Atlas Corp (ATCO) 2021 Q1 法說會逐字稿

Welcome to the Atlas Corp. First Quarter 2021 Earnings Conference Call. I would like to remind everyone that this conference call is being recorded today, May 4, 2021.

I would now like to turn the call over to Robert Weiner, Head of Investor Relations at Atlas Corp.

Thank you, and good morning, everyone. Thank you for joining us today to discuss Atlas Corp.'s First Quarter 2021 Earnings. We issued our earnings release last evening after market close. We will refer to our quarterly earnings release, accompanying earnings presentation and supplemental documents today in this conference, which all can be found on the Investor Relations tab on our website, www.atlascorporation.com.

I would like to remind you that our discussion today contains forward-looking statements, and I'd like to draw your attention to the disclaimer on Page 2 in the accompanying earnings presentation.

With this quarterly report, you will note that we continue to report non-GAAP measures, which we believe provide investors a clearer understanding of the performance of our businesses. The first quarter earnings release contains supplemental financial tables and information pertaining to our first quarter earnings report and includes definition of non-GAAP financial measures and reconciliations of such non-GAAP measures to the most closely comparable U.S. GAAP measures. These definitions may also be found in the appendices at the back of the earnings presentation, which we will refer to in our call discussion, which can be found on our website. In addition, we have provided historical financial information through 2018, which are also available in the Q1 supplemental workflow on our website.

Please turn to Slide #3. On the call with me today are Bing Chen, President and Chief Executive Officer of Atlas Corp.; and Graham Talbot, Chief Financial Officer of Atlas Corp. Joining us on the call during the Q&A session are Seaspan's Chief Commercial Officer; Peter Curtis; and Seaspan's Chief Operational Officer, Torsten Pedersen. We will open up to a question-and-answer session following our formal remarks.

Please turn to Slide #4. I am pleased to now turn the call over to Atlas Corp.'s CEO, Bing Chen.

Thank you, Rob, and good morning, everyone. Thank you for joining our call. Please turn to Slide 5. I'm pleased to report a strong Q1 financial performance, which was directly in line with our expectations. We are on track to achieve our 2021 annual financial guidance. And our performance affirms our long-term focus on quality growth and differentiated investment attributes.

Let me reiterate that our business is not subject to short-term market swings like many others. We are highly dependable and consistent since our fully integrated platform is built on long-term contracted cash flow, backed by global leading liners.

In the first quarter of 2021, Atlas achieved revenue growth of 20.8% to $372.6 million; adjusted EBITDA growth of 21.1% to $237.9 million; FFO growth of 27.6% to $159.2 million; and FFO per share growth of 13.2% to $0.60 per share. And we recently paid our 63rd consecutive quarterly dividend.

I'm proud of our team as these results reiterate our continued resiliency, operational excellence and performance for the remainder of 2021 and beyond. We stand ready and focused on facing any challenges ahead.

Please turn to Slide 6. In just 5 short months, Seaspan added 37 new builds and 4 secondhand vessels. Through our total investment of $4.7 billion, we have added a gross contracted cash flow of $7 billion. And since this quarter alone, we achieved 47% growth of our fully delivered fleet on a TEU basis, adding 536,000 TEUs. This sets a record for Seaspan and perhaps within the industry.

This historical growth has been made possible due to our focus on the following key aspects of our business. First, we always have a good understanding of the underlying market situation and anticipate a few steps ahead. Second, our customers' needs always come first. Third, we are constantly creating opportunities versus participating in auctions. Fourth, our relentless focus on building our 5 key competencies. And fifth, we have a world-class team of highly experienced professionals who are ready to execute at all times.

For the same reasons, we have able to successfully complete 15 secondhand acquisitions in 2019 and 2020 and adjusted to our record newbuild program. This quality growth is important as it facilitates great scalability, reliability and flexibility to create win-win outcomes with our customers through all market cycles.

Especially with these newbuilds, we have gained deeper trust from our customers through our ability to assist with vessel design, shipyard negotiations, construction, financing, chartering and operations. This is a great example of the fully integrated platform, as we always talked about.

As the table shows, we have significantly strengthened our fleet in the following segments. 9 12,000 TEU newbuilds; 2 24,000 TEU newbuilds, which are our first ultra-large vessels and also the first for owner-operator vessels for this segment; 26 15,000 TEU newbuilds in the strategic category, featuring 10 dual fuel LNG newbuilds, along 4 secondhand acquisitions of 2 15,000 TEU and 2 8,500 TEU vessels.

Please turn to Slide 7. The past 3 years has been transformational, and this has continued in Q1 2021. Here, we highlight the dramatic change since the start of 2021. We have upgraded our offering with significant additions to the 15,000 to 16,000 TEU segments as well as for the 24,000 TEU segment.

Today, 79% of our fleet on a TEU basis is positioned within the strategic 10,000 TEU and greater segments which are expected to be the workhorse vessels in the coming decades for global trade. We are very pleased to have evolved our fleet into such a comprehensive, diversified and versatile portfolio to meet our customers' needs and truly lead the industry.

Please turn to Slide 8. We have also diversified our customer mix. When I first joined, COSCO chartered approximately 40% of our fleet on a TEU base. Today, no single customer charters more than 20%. Our customers are 8 out of the top 10 liners, with our top 3 customers representing 54% of the revenue at the end of Q1 2021 compared to 75% at the end of 2017. This is clearly a differentiation as we are growing in tandem with our customers while fulfilling their needs through creating win-win outcomes. We continue to be well positioned for quality growth through our deeper and broader partnerships with each customer.

Please turn to Slide 9. Our record fleet growth, fleet optimization and customer base diversification drives a third important distinctions of our resilient and differentiated platform, the growth of our gross contracted cash flows. Since the start of 2021, we have grown gross contracted cash flow by 102% to $12.1 billion. These are long term, highly visible cash flows secured by customer demand. This results in higher quality cash flows, longer lease durations and increased resiliency of our business through all economic cycles. Our deep and creative customer partnerships, best-in-class execution and solid financial strength makes Atlas the reliable solution provider of choice.

This slide clearly shows our record progress achieved in Q1. As I mentioned, gross contracted cash flow increased by 102% to $12.1 billion. Fully delivered fleet grew by 27%, adding 36 vessels. We increased TEU by 47% to 1.7 million TEU. Average fleet age decreased by 2.1 years to 5.2 years. And the remaining lease term increased to 6.8 years from 4.3 years. This high-performance execution enables us to deliver consistent and sustainable value creation to our shareholders.

Please turn to Slide 10. ESG is important and timely. As responsible corporate citizens, it is important to lead the industry's development of ESG initiatives. Our teams are highly committed to leading our industries through operational excellence, high business standards, ethics and principles. We look forward to issuing our inaugural sustainability report at the end of Q2.

Also, we are proud of our recent strategic partnership with the Maersk Mc-Kinney Møller Center for Zero Carbon Shipping and become a signatory of the UN Global Compact. Our strong commitment to ESG is also evidenced by our long history in innovative SAVER ship designs and also adding 10 15,000 TEU dual fuel LNG vessels.

Finally, we see the increasing need for ESG as an important requirement for our customers, lenders and investors. Our teams have made great progress through linking our capital structure with sustainability measures such as our recent sustainability-linked loan and bond financing.

Please turn to Slide 11. I'll conclude my formal remarks by providing an update on our 2021 priorities, which we outlined at our Investor Day. First, quality growth and disciplined capital allocation. This has been clearly demonstrated by our team during the quarter. For Seaspan, we have increased our total TEU by 47% to grow our gross contracted cash flow to $12.1 billion. For APR Energy, we are proud to successfully secure Mexicali fast power contracts, which now marks our third year in a row of providing power to the region.

APR's contracted service are rated at 330 megawatts through 10 gas turbines compared to last year's contract for 8 turbines rated at 265 megawatts. This increases our penetration in an important market with significant future growth opportunities.

Second, we are further enhancing our multi-platform business. For Seaspan, we continue to optimize our fleet, while diversifying our customer mix. For APR, we continue to exit the diesel generation market through a measured and prudent approach. A big part of increasing our competitiveness is the quality of our people. And in this regard, we recently added an experienced CFO, Phillip Lord, to further strengthen the APR team.

Our JV with ZE Energy Group will provide unique and innovative growth opportunities for both parties. In addition, it will provide further revenue diversification in the maritime and energy sectors. We look forward to providing updates. We also continue to be innovative leaders by continuously optimizing our capital structure and improving our financial position. Our financial strength and flexibility for executing opportunities is unmatched and is one of our key competitive differentiators.

Overall, we have a record start to 2021. Our achievements thus far solidifies our exciting future and ability to create sustainable value for our shareholders. I look forward to reporting on our progress in the coming months.

Please turn to Slide 12, and I will now turn the call over to our CFO, Graham Talbot.

Thanks, Bing. Good morning, everyone, and thank you for joining us today. Could you please turn to Slide #13. Q1 2021, the team delivered continued strong performance compared to Q1 2020. Revenue increased by 20.8% to $372.6 million. Adjusted EBITDA increased by 21.1% to $237.9 million. FFO was $159.2 million, which increased by 27.6% over the first quarter in 2020.

Our first quarter earnings per share was $0.31 per diluted share compared to $0.15 in the first quarter of 2020. Seaspan's fleet new capacity grew by 68.9% or by 48 vessels. And asset utilization for Q1 2021 was 99.2% and 63.7% at Seaspan and APR, respectively.

At quarter end, gross contracted cash flows for Atlas stand at $12.1 billion. Closing liquidity was up 112.7% to $837.5 million. And Atlas declared and paid its 63rd consecutive dividend.

Our performance continues to reflect both the predictability and stability of our returns, coupled with the impact of quality growth in our asset base. This performance differentiates us from our competitors as well as many mid-cap companies in the public market. Our operational excellence, creative customer partnerships, quality growth, financial strength and disciplined capital allocation, that is our five key competencies, continue to be highly effective in delivering sustainable value to our shareholders.

Please turn to Slide #14. During the first quarter of 2021, we've continued to enhance our capital structure and liquidity. We're constantly working to optimize our cost of capital and position our financial resources to stay nimble and flexible to pursue opportunities. Our liquidity stood at $837.5 million at March 31, and we have 31 unencumbered vessels with $1.1 billion in net book value. Additionally, we continue to make progress on our objective to achieve an investment-grade credit rating.

Kroll Bond Rating has recently placed Seaspan on upgrade watch in relation to the current investment-grade rating of BBB- for our portfolio financing program and BB corporate rating. They have noted our diversification of capital sources and continued strong operating and financial performance as key reasons for the improved outlook.

You'll see on this slide, the continued progress Atlas has made over the past year, effectively managing our liquidity and debt, while at the same time, significantly growing the business. It grew by 48 vessels and improved fleet utilization while deleveraging, as evidenced by our net debt to adjusted EBITDA ratio, which improved by 1 full turn or 1x.

Please turn to Slide #15. Now I'd like to discuss several initiatives that our finance teams have been hard at work on to further strengthen our financial position. For our secured debt capital, we're working on several priorities. Firstly, we're working diligently on the financing of our current growth investments. To date, we have secured financing for the 4 secondhand vessels we acquired, which is approximately $400 million. We expect financings to 13 newbuild vessels will close during quarter 2, which is approximately $1.4 billion. And we're in advanced engagement for financing the remaining 24 newbuild vessels, which is approximately $2.9 billion, and these are expected to close during Q3 of this year.

Additionally, Atlas has been developing a global base of credit and equity investors. On the credit side, we recently issued 2 unsecured notes in the Nordic market. Specifically, the first was closed in January for $200 million and was our inaugural Nordic issue, a 3-year sustainability-linked unsecured note of 6.5%. The second, in April for $300 million, was a 5-year sustainability-linked unsecured note at the same 6.5%. So an increase in amount and tenor over our Nordic bond issuance.

As mentioned, we actively manage our balance sheet and liquidity to ensure that we maintain our strength for future growth and through cycle stability. We had ample liquidity at the end of the first quarter that increased nearly 113% over last year to Q1, providing Atlas with significant flexibility and strength to deliver operational excellence, fund our growth and meet our commitments to debt and equity holders.

We've experienced dramatic increase in both the company's access to capital market opportunities and a broadened scope of capital market solutions available to execute. Accordingly, the challenge is not obtaining capital, but obtaining the right capital to meet our objectives.

Please turn to Slide #16. On this slide, you'll see our balanced capital structure, illustrating our continued diversification of capital sources. Our primary goal is to continue our progress towards achieving investment-grade corporate credit rating. To do so, we need to actively manage our balance sheet and continuously seek opportunities for improvement. We need to maintain and consistently optimize the global base of diversified capital sources as well as continue to increase our access to the capital markets, while also executing on a wider base and breadth of capital market opportunities. We need to further strengthen our balance sheet while facilitating growth. In other words, ensure strict and prudent capital allocation.

Finally, we're focused on increasing our maturities to better match the long-term nature of our contracted cash flows. As you would appreciate, this is a process of constant optimization. Capital is our natural resource and a key value driver in our business, and as such, needs to be carefully managed.

Please turn to Slide #17. I will finish my remarks with details about our recent growth in contracted cash flow. On this slide, we illustrate the power of long-term charters, which provides stability and dependability in our business and is a defining investment attribute of our company. As Bing mentioned earlier, we've set a Seaspan record, if not an industry record, by adding 41 total vessels in less than 5 months time. We're very proud of the high-performance execution of our teams to achieve this milestone.

As you see on this slide, we've significantly added to our cash flow profile, increasing visibility of our returns and creating greater dependability in our investment thesis. It's important to note that the gross contracted cash flows represented in this slide do not include any future growth. This depicts only what we have under contract today, and we're an active growth-orientated company, and we expect that to continue as we move forward.

In summary, Atlas has a very strong financial position, clear avenues to fund growth and considerable access to capital. The container shipping industry is expecting strong operational performance and improving credit profiles, and energy projects are beginning to develop.

Within the context of these strong improving industry profiles as well as the prospect from improved credit rating at Atlas, I'm confident in our ability to continue to deliver quality growth through disciplined capital allocation to drive sustainable and increasing value for our shareholders.

Operator, we'd now like to open the lines to questions. Thank you.

(Operator Instructions) Our first question comes from the line of Chris Wetherbee with Citi.

This is (inaudible) on for Chris. So first, I just want to start off with your capital allocation priorities and where do you see the greatest opportunity. So after purchasing those 26 vessels, I was just wondering how you think about the opportunities going forward? Are you looking to add more newbuilds on Seaspan side? Or are you looking to also -- how do you balance that with like maybe looking at secondhand vessels or thinking about repaying debt or increasing the dividend or maybe even share repurchases?

Thanks very much for the question. As we've mentioned before, we don't sort of specifically focus on either newbuild or secondhand. It's sort of every opportunity that comes in the market driven by our customers, we'll have a look at. There's still plenty of opportunities in the market. So even after this growth period that we've been through, it's not that there's now a shortage. But as you can imagine, newbuild starts to get more expensive as things heat up, and sometimes secondhand do become more attractive. But we're a bit agnostic as to which way we go. It really just depends on the deal that's present in the market at that time. So it's not like we sort of strategically position ourselves to do one or the other.

All right. And also, it's interesting discussing, in the context of your overall fleet renewal strategy in both prospects, how do you guys think about maybe selling vessels in the future or maybe some of your older or smaller tonnage? And would you consider selling to strength in the current market?

Yes. It's a great question. Obviously, vessel prices are increasing in the current market, but also the contract rates. And I think you're well aware that we don't really focus on short-term contract markets. So we are not really players in the short-term peak spot rates that you see. And ideally, we will just do the math, either calculate the vessel values and then look at our cash flows associated with contracting or chartering out the vessels.

Obviously, the other important element to this is we've got a number of very strategic important customers. So the first priority really is servicing their demands. And if they require tonnage, we can get the right price that meet our economics, and that's what we will do. However, it is a good time to sell as well. So it is a good opportunity to recycle capital for us. So it's basically just down to the good old discounted cash flow calculation overlaid with an appreciation for our customers' demands.

Okay. And just one final question. So conceptually when we think about APR, it seems like you guys are really positioning the business for a pivot to broader opportunities within the energy space. I mean, do you guys envision the potential to grow that business aggressively like you've done on the Seaspan side?

Yes, we would hope to. I think our Chairman made it clear a little while ago about our aspirations that we had for APR. And really what we plan to do there is to leverage the capabilities in Seaspan. So if you think of some of the core attributes of Seaspan, which is very infrastructure-like, very long-term stable cash flow-orientated, that's where we want to start to pivot the energy platform too, away from the very short-term special situations market. That being said, there's good money in the short-term special situation market as well. And we've been doing quite a bit of work over the last year to prepare the business to move forward.

The Mexicali deal that was recently announced, I think it's easy for people to assume that, that's just a renewal of an existing agreement. But it was far from that. It was a heavily competed, negotiated totally restructured package from what we had worked on previously. So that was quite an achievement to get that through. And there's also a growing developing pipeline internationally, that we're starting to work on. So it's not that the segment that we're in at the moment is not competitive and delivering value. It's just that longer term, we would like to build in longer-term stable cash flows with top-quality credit on the other side.

Our next question comes from the line of Randy Giveans with Jefferies.

So yes, as a result of all these kind of newbuilding orders, you mentioned you have $4.7 billion in CapEx in the coming years. So I guess, how much debt do you plan on adding against these vessels? And then for the remaining equity portion with your common shares trading at a 3.5% yield, is common equity the most likely way to finance the remainder?

So at the moment, the majority of those newbuilds will be funded by debt. And the portfolio of those debt packages has LTV, I'd say, between 75% up to 100%, depending on which route we take with them. So that would sort of be the bulk. But that being said, there is capital commitments out beforehand, and that is being funded through equity. And as we said, we had over $800 million in cash at the end of the quarter, and we will plan further raises.

At this stage, we're looking at the equity side, but it's really a matter of getting the house in order on the liquidity side, and then we'll work more focused around building the correct overall capital structure. As we mentioned, Randy, we're sort of still very focused on delivering on our investment-grade credit rating. And to that end, we are planning to sort of get our first public corporate rating probably around Q3 this year. And then following that, we'll sort of start putting the pieces of the puzzle together, to get us through to investment-grade probably over the next year or 2.

So there's quite a few moving parts. And as you mentioned, we should have most of the financing concluded around these vessels by the end of Q3 and a significant component by the end of Q2. So it's sort of only 1.5 months away.

Got it. Okay. So -- and then I guess, second question, unlike a lot of your peers, you don't disclose the time charters, durations, rates for your smaller vessels. So with that, can you maybe provide some color on the current average charter durations and rates for your 2,500 to 5,000 TEU vessels? And I guess any kind of coming up in the near term? And what kind of charter durations are you looking at for those?

Yes, it's Peter here. That's a good question. We actually have various situations. Generally speaking, we address our roll-offs along the lines that Graham has been mentioning, the strategic requirements of our customers. What you see in the market today is an ability to access longer-term durations against this high demand for tonnage. And that's exactly what we're doing. Nonetheless, dealing with our customers day in, day out, we're achieving multiyear charter periods.

Yes. Just -- this is Bing. Just to add what Peter is saying that specifically, for example, for 4,250, currently, what we've been signing is between 3 to 5 years. At 5 years at the rate about $27,000 per day. So this is what the rates we've been signing and also the duration. One of the questions you might ask is that, okay, you might probably haven't seen a huge spike in the Q1 revenue in consideration of the current market rate. But really, what we have been -- our approach has been really taking a long-term approach in the sense that if you compare a 5-year $27,000 per day contract versus a 2 year or 3 year $30,000 or $32,000 per day, you will see a short-term optically -- optically, you will see a short-term spike on the revenue. But after 1 or 2 years, your vessel will be open for uncertainty versus what we have taken is for a longer period of time. So we are actually seeing the next 3, 4, 5 years a very stable cash flow.

And also on a total cash flow basis, for example, if you're looking at 4,250, on a $27,000 a day, you get close to $40 million of contracted cash flow. So overall, I think for us, we're taking the current benefit over a stable, sustainable period of time that is also consistent with our long-term cash -- long-term contract business model.

And if I could just add roll-offs into Q1, we actually haven't had any roll-offs in Q1 on recharters.

Okay. That leads to my final question here. Just in terms of those 34 or so, let's call it, 4,000 or 5,000 TEU vessels you have, do you have any rolling off in 2021? And if so how many?

Yes. Just for 2021 for the 4,250, we have 6 of them. We also have 4 2,500. These are the vessels that's going to be rolled out in Q3 and Q4. The reason right now, we have these vessels have not been fixed for long term is not really -- as you can imagine, it's not because that we cannot fix it. Rather right now for the same vessel, we have been receiving multiple requests from the customers. So therefore, what we're trying to do is try to using the limited number of supply to find an optimal solution where we can satisfy different customers. So that's what we are still holding on at this moment.

For 2022 and 2023, as we said, our fleet on any given time is roughly between 10% to 20% of the vessels on the spot, in other words, for redelivery. For the 2022, we have just shy of 30 vessels, of which that currently we are in active discussions with our customers in discussion about the extension of those vessels. We anticipate to probably conclude them towards the second half of the year. And in 2023, we only have about 22 vessels for redelivery. And these are the vessels, again, I think we probably expect to have conversations with our customers towards the second half of the year because it's far down the road.

But alternatively, for the 2023 redeliveries, we are also currently using those as part of our new creative service offerings, which currently that we are in discussions with our customers, which will be different from our conventionally one-on-one vessel offering. So this is something that gives you an overview of what our roll-off in the next 3 years.

Our next question comes from the line of Omar Nokta with Clarkson.

Just a follow-up. Yes, just sort of a follow-up to the previous discussion. And you touched on this a little bit in your earlier comments. I wanted to ask sort of about the market and your latest dialogue with liners. Obviously, container demand has been very strong. Liners are seeing record freight rates. And you've seen their response of basically chartering or outright buying any available ships and driving rates higher. And clearly, we've also seen a bunch of newbuilding orders all against long-term charters to the most part.

Given how things are now, have you noticed any shift in how liners or your customers are thinking about things? Do they feel more comfortable with the supply situation that's currently there and on to come? Or is there still a lot more discussions and a lot more opportunities on the newbuilding front?

Omar, this is Bing. Our customers, liners today, in general, throughout, I believe, they're rather disciplined. Today, if you're looking at all the newbuilds that we're talking about still, these are the segments that it's relatively new. It's very versatile. And I think in terms of total amount of the newbuilds today still in terms of what we have been looking at in terms of the supply side over the past maybe 3 or 4 years, this is the amount that still is reasonable.

So fundamentally, we see that from the demand side, it's very still disciplined. On the supply side, today, we're probably close to 15% to 18% of the total market volume. But this 18% is still, it's a reasonable amount of the growth to compensate some of those historically low built over the past 3, 4 years. And right now, as the slots and also the price goes up, and I think the market itself in a way that also, I think that provides the kind of, I would say, the barrier.

And also in this time around, what you have seen that's different from the past is that -- as you correctly pointed out, it's very few speculative orders. Rather, all these newbuilds are backed by either the liner themselves or by the owners that, like ourselves, with the long-term charter that attached to it. So overall, I believe that the supply side is still rather, I would say, healthy.

Yes, that's -- certainly agree with that. And I wonder if I can maybe just sort of follow-up. You mentioned the steel prices rising. You started ordering in December. And maybe is there any color you can give on how return profiles have maybe shifted over the past, say, 4 or 5 months? Obviously, the way you guys do your business, it does seem more project specific. And so maybe the cost of construction maybe isn't that significant to you. But maybe in general, in terms of the return profile, have you noticed anything on that front that it's moving higher, lower or just maybe sideways since December?

Yes. For us, the return profile was always consistent. As we said, we are very disciplined, whether it's a newbuild, whether it's secondhand, we always make sure that quantitatively and qualitatively, the return that meets our investment criteria. So for us, actually, we see the return had been consistent or slightly improved.

In terms of the overall market today, you can see that as I have stated earlier, as the price today versus the price in December, of course, there has been increase quite materially in the sense that the raw material, particularly for steels, has increased and others, the price has increased. And also the scarcity of the slots. Because right now, you're talking about the slots, it's mostly towards the third or fourth quarter of 2024 to 2025.

So therefore, with the increase of the commodity or raw material cost as well as the further down to the delivery slot into 2 to 3, 4 years from now, at that return, it becomes less and less attractive. So that's what I think that's the current market.

That's very, very helpful. One final one. Graham, you highlighted the financing of the 13 newbuild in the second quarter. And basically, the remaining 24 coming up in the third quarter. A pretty quick turnaround, I would say. I think you touched on this, but do you mind just expanding maybe just a little bit on the financing that you're looking at? What does it look like in terms of LTV? And then maybe how the repayment profiles would look? And any color you can give on how those financings would look would be helpful?

Sure. Sure. I know there's -- so there's a number of different financing structures we're using. And some of the, I would say, the sort of more competitive ones take a little bit longer to get in place, and they're sort of the ones we're targeting with Q3. And they involve ECA financing, which obviously comes with a sort of improved tenor and cost, but takes a little bit longer administratively to get all of that in place. So that's sort of a big chunk of what comes in Q3.

The balance is primarily with Chinese leasing companies. There's a portfolio of them that we've worked with. And normally, by the time the team sort of placed a shipbuilding contract and a charter contract, they're already sitting on multiple term sheets to consider. And so really, it's a matter of considering this whole portfolio of opportunities we've got to finance and what's the best way to do it.

Now all of the options that we're looking at include predelivery financing. So as you're well aware, there's a number of tranches of payments that get made prior to actually taking delivery of the vessel. They vary a little bit, but normally 4 lots of 10%, sometimes 3 lots of 10%. They're all financed through these packages. Some of them actually pay it out on delivery, so then they sort of reverse and allocate the full amount to it. So that's the sort of portfolio we're working with. And we're looking in and announcing several of those in the near term.

They're all very competitive with good tenor. There's a lot of competition in that market, which is great. And we've got very good relationships with the various banks and institutions that we're dealing with. So I'm pretty comfortable that we'll get all of that in place.

I think the other thing I'd point out, which is of interest to people, is sort of the capital spend profile related to the newbuilds. We'll be filing our 6-K on Thursday, and you'll see in there, there's a more detailed breakdown of the capital spend over '21, '22, '23, '24 in relation to the newbuild program.

Our next question comes from the line of Sanjay Ramaswamy with Bank of America.

Great. Maybe just shifting to APR. Just thoughts on when we can kind of expect that utilization to come back into the mid-70s. You talked about, I think, an ideal contract versus spot market split and, obviously, the shift towards a more contracted portfolio similar to Seaspan. But maybe when do we expect that utilization to start increasing from the low 60s and kind of what's built into the current outlook for 2021?

Thanks. I think it's fair to say that Mexicali, that will pick up a bit, of course, in terms of utilization. Based on the allocation of 10 units to Mexicali, that means 26 out of our 30 turbines will be deployed. And in terms of the diesel generation units, I think we're running with about 40 -- 48 or so idle units there out of a fleet of 439. But as we've articulated previously, we're sort of progressively going to be winding down our exposure to the diesel generation market because it's not a strategic direction that we want to plan on.

So I think the main priority at the moment is getting all of those turbines deployed. And currently post Mexicali, we've only got 4 left idle. And the team is working hard on to deployment of those at the moment. But I think the obvious thing is that this is a very lumpy market. So you get jumps in short-term contracts. And unfortunately or fortunately, we participate in sort of special situation-type opportunities, and they're very hard to plan. But they also come with a premium as well.

So I think that's what we want to sort of maybe shift our reliance away from that a little bit and to provide a stronger base, which we can use to then amortize our cost over and then sort of also to take advantage of those special situations when they arise.

Just to add to what Graham just said, we do expect the utilization to gradually improve as coming from now on for this year. So I would think that this year, our utilization should be equal or better than last year.

Okay. Great. And maybe just to pass to that, just with the ZE Group JV. Is there any -- I mean now it's been a couple of months since you announced that JV. Can you give any color on some of the opportunities that have started to emerge from that JV? And potentially, I think you mentioned natural gas opportunities at the last call. So maybe pivoting away from intangible maritime and energy into new verticals. But is there any kind of color that you have on some of the initial opportunities there?

Yes. As we shared last time during the Investor Day, our JV partner is a conglomerate, they primarily engage in 3 main activities. One is the power generation, and the second one is LNG, the third one is the -- all that peripheral environmental, transportation financing service, that's supporting the 2 core businesses. The opportunity that we have with them is in 2 areas in terms of the JV. One is in the maritime, maritime because they have the shipping activities. And specifically, they also have the environmental technology in areas such as the scrubber. So those are the areas that both from the general shipping as well as from the emission perspective, they have the technology and manufacturing capabilities that we can join force and then get the synergy and expand the revenue sources.

On the energy side, I think that is an area that we can also working on together to -- and particularly as we're looking at expanding our offerings to larger and the long-term power projects where ZE has a credible large power generating utilities companies. I think they have the resources, they have the track record, they also have the expertise to work with us in developing the future long-term large power projects.

And also combining, that's the third stream, is the combining maritime and also power. As you might know, that in terms of the power space that we can develop the marine mobile power solutions. This is something that our ZE Group, they have already in the process of developing those offerings. And that is something that we can work with them, contributing our expertise and together, we can go to the market and provide this service.

So overall that we're looking at is a support that from energy, from maritime and also combined and energy, maritime solutions. That's the 3 areas we see that JV will be able to provide those incremental growth opportunities.

Sure. That's very helpful. And just attached to that, is there any kind of time frame that we can look to see in terms of top line incremental growth from this JV, if it's a 2 half 2021, 2022 story?

Yes. As we -- as you know, that we announced the JV formation about 1.5 months ago. We need to go through a process to formally establish a legal entity in China, special trading zone, that will take a couple of months to create that legal entity, to obtain the license, the business license. And subsequent to that, it will take approximately 30 days to 60 days to get the clearance from the Chinese anti-trust clearance. So I think from a timing perspective, we probably should anticipate this business to be formally in operation by the beginning of third quarter.

And in the meantime, even though without the formally establishment of the joint venture, I think we and them are informally looking at, for example, the power project as well as some environmental projects together. So this is running on a parallel basis.

Our next question comes from the line of Liam Burke with B. Riley.

Yes. Bing, Graham discussed in his prepared comments about how the pipeline of potential acquisitions of fleet assets is pretty extensive. With higher asset prices and the charters associated with potential newbuilds, has that affected understanding your return discipline? Has that affected the size of the pipeline as you look at potential future projects?

For us, so far, we have not seen a major impact because even though there might be the increase on the ship prices, but for us, it's always looking at the same return or better return. So therefore, that has to be reflected in terms of the charter rate. So overall, I think so far, the market or our clients also understand the market condition.

And I think what we actually was able to and have been able to do is to be able to find the most effective, the most, I would say, cost-efficient way to develop those projects. And that's what our value added. And this is why also we were able to have the ability to develop this 37 newbuild projects. So I think our customer really is looking to us to be able to provide that kind of solution by working with multiple stakeholders within that process. And going forward, and I think we'll continue to play that role. And I believe that from a return perspective, we will always be -- stay very disciplined, whether it's a new build or secondhand.

Fair enough. And if I look at -- I mean, in that situation, you can continue to make acquisitions based on your flexibility of funding plus charters and the cost of the asset. Operationally, do you have a sense as to how -- what the size of the fleet would be? Or do you just take a look at adding these higher return assets and then potentially divesting yourselves of the lower return assets?

Yes. Operationally, I think we are very extremely proud of our team at being able to manage and operate such a large fleet in the current extremely logistically restricted environment. And I think our team, Torsten and his team, have done an excellent job. We have a total of about close to 5,000 seafarers working 7 x 24. So I think they've done a great job.

In terms of the asset, I think what you're talking about the lower return, high-return on assets, this is something actually it's part of our residual risk management function, which our team manage on a daily basis. We have a team called Asset Integrity. They're basically looking at from a technical perspective in terms looking at what are the best composition of our fleet. We also have the Investment Committee, which is looking at from a financial perspective, whether we invest or we divest the assets.

As Graham has mentioned earlier, for us, we're looking at each every asset, to answer the questions whether we should operate or whether we should divest. Ultimately, is the cash flow. So far, maybe you have another question in saying, why we haven't seen you guys selling the assets? The reason would be very simple, is because that today, when we're looking at our ability to be able to generating the future cash flow, the discounted cash flow, the total amount of cash flow versus the market sale price, we have not seen those opportunities where the sale prices is greater or equal to the free cash flow that we can generate from the operating of these vessels, as I used the example just now for the 4,250.

4,250 today, as I mentioned earlier, for $27,000 a day for 5 years, taking out OpEx of somewhere around $5,500 per day. So we still have a net cash flow of roughly about $30 million at the end of 5 years. Assuming I scrap the vessel at the end of 5 years, that the scrap value will be somewhere between $5 million to $7 million. And today, probably more like $7 million with the high steel price. So for 4,250 with a -- by then, it will be 25, 26 years old with a net cash flow of somewhere around $30 million -- $36 million -- $35 million, $36 million. Today, the 4,250 in the market that people want to buy somewhere around $28 million to $30 million.

So that's why we think we will continue to evaluate on a real-time basis. At the same time, I think our strength of operating the assets and get the maximum utilization and also get the preferred charter terms from our customers, and that's the preferred way to go.

Our next question comes from the line of Michael Goldie with BMO Capital markets.

At present, about 15% of the containership fleet expires in a given year. With the longer contracts of these newbuilds and any potential contract renegotiations, where do you think you can get that annual expiration number down to?

Yes. Peter here. So I think you're asking where on average can we get our roll-offs down to on an annual basis, if I understand you, Michael.

Yes.

Got it. So that's really a function of the existing charters and when they come off. So what we do look at, of course, is what our waterfall in the future looks like. So whenever we go into charter negotiations, we have that in mind.

Of course, when we do newbuilds, we like to have long-term charters. Those vessels come off anywhere from 2 to 3.5 years from the date of signing a contract. So that takes care of that. So really, the flip side of the coin is the near-term roll-off, which I think Bing has described quite adequately, we certainly engage in a strategic manner with our customers.

He mentioned a novel approach to it that we're working on right now, which covers both ends of the spectrum and ultimately achieves longer-term charters. So I'll give you some illustration. So last year, 2021 looked like, say, 25 vessels. We're down to about 11 now. And we're in active discussions on how to take care of those 11 and put them away for extended periods of time. We're already in discussions around 2022, how to box up some of those 30 vessels for multiyear contracts. And 2023, that's a little bit away, as you heard earlier.

Long and the short is, our approach to our customers is on a full spectrum-offering basis. And we discuss with them their needs well into the future and try and lock in tonnage, be it newbuild, be it acquisition from the existing markets or the tonnage that we have at hand.

Just to add to what Peter said. In general, not only in the current good market, we, as a general approach, is that we always proactively working with our liner customers, looking at what their network planning needs are, and then we're working on a very proactive basis. And so therefore, in terms of these roll-offs, currently, even for 2022, the reason that we still have about close to 30 vessels is because that we are still in a similar situation right now as we in 2021, is that we have multiple customers looking for the same vessels. And that is why we are also in the process of working on the optimal solutions where we can satisfy all our customers with an optimal solution.

But in any given time, our utilization, as we said since the beginning of the company until today, we have always maintained an over 98% utilization over the past 18, 20 years. If you're looking at last year -- looking at this year, this quarter, we have 99% -- over 99.2%. Last year, we have also over 98%. So the utilization rate, hopefully, will be a good reference point to show that our ability of being able to constantly redeploy and constantly generating new growth. So that's -- these are the 2 things, I think, is really the differentiation factor of Seaspan's business model because we are always able to deploy these assets, and we always find a way whether it's in the current good market or in -- even in 2020, if you may recall, in the height of April, and it's a year ago this time, when China was locked down, we were able to deliver 4 second vessels to our customers. That was a year ago.

So this is something that we are -- this is something that we have been able to deliver the kind of service to our customer and build that kind of trust. And that's how we're going to continue to manage our business going forward.

Perfect. And just one more. Given all of the newbuild orders, where do you think your market share is today? Has it increased as a result of all these new contracts?

Yes, yes. If you're looking at our -- just purely on an absolute basis, by these new deliveries come into the operations, we will reach the capacity of 1.7 million TEU. And if you're looking at in an independent owner-operator space today, we are far, far, I think, in the lead than our peers. So I think it definitely, for sure, as the tonnage provider today in the space that in terms of that market, we definitely are far apart from our peers.

The other part is that more importantly, it's like looking at the -- not only the fleet size, but also looking at the fleet composition. I think it's very important that this growth that it really represents the best asset quality. They are the largest. They are the large vessel, they are the most fuel-efficient vessel. And they are also most versatile vessels. So these are the best-in-class assets that today we are the only one in owner-operator space that has this composition of the best-in-class assets. And that is, I think, is equally more important than the size.

Our final question comes from the line of Ben Nolan from Stifel.

So I had a couple left here that I wanted to work in. I'm a little curious about sort of the creative chartering strategy that you discussed a little bit. Is part of that your ability to sort of offer existing assets to clients and maybe pair that with also doing newbuilds with them? For instance, giving them access to your vessels, maybe even at a little bit of a discounted rate for the current hyperinflated spot market. But in exchange, you're also sort of able to do newbuilds or something like that, kind of lever your market position with your financial strength?

Thank you, Ben. What I mean by creative chartering in the newbuild case, as you just highlighted, is that really, today, if you're looking at liners, I think they all financially, I think, are very strong. And they have abundance of cash flows. So theoretically, today, liners could go directly to the yards, which yards today also know who liners are. But the reason they're going to us is because, as you know, that doing a newbuild is a very, I would say, comprehensive, a very complicated process that involves the design, the understanding, the negotiation with the shipyard, understanding that -- what their specific requirements, the slot availability and then, et cetera.

So therefore Seaspan really is the, what I call, a super connector where we can put ourselves being in the middle and execute in a very effective and efficient way to deliver the best solution, whether it's a slot, whether it's a design, whether it's a decision on the fuel selections and the technical part as well as financing and operations. So that is why the -- we are always able to provide that kind of a solution.

Sometimes, the liner customer wants to get a better idea in terms of what the fuel selections are. Sometimes, they want to have an early slot. Sometimes, they want to have a different type of a design that they can -- they may want to modify over the time. So this is something where our team have the multi-disciplined capabilities and expertise. And this is something that we have always referred to in our discussion, saying that we have the integrated platform.

The integrated platform is multi-disciplined. For a case like a newbuild, that it is a very complicated process. And my colleague, Peter, he will be able to elaborate a lot more on the complexity of this kind of project. And that's how we will be able to always to be able to find ways to deliver the kind of solutions to address the needs of our customers, whether it's technical, whether it's construction, whether it's environment, whether it's operation or financing.

Right. Okay. So I guess what you're saying is that you're not sort of leveraging your existing portfolio to help win newbuilds. You're able to do that sort of independent mindset, correct?

Largely, yes. Largely, that is correct.

Okay. Now maybe if I could shift a little bit to the macro. Obviously, you guys and others have ordered a lot of ships since the first of the year that, as has been talked about, are almost entirely on long-term contracts, and the liners are obviously very hungry for tonnage. Is there a point at which you start to look out in the future, let's say, the 2023 order book or something like that, and say, "Boy, that we might be headed for a little bit of a rough patch here." Is there any sort of future concern as to just the sort of normal troughs of markets like this as a function of supply? Or are we not yet at that stage in your view?

Yes. Fundamentally, we believe we are still of the opinion that the fundamentals of supply and demand is still healthy. If we're looking at what the recent new build, yes, the absolute number might be higher. But if you're looking at over a period of time, over the past 3 years or 4 years and also you're looking at the next 3 or 4 years, on an annual basis, the new tonnage that's been released versus the replacement of the tonnage, I think still that is, in general, it's balanced.

Plus on the demand side, I think the liners today are still, as I said earlier, they are rather disciplined. And if you're looking at the global trade, I think today, yes, on one hand, for sure, the COVID has made the situation, I think, more severe. But just taking out the COVID, I believe, the overall demand and overall growth on the global trade according to the industry estimate is about 5%, 4%, 3%, 2% increase over the next 3, 4 years, so that you will have a continued increase of the global trade.

At the same time, the supply side, this is reasonably -- I think, it's a reasonable growth. And let's also remember that for the past 3 years or 4 years, we had historically low order book. And also in the last few years until this year, I think that in terms of the scrap, has been almost immaterial. So I think in 2013, '14 -- 2023, 2024, yes, there might be more tonnages coming in. But I think the impact will be the cascading of those older vessels, the smaller vessels. And for Seaspan, really, for all those newbuilds, we have the long-term contract ranging from 5 to 18 years. So really, for us, this is actually -- we are expecting -- we're looking forward to the future because that's where our growth is going to come to the reality.

And for our existing fleet, we -- as we said, at any given time, our spot or redelivery is somewhere between 10% to 15%. If we're looking at right now from '22, '23, I believe that our number and also TEU, number of vessels and the total amount of TEU, is very manageable in a month. And I think for 2022, we should be able to, I think, get most of them fixed by the end of the second half of the year. For 2023 and onwards, we actually, as I mentioned earlier, are in active discussions with our customer, looking at even having different ways of providing the services or tonnages to better service our customer needs with more flexibility. At the same time, allows us to be able to have the kind of flexibility as well to optimize the fleet and servicing all our customers' needs without significantly increasing the actual number of vessels. So this is something that we are looking forward to into the -- in the coming years as the market continues to evolve.

Okay. And then lastly for me, if I could, just kind of a balance sheet type question. Graham, as you -- and I realize that there's still a lot of moving parts here. But based on sort of where we sit today, do you have any thoughts as to sort of what may be the annual amortization profile of the debt should look like going forward?

And then maybe sort of connected to that a little bit. You talked about getting a corporate investment-grade credit rating later this year. When you think about that, is that like a typical S&P and Moody's? Or are you still contemplating that being sort of more the Kroll accrual rating?

Yes. I think -- so the Kroll rating was something that was done in relation to the portfolio lending program initially that was put in place last year. The work that we're doing currently and have been for a little while now is with Moody's, and we've also commenced engagements with S&P and Fitch.

So when I refer to, just to be clear, not investment-grade by Q3 this year, I wish, but the first step is obtaining our formal corporate rating from one of those institutions that we've just been discussing. And that will then position us with the rating in the market that everyone knows and understands. And then we're on a journey from there to push that up to investment grade, which will take a period of time. It could be 1 to 2 years. We don't have a set time line for it. We've got to balance up, as you say, many years and components to get there. But all I can say is it's very top of mind, and we're very committed.

Obviously, through the newbuild program, we start to push up on the gearing a bit. And we're very conscious of that, and we sort of model out our cash flows throughout and past the newbuild program to make sure that we've got all of that adequately planned and covered. And of course, it then comes off very quickly after that, once you start to get the cash flows coming in from these new vessels entering into the fleet and entering into service. So there is a tightening. There's no hiding that. And I think everyone's well aware of it. But we've got plenty of time to work on optimizing that, and it's not a concern for us at the moment.

Like I said, our cash forecasting is comfortable within all of our covenants and limits that we set. And so it's really a matter of how can we work it harder to optimize it during that time frame further.

Right. And any idea what we should be thinking about from a debt amortization, annual debt amortization profile print?

Yes. I'm not sure that I have an average number that I can give you, Ben. I can -- because each package is slightly different. It could be between 5% and 10% amortization on different packages. I'm happy to get back to you with a more structured answer.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

Well, thank you. Thank you, everyone, for taking the time to join our earnings call. We look forward to see you in the next quarter. And I wish everyone all the best, and stay safe and healthy. Thank you all very much.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.