GMR Email 5-1-09 1Q 2009 Earnings Update

To: Friends and Family
Subject: GMR 1Q 2009 earnings Update

A few new friends I have added to the chain. Please see the email from last month (below) and then today's to gain some perspective. I can speak with you all individually if you have any questions, but GMR is a stock I have followed for 3 years now that I own in my retirement fund. It is an oil tanker stock that pays a huge dividend. I would suggest looking it up on yahoo finance. I send updates on it when needed. Let me know if you are not interested in receiving this update and I can take your name off.

1Q 2009 Earnings Summary...

What a great few months for GMR. The stock is above $10/share now after Wednesday's great earnings and dividend announcement (Last update it was below $7/share). Some key notes about the stock...

1) This is the first full quarter with the Arlington acquisition
2) EBITDA of ~$48MM for the quarter
3) Normalized Working Capital Free Cash Flow of ~$39MM for the quarter
4) Both of these numbers easily cover the $0.50 quarterly dividend target of 50 cents on 58MM shares (requires $29MM of Free Cash Flow)
5) Company paid down $50MM in debt
6) Company announced continuation of share repurchases and 50 cent dividend
7) I got a response from investor relations concerning the S3 filing...supposedly it was just a requirement that they do it for the Arlington Acquisition with no other implications
8) At $10.30/share the stock is trading right at gross tanker value, still a very positive fundamental value

One of the reasons this company is doing so well right now is because it locked into 3 year time charters at basically the peak of the bubble in 2007. This is proving to be very lucrative during this downturn (EBITDA margins over 50%!!!) But, one potential negative in the future is that these time charter contracts expire around mid 2010. Unless they lock into some new contracts, starting mid 2010 the company's contracts will be at significantly lower spot rates assuming current market conditions. But at this time I am not too worried about the dividend because of the $10MM or so of cushion per quarter currently in their free cash flow and their diversification of fleet (and spot rate) offerings (Suzemax, Aframax, VLCCs, etc).

I am a little upset at myself that I let the S3 filing scare me from buying a lot more shares below $7.00, but that's the way it goes sometimes. This stock is still around a 20% dividend and I will continue to roll my dividend into purchasing new shares, but I personally will not be adding any more shares at this point for a few reasons. 1) The stock is already a decent size of my portfolio. 2) I am not very positive about the long term aspects of the stock market in general, but that is why I am focused entirely on dividend paying stocks, because cash in my pocket is way more real than a future earnings stream expectation or implied value. It is the only thing truly measurable and right now I will take that over any high flying no dividend tech stock.

My goal with this stock is to get a good base in now as a youngin, roll the 20% dividend payment into acquiring new shares (dollar cost averaging), and wake up one day when I am 50 with a very nice size of GMR or some derivative form and flip the switch from rolling the divy to keeping the divy payment as income to live off of.

The stock's valuation varies greatly with the vast array of valuation models available. From a book value perspective $10-$12/share is about right, but book value is a pretty conservative valuation metric and implies no growth or goodwill. From a low EBITDA multiple the stock should still be in the single digits, but I do not like this valuation, because of the companies great cash flow and payout (At 20% yield, you get a 100% return in 4 years!). Therefore a higher multiple should be used which puts its price range in at least the teens. I like free cash flow models better for this stock because it not only provides excellent free cash flow, but, given its large amount of tangible assets it should get some credit for a terminal value at some point in time as well. The dividend discount models (free cash flow models) put the price in the low $20s.

All in all, I would be a long term buyer of this stock anywhere below $12.00 right now which would still put a dividend in your pocket of 17%/year.