19
  you make less money. It is just basic business physics. Right.
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  That is usually how it works. Yeah.
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  But then I started reading the stack you send over for FSL Trust.
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  That's First Ship Lease Trust.
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  And we are looking at their results for the second half and full year of 2025.
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  This was just released on February 10th, 2026. And honestly,
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  I had to clean my glasses.
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  The physics here seem completely broken. Broken. I mean, it's shipping.
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  It's always a little weird. True. But well, look at this. Their revenue fell
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  off a cliff. It's down 30 percent in the second half of the year.
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  Their net profit, it's huge. In fact, for the second half of 2025,
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  their profit was roughly double their revenue. Yeah.
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  How does a company profit $5 million when they only brought in $3 million from customers?
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  Is this some kind of alchemy? It is not alchemy, no, but it is a very specific
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  and sometimes confusing area of accounting.
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  And you are completely right to be skeptical.
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  So that is our mission today. We are doing a deep dive into FSL Trust.
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  We have their financial statement announcement, the result presentation slides, and the press release.
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  And we need to figure out, strictly from an investor's perspective,
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  if this is a magic money machine or if these numbers are masking a company that
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  is slowly sinking into oblivion.
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  It is a classic case of headlines versus reality.
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  And just to reassure you, if you are listening and you aren't a CPA, don't worry.
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  We are going to strip away the
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  accounting noise. We'll explain things like impairment reversals as we go.
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  Because the story here isn't really about massive growth. No, not at all.
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  It is about survival, asset values, and a management team that is essentially
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  sitting in a bunker with a pile of cash refusing to come out.
• 1:58
  A bunker. I like that image.
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  So let us start with the shrinking part before we get to the magic profit.
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  I mentioned revenue was down 30% for the second half of 2025 compared to the year before.
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  Just $3.05 million U.S. dollars coming in. And a full-year revenue dropped 28.4% to $6.05 million.
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  Why the massive drop? That part is simple mechanics, really.
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  They just have fewer ships.
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  In February of 2025, they sold a tanker called the Clyde Fisher.
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  Okay, so they sold the cow, so they are getting less milk. That is the perfect analogy.
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  When you operate a fleet of ocean-going tankers, every ship you sell immediately
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  reduces your daily earnings capacity.
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  So a 30% revenue drop is mathematically consistent with a smaller fleet.
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  The business is physically smaller than it was in 2024.
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  Right. OK, so the business is smaller. Revenue is way down. But then we hit this net profit number.
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  $5.1 million U.S. dollars for the second half.
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  If they didn't make that money hauling oil, which they clearly didn't,
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  since revenue was only $3 million, where exactly did it come from?
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  This is where we have to explain that concept you mentioned, impairment reversal.
• 3:04
  Yeah. And we need to be very careful here because for a casual investor glancing
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  at a headline, this can look like free cash flow.
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  It isn't. Define it for us and please keep it simple.
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  Okay. Imagine you bought a house in a booming market for a million dollars.
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  Two years later, the market crashes. You haven't sold the house,
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  but the market says it's only worth $800,000 now.
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  Accounting rules say you have to
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  record that $200,000 loss on your income statement right then and there.
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  Even though I haven't sold it. Exactly. That is an impairment.
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  You take the hit on paper to reflect reality. Got it.
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  Painful but honest. But now, fast forward to 2025, the shipping market for these
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  specific types of tankers has heated up.
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  Appraisers look at FSL's ships and say, hey, these are actually worth a lot
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  more than you have written down on your books from that bad year.
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  So the accountants get to reverse that old loss. They write the value of the
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  ships back up. And that write-up counts as profit.
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  On paper, yes. In this specific case, they recorded a $3.73 million U.S.
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  Dollar gain from reversing impairments on three specific vessels.
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  The speciality, the seniority, and the superiority.
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  Great names, by the way. Very aspirational.
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  Superiority. But just to be crystal clear, did a physical check for $3.7 million
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  arrive in their bank account because of this?
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  No, not a single dime. It is entirely a non-cash adjustment.
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  It boosts the net profit on the income statement. It increases the book value
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  of the company on the balance sheet.
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  But you cannot use that $3.7 million to pay dividends or buy ship fuel.
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  So if I am an investor trying to figure out if this business is actually healthy,
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  mechanically healthy, I should essentially ignore that massive headline profit
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  number. You have to strip it out entirely.
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  If you want the truth of the operation, you need to look at adjusted EBITDA.
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  Which is earnings before interest, taxes, depreciation, and amortization.
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  Exactly. And the adjusted part means they specifically remove these one-time
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  accounting tricks and disposal gains.
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  It shows you the actual cash the business generated from its core operations.
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  And when we look at that number in the documents, what do we see?
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  We see a much more sober reality.
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  Adjusted EBITDA for the second half of 2025 was 2.1 million U.S. dollars. Wow.
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  That is down from $3.4 million in the same period the previous year.
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  Ouch. So the headline press release says record profit, but down in the engine
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  room, they are losing power.
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  Correct. The operational cash
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  flow, the actual cash generated by the ships hauling cargo, is shrinking.
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  Because, again, they have fewer ships. Okay, so we have a shrinking business
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  that looks highly profitable because of accounting rules.
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  Honestly, that usually sounds like a massive sell signal to me.
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  It feels like they're painting over the rust. But then I looked at the balance
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  sheet in the slide deck, and this is, oh, it's just weird.
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  I do not think I've ever seen a shipping company look like this.
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  You're talking about the debt line. It is empty. Zero.
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  Zilch. As of December 31st, 2025, FSL Trust has absolutely no debt.
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  It is incredibly rare. You have to understand, the shipping industry is heavily capital intensive.
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  A single tanker costs tens of millions of dollars.
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  Almost everyone uses massive leverage. Right. But FSL has gone the complete
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  opposite direction. They spent 2025 aggressively prepaying everything.
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  They paid off roughly 1.7 million U.S. dollars in outstanding loans just in
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  the second half of the year to get to zero.
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  Okay, so play devil's advocate for me here. Is that actually smart?
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  Or is it lazy capital allocation? Because leverage, when used correctly,
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  boosts returns for investors.
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  If you can borrow at 5% and make 10% on a ship, you borrow all day long.
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  Are they playing it too safe?
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  That is the central debate with FSL right now. By having zero debt,
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  they have completely eliminated solvency risk.
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  In a world where interest rates have been unpredictable, they aren't bleeding
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  cash to a bank every month.
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  Every single dollar of that 2.1 million EBITDA is theirs to keep.
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  Which makes them a fortress of solitude. Exactly.
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  They literally cannot go bankrupt if they don't owe anyone money.
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  But a fortress can also be a prison if you can't get out.
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  Let's look at the cash. Current cash and cash equivalents stand at 20.8 million U.S. dollars.
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  They have no debt, but they have a shrinking fleet. It feels like they are just waiting.
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  They are. And to understand why they are waiting, you have to look closely at what they actually own.
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  We said the fleet is shrinking, but let's talk about the quality of the ships
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  left in the garage. They have a snapshot of the assets here.
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  Six tankers. Do you see the average age? The report says 19 years.
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  19 years. Now, in human years, that is a college freshman.
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  In ship years, that is a senior citizen.
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  Most tankers are sent to the scrapyard by age 20 or 25.
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  So these are old beaters. They are workhorses, but they come with significant baggage.
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  It is not just that they look old.
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  Older ships need a lot more maintenance. You're talking about heavy steel replacement
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  during dry dock, constant engine work. That eats directly into margins.
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  And fuel, right. I imagine 19-year-old engines aren't exactly eco-friendly. Exactly.
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  They burn significantly more fuel than modern eco-ships.
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  And crucially, environmental regulations are catching up to them.
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  Things like the Carbon Intensity Indicator, or CII, are getting stricter every single year.
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  Right. So an older, dirtier ship might actually get penalized or even banned
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  from entering certain ports? Potentially, yes.
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  Or they just become much less attractive to the major oil companies renting them.
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  So FSL is running a fleet that is nearing the very end of its commercial life.
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  Which explains why they aren't taking out massive bank loans to buy more of them.
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  They know the clock is ticking on these assets. Exactly.
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  But there is a stability factor here that we absolutely cannot ignore,
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  and it's heavily emphasized in the presentation.
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  Because the global supply of ships is so tight right now, they are still finding
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  solid work for these old vessels.
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  The CEO, Roger Woods, made a big point of this in the operational updates.
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  They aren't gambling on the spot market. Roy, I saw that. He mentioned all six
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  vessels are employed on fixed-rate period charters. Yes.
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  And this is crucial for the bunker strategy we talked about.
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  If you put a ship on the spot market, you're basically an Uber driver.
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  Maybe you get a high paying fare today. Maybe you sit empty tomorrow.
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  Prices fluctuate daily based on global events. Sounds stressful. It is.
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  FSL avoided that. They have locked their ships into long term leases.
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  For instance, they successfully extended the charter for the vessel's superiority for four more years.
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  Wait, four years. That takes it to 2029. That ship will be ancient by then.
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  It will be well over 20 years old. But the key is, they secured a contract for it.
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  They also converted the charters for the Solway Fisher and the Shannon Fisher into fixed periods.
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  So despite the age of the fleet, they have incredible visibility.
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  So they know exactly how much cash is coming in. Precisely.
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  Roger Woods claims this provides a, quote, stable platform into 2029.
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  As of December 31st, 2025, they have 17.1 million U.S.
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  Dollars in contracted future revenue locked in.
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  They know the money is coming and they have zero debt payments going out.
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  It is essentially a runoff business then. They are just going to safely milk
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  these aging assets until they rust out and have to be scrapped.
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  That is definitely one interpretation.
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  Roger Woods prefers stable platform. Stable platform definitely sounds better
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  for the marketing brochure than slow liquidation.
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  But this brings me to the thing that really frustrates me reading these results.
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  And I bet it frustrates some of the income investors listening to this right now.
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  You have a company that is profitable, at least operationally.
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  It has piles of cash, almost 21 million. It has no debt.
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  And yet... You're looking for the dividend declaration. I am looking for the dividend.
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  If you aren't going to grow, if you aren't going to buy shiny new eco-ships.
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  Give the money back to the unit holders. Did they declare a distribution?
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  No. The documents are very clear. No distribution has been recommended by the
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  board for the second half of 2025.
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  Why? They have $20 million sitting there. They are acting like a squirrel hoarding
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  nuts for a winter that never comes.
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  Or a winter they believe is already here. They are retaining cash.
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  The documents show $462,000 retained just in the current period.
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  Despite the accounting profit, the actual cash flow is being kept inside the
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  company to preserve that fortress balance sheet.
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  And this gets into the psychology of the chairman, Stathis Tupuzoglu.
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  What did he say? He put a very telling sentence in his statement regarding the future outlook.
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  He said the trust is, quote, looking for new projects. Okay,
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  well, that sounds promising. That implies growth. They want to buy something.
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  But then he finished the sentence. He said they have, quote,
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  not identified any with attractive risk and reward balance. Translation,
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  everything is way too expensive right now. Precisely.
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  You have to look at the macro picture in shipping. Asset prices for vessels have been very high.
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  The management team is looking at the market and saying, we refuse to overpay
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  for new ships just to say, we are growing.
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  We aren't going to take on debt at the top of the market cycle.
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  So they are just sitting on the cash. I suppose there is a real discipline to that.
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  I mean, I have seen plenty of CEOs burn cash on terrible acquisitions just to
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  look busy to Wall Street. It is extreme discipline.
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  But for an investor, it creates what we call a value trap scenario.
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  You look at the net asset value, the NAV per unit, and the report says it's
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  just two cents U.S. Which is tiny.
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  Very small. But the company is completely safe from bankruptcy. Safe but stuck.
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  The stock price might just languish because there is absolutely no catalyst.
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  There is no growth story. There is no dividend yield to attract income investors.
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  Just safety. It is a parking spot. A very safe parking spot.
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  But the meter is running, right?
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  The ships are getting older every single day. Eventually, they have to do something.
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  Either they liquidate the company, sell the scrap metal and pay everyone out,
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  or they wait for a global market crash to buy a brand new fleet at bargain basement prices.
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  So that is the ultimate bet you are making. If you buy this stock,
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  you are betting that this management team is smart enough to perfectly time the market.
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  You are betting they are keeping their powder dry for a massive generational opportunity.
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  That is the bull case. The bear case is that they are just paralyzed by risk
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  and the company slowly shrinks until the last ship goes to the scrapyard and
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  the cash is just eaten by inflation. Well, the cash is earning interest.
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  Finance income was actually up because interest rates have been decent.
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  So they are making money on their money sitting in the bank.
• 13:25
  Sure, but let's be honest. You do not buy a shipping stock to earn basic bank
• 13:29
  interest. You buy it for leverage to global trade.
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  So let us wrap this up and distill the thesis for you, the listener.
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  If you are holding FSL Trust based on these 2025 results, what do you actually own?
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  Let's check the boxes. First, you own a completely debt-free, cash-rich entity.
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  Check. Second, you own a shrinking fleet of six aging tankers.
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  Averaging 19 years old, that are locked into fixed-rate contracts until 2029.
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  Guaranteeing predictable cash flow. Check.
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  But third, you own a company with shrinking actual revenues,
• 14:02
  shrinking operational earnings, and a highly disciplined management team that
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  flat-out refuses to pay a dividend
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  or buy new ships until they think the price is absolutely perfect.
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  It is the ultimate defensive play. It's for the investor who thinks the global
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  shipping market is about to crash and wants to be hiding in a bunker with $20
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  million. It is a very fair assessment based on these documents.
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  If the rest of the market tanks and asset prices plummet, FSL is the one with
• 14:27
  the cash and the clean balance sheet ready to pick up the pieces.
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  But if the market keeps booming, FSL is going to look very boring and very slow
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  compared to competitors who are leveraging up and expanding their fleets.
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  It really is a fascinating case study in capital allocation because sometimes
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  the hardest thing to do in business is nothing.
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  And FSL is doing nothing very, very aggressively right now. I want to leave
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  you with a final provocation to chew on.
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  We so often praise companies for aggressive growth. You know the mantra,
• 14:55
  move fast and break things.
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  But here we have a company doing the exact opposite.
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  They are moving slow and fixing things, or at least paying off things.
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  Or just moving slow and watching things rust. Right. That is the million-dollar question.
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  If a shipping trust has zero debt, cash in the bank, but refuses to buy expensive
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  new ships or pay a dividend because they think the market is too risky,
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  is that a sign of brilliant, cycle-tested discipline?
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  Or is it a business that is just comfortably slowly winding itself down while
• 15:24
  collecting management fees?
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  Is this discipline or is it fear? We will probably have to wait until 2026 or
• 15:31
  2027 to see who is right. Indeed, we will.
• 15:35
  That is it for this deep dive into FSL Trust's 2025 results.
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  Before we sign off, I have to read the mandatory disclaimer,
• 15:41
  so bear with me for just a second.
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  This content is intended to serve strictly and only as an informational,
• 15:46
  independent, objective summary of recent events, and should in no way be interpreted,
• 15:51
  construed, or relied upon by any party as inside information or financial advice.
• 15:55
  Thanks for joining us on this deep dive, and we will catch you on the next one.