Capital Clean Energy Carriers Corp (CCEC) 2013 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Capital Product Partners fourth-quarter 2013 financial results conference call. We have with us Mr. Ioannis Lazaridis, Chief Executive Officer and Chief Financial Officer of the Partnership.

(Operator Instructions). I must advise you the conference is being recorded today, Friday, January 31, 2014.

The statement in today's conference call that are not historical facts, including our expectations regarding development in the market, our expected charter coverage ratio for 2013 and 2014, and expectations regarding our quarterly distribution, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated.

Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views, or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units.

I would now like to turn the conference over to our speaker today, Mr. Lazaridis. Please go ahead, sir.

Thank you, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation.

On January 22, 2014, our Board of Directors declared a cash distribution of $0.2325 per common unit for the fourth quarter of 2013, in line with management's annual distribution guidance. The fourth-quarter common unit cash distribution will be paid on February 14, to unitholders of record on February 7, 2014.

The Partnership's net income for the fourth quarter 2013 was $2 million, including a $7.1 million loss from the sale of the Motor Tanker Agamemnon II to unaffiliated third parties and a $0.6 million loss related to the settlement of the Partnership's claims against OSG, and certain of OSG's subsidiaries in connection with a voluntary filing for relief under Chapter 11 of the US bankruptcy code.

To remind you, the second quarter 2013 we received $32 million from the sale of the OSG claim to Deutsche Bank, and the charge of $0.6 million is against that amount, and we do not anticipate any further charges.

The Partnership's operating surplus for the quarter amounted to $29.2 million, which is $6.7 million higher than the $22.5 million from the fourth quarter of 2012 -- from the fourth quarter of 2013. Common unit coverage for the quarter stood at 1.2 times.

During the quarter, we have increased the Partnership's senior credit facility from $200 million to $225 million. The facility is nonamortizing until March 2016, and will be used to fund up to 50% of the charter fee value for future acquisitions of medium-range product tankers and Post-Panamax container acquisitions. As of today, $150 million remain available under the facility.

As previously announced, the Partnership entered into two separate agreements with non-affiliated third parties to acquire an Eco-Type MR Product Tanker, the 2013 built Aristotelis, and to sell the 2008 built tanker, Agamemnon II. The Agamemnon II was delivered to its new owners on November 5, 2013. The Partnership took delivery of the Motor Tanker Aristotelis on November 28, 2013, which shortly thereafter commenced its period time charter for $17,000 gross a day for 18 to 24 months with Capital Maritime.

The acquisition of the Motor Tanker Aristotelis was funded with proceeds from the sale of Agamemnon II and approximately $6.3 million from the Partnership's cash balances. In addition, our sponsor, Capital Maritime & Trading, has chartered our two 2008 universal built Suezmax crude tankers, Aias and Amoureux, and the MR product tanker Arionas for a minimum period for one year.

As a result and as of the end of the fourth quarter 2013, the average remaining charter duration of our charters stood at 8.8 years with approximate charter coverage of 84% for the total days of 2014.

Turning to slide 2, revenues for the fourth quarter of 2013 were $47 million compared to $38.3 million in the fourth quarter of 2012, the increase being mainly a result of the Partnership's increased fleet size and improving employment dayrates for certain of the Partnership's vessels.

Total expense for the fourth quarter of 2013 were $32.7 million compared to $26.3 million in the fourth quarter of 2013, the increase mainly the result of the increased fleet size of the Partnership. General and administrative expenses for the fourth quarter 2013 amounted to $1.4 million compared to $2.3 million in the fourth quarter of 2012, the decrease resulting from the Partnership's incentive compensation plan becoming fully vested in the third quarter of 2013.

Total other expenses, net, for the fourth quarter of 2013 amounted to $4.7 million compared to $3.8 million for the fourth quarter of 2012, the increase resulting from higher interest costs as a result of the increased indebtedness of the Partnership.

After taking into account the loss from the sale of the Agamemnon II, which we talked about earlier, and the preferred interest in net income attributable to the unitholders of the $18.9 million plus the convertible preferred units outstanding as of December 31, 2013, the result for the fourth quarter was $0.02 net loss per Limited Partnership unit.

Moving on to slide 3, you can see the details of our operating surplus that determine the distributions to our unitholders compared to the previous quarter. Operating surplus is a non-GAAP financial measure which is defined fully in our press release. Adding certain non-cash items back to net income, we have generated approximately $29.2 million in cash from operations before accounting for the Class B preferred units distribution.

After adjusting for the Class B unit distribution, the adjusted operating surplus amounted to $25.2 million, which translates into 1.2 times common unit coverage.

On slide 4 you can see the details of our balance sheet. As of year-end, the Partners' capital amounted to $781 million, which is $207 million higher than the Partners' capital as at the end of 2012. This increase primarily reflects the issuance of 13.7 million common units, which raised gross profits of approximately $126.5 million, the issuance of 9.1 million Class B units, which raised gross proceeds of approximately $75 million, combined with a payment of $88.2 million in distributions since December 31, 2012, and the net income for the 12 months period ending December 31, 2013.

As of the end of the fourth quarter, the Partnership's total debt has increased by $124.9 million to $583.3 million compared to total debt of $458.4 million as at the end of 2012 as a result of the loan advances in connection with the acquisition of five 5000 TEU container vessels acquired during 2013.

Overall, our balance sheet remains strong, with a net debt to capitalization of 37% and with Partners' capital representing 55.7% of our total assets.

Turning to slide 5, you can see our fleet profile. The Partnership's fleet is built in first-tier yards and at high specifications, and is comprised of 18 product tankers, seven Post-Panamax container vessels, four Suezmax tankers and one Capesize bulk carrier, and have more than tripled in size since our IPO in 2007. The average fleet age stands at 5.8 years compared to 9.4 years for the industry average.

Turning to slide 7 -- turning to slide 6, we are pleased to have chartered two of our crude Suezmaxes, the MTS and the M/T Amoureux, to Capital Maritime for one year at $24,000 [plus] per day, plus 50/50 profit share on actual earnings, settled every six months. The [earliest delivery under] -- in the charters is in November and December 2014, respectively. Those vessels were previously under charter with Capital Maritime at the same rate.

The Motor Tanker Amore Mio II entered into a new charter with Capital Maritime for a minimum charter time of one year for $17,000 gross per day after its charter expiration to BP Shipping, which was for a gross rate of $17,500 per day. The earliest for delivery under the new charter is in November 2014.

Finally, the Motor Tanker Arionas extended its employment with Capital Maritime for an additional charter term of a minimum of 12 months for $14,250 gross per day, plus 50/50 profit share for breaching the [interim] warranty limits which is $450 per day higher than the previous employment day rate.

The earliest of delivery under the new charter is in October 2014. All charters were unanimously approved by the conference committee of the Partnership.

Turning to slide 8 and taking into account the new charters of Aias, Amoureux, Amore Mio, and Arionas, the average remaining charter duration is 8.8 years. We have eight product tankers that will see their charters expire over the coming 12 months.

Period fixtures in the product tanker market have continue to improve and we expect to take advantage of the attractive fundamentals of this market, the increased activity in terms of period fixtures as well as the better period market to secure favorable employment for these vessels.

In addition, we have recently seen strong signs of recovery in the spot crude tanker market, which we are optimistic that may translate into an improved period market and allow us to employ our Suezmax crude tankers at higher levels.

On to the next slide we have reviewed the product tanker market development in the fourth quarter 2013. Spot earnings for the fourth quarter were modestly weaker compared to the previous quarter due to the lower rates on the transatlantic side. However, increased activity out of the US Gulf and increased demand in the Atlantic towards the end of the quarter saw an improvement in product tanker spot rates towards the year end.

Overall, 2013 saw strong returns for the product tanker spot market, with average earnings rising to the highest level since 2008, with ship owners and operators in reality enjoying even stronger returns than the traditional emphasis for this true triangulation. The positive momentum in the market was mostly driven by the solid rates seen ex-US Gulf. The [US farm bill], in conjunction with rising product demand in Latin America and also higher exports to Europe, saw US product exports surging to more than 30 million barrels per day in 2013, thus offering substantially higher employment opportunities for medium-range tankers compared to the previous years.

The record exports from the US Gulf contributed to a solid increase in product ton-miles [in last year], estimated at approximately 4.3% in 2013. For 2014, analysts expect demand growth to increase by 4.2%.

The product tanker period market experienced increased activity in the fourth quarter and throughout 2013 in response to the strengthening spot rate environment and the positive outlook for the sector, while period rates rose to their highest levels since July 2009. The number of period fixtures for product tankers in 2013 is estimated to have reached the highest level on record. We expect the positive development in the product tanker market to continue in 2014 on the back of stronger oil demand, rising exports from the US Gulf and favorable changes in the refinery landscape.

On the supply side, net fleet growth for product tankers for 2014 is forecasted to come below demand growth of -- at 3.4%. The product tanker order book continues to experience a slippage year to date as approximately 33% of the expected MR delivery and Handysize tanker buildings were not delivered on schedule for the full year of 2013.

In addition, the MR order book seems to have stabilized, with most product tankers shipping at capacity until the mid of 2016 being accounted for. We believe that the current MR product tanker order book at 18.6% of the total fleet, in combination with the demand fundamentals and the order book slippage, should not affect the rising trend of the spot and period charter rates going forward.

Turning to the next slide, the Suezmax spot market -- spot rates improved significantly in the fourth quarter of 2013, rising to their highest level since the first quarter of 2012. The momentum of the Suezmax spot market continued well into January 2014, which saw the highest average monthly spot earnings since July 2008.

The IEA forecast of global demand growth for 2013 has been revised upwards at 1.2 million barrels per day for 2013, improving to 1.3 million barrels per day in 2014, as the macroeconomic backdrop improves.

Suezmax tanker deadweight demand is expected to grow by a solid 4.8% for the full year 2014 on the back of increasing market share for Suezmaxes, on the back of increased volumes to Europe and the Far East. On the supply side, analysts expect 2014 net fleet growth of 2.4% to be below Suezmax demand growth.

The total Suezmax order book now stands at 10%, the lowest in percentage terms since 1996. Slippage continues to affect tonnage supply and [we saw the] increase of approximately 54% of the expected Suezmax new buildings year to date, during 2013, were not delivered on schedule.

Finally, given the market backdrop, very few new Suezmax orders have been placed over the past 12 months, which should help improve the demand supply picture going forward.

Turning to the final slide, our full-year 2013 common unit average, excluding the $31.4 million gain from the sale of the OSG claim, stood at 1.1 times. It was 1.6 times including the proceeds from that sale. We believe that common unit coverage distribution is well supported going ahead.

The Partnership has good revenue visibility for -- as 84% of the 2014 days are fixed and the remaining duration of charters stand at 8.8 years, following the recent acquisitions.

As from the fourth quarter, the Partnership can benefit from the full contribution of the five 5000 TU Post-Panamax Eco Containers, which were acquired during 2013. The product tanker market fundamentals remain positive as it is the location of refinery capacity and increased US oil exports positively affect product tanker demand going forward.

The Partnership's short-term and [five-year deployment] strategy for our product tankers position us well to capture improving product tanker period rates, as a number of our product tankers and crude charters expire over the next 12 months. The Partnership may potentially grow its unit coverage through accretive acquisitions in the product and container markets.

And, finally, the Partnership boasts a strong balance sheet and liquidity and has no new building commitments.

I would like to conclude by reiterating our commitment to the $0.93 per unit annual distribution guidance going forward and to the continued enhancement of our financial flexibility and distribution coverage. We believe that the improved distribution coverage, the better tanker market fundamentals, and potential growth opportunities provide a solid base for the upward revision of our annual distribution guidance in the future.

And, with that, I am happy to answer any questions you may have.

(Operator Instructions) Jon Chappell, Evercore Partners.

I want to start on those last two points that you made, both potential acquisitions and the balance sheet. So, with the increase in the credit facility to $225 million, and as you think about excess cash generation relative to the current distribution, what do you view your liquidity as for potential acquisitions as we enter 2014?

Look, we have been able to increase our facility towards year-end, which means that now we have available $150 million. We can finance up to 50% of medium-range -- or for product tankers as well as containers.

You know that in the previous call that we had, we have identified the certain vessels from Capital Maritime that potentially can find their way to the Partnership. These amount to three containers and up to eight medium-range product tankers. Deliveries start from 2015.

And I believe that, as I mentioned to you towards the end of the call, that the fundamentals are there to see continued good distribution coverage going ahead. So we believe liquidity will be there, will be robust, and we will be able to execute our transactions.

So if you think about 2014 as a transitional year before those 11 ships deliver to Capital Maritime, are there any other kind of secondhand, non-dropdown possibilities? I would think that, given your structure, you would prefer assets that had time charters, but you probably don't want to sign new charters at this point in the cycle long term. So is there anything like that out there, or do we kind of have to wait until we are closer to 2015 before there is more growth?

We have been transacting over the years not only with Capital Maritime. You saw recently we bought a vessel from a third party and we have chartered that to Capital Maritime. That opportunity is out there.

There is a number of owners that will probably be looking to sell, so we will evaluate each particular transaction on its merits and on its accretion. So, nothing out there forbids us or prevents us from acquiring vessels prior to 2015.

Understood. Just two last quick ones on the Suezmax charter extensions, the Aias and the Amoureux. Those had options at $28,000 a day with profit share. Could you just talk about what went into extending at the current rate as opposed to the options that were already embedded in there?

And then, also, the six-month profit share, can you just kind of walk through the logistics of that and where that will show up in your account?

I will pass you in a second to Jerry Kalogiratos to give you a little bit of a backdrop of the Suezmax market, but be aware that the $24,000 that these vessels were earning up to the end of last year, and they will be earning today, is quite attractive compared to what we have seen of late, even after the Suezmax markets have bounced.

And I also want to say that this biannual profit settlement based on actuals is the same exact feature that we had as in the previous charters. And be aware that in the previous quarter we booked approximately $200,000, $300,000 from one of the Suezmaxes as a result of that. Be aware that the Suezmaxes today are trading at well above this base rate.

So just to be clear, well above in the first quarter. Is that going to show up in the first-quarter results or is that all kind of aggregated to the first six months, then will show up in your June results?

We have to wait for the June results. Hold on a second; I'll pass you across to Jerry.

Okay.

As you know, the Suezmax spot market was quite depressed for a while and, as a result, we have seen very few period fixtures. And the few that we have seen were closer to $14,000, $15,000 per day until late November. That was also the time that these fixtures to Capital Maritime were negotiated and concluded.

Even after the recent spike in spot rates in the Suezmax market in December and January onwards, we have seen again very little fixtures; actually only a couple for six months, which were in the high teens or very low 20s. So even if you compare the -- this picture, the $24,000-plus profit share, which is, as you pointed out, could be potentially a very important element, this again compares very favorably to the current period rate -- period market, which will continue and is very liquid until I think market participants are convinced that the spot rates, they are sustainable.

Very helpful. Thank you, Jerry. Thanks, Ioannis.

Michael Webber, Wells Fargo.

Ioannis, I wanted to follow up on a couple of Jon's questions, the first around potential growth. And you mentioned that most of the assets deliver a year out and then we are looking at a 2015 where none of them are going to be delivered or potentially chartered. I just wanted to clarify one of your comments, when you mentioned the capital obviously has a history of supporting the MLP. And clearly this quarter we have seen capital stepping in and taking on more assets.

Is it possible that you could see capital parent charter or dropdown assets to CPLP and then take them back on charter to facilitate that growth a bit earlier than actual delivery and kind of free up capital to take a bit more risk in the market?

I didn't really get the last part of your question. If you look, there are several elements in your question. Number one, 2015 is not that far away. Certainly, we are very pleased about the distribution coverage we have during the quarter, also for 2013. And I gave you a little bit of backdrop why we believe that the distribution coverage will remain robust in 2014.

Also, I think that, if you look at the charters that Capital Maritime has on the MRs with Capital products, they are attractive, but they are not necessarily very different from what you see in the market today. If anything, today you see rates moving above $15,000.

So certainly there is attractive charterers and attractive charters out there. And one reason in the past we why we wanted to have Capital Maritime as a counterparty is because of the flexibility that they gave us, that it was not asking for optional years, unlike some charterers used to ask in the past at the same rate.

Today this has changed. You see many more fixtures that have the second year at a higher rate. We recently had, actually, one of our vessels to BP fixed like that. So I believe that as we draw closer to the 2015, you will hear more about the fixtures that, potentially, these [are must come and get]. And based on how they look, then we will evaluate whether we can buy them at [take or pay].

Right. Effectively, just trying to ask whether or not that charter back philosophy was available for the vessels. The assets that are currently the parent, I think you are saying that it is.

In terms of actually getting out and weighing out what assets CPLP would look at from the parent, kind of building out a potential dropdown timeline or giving a degree of visibility, obviously they're delivering a year out. But you added a fair amount of visibility in terms of what is there.

How do you think about weighing that out for the market and maybe giving a path to what your future fleet might look like in terms of dropdowns? How do you think about starting to actively talk about that and kind of laying it out and talking about dropdowns?

I think we will be able to talk to you later this quarter -- in the second quarter about this stuff. I also mentioned a couple of things in the press release as well as in this call regarding the forward guidance, where we say that the improved distribution coverage, the better market fundamentals, and the potential growth opportunities provide a solid base for the upward revision of our annual distribution guidance.

So I think we are generally positive. And I think that, if you look at the vessels that we have, the three containers and a number of the MRs, these are starting to deliver from the very early part of 2015. This is not that far away. If you think you buy a vessel today in MR, don't expect that it is going to be delivered in the next few weeks. It is going to take a few months in any case. So 2015 is not that far away.

Right. Okay. No, that's helpful. And in general it seems like just about everything is working for you guys right now in terms of either dry bulk rates. [You don't have] any real exposure there. But [crude or] product tanker rate and there seems to be pretty firm amount of demand for containerships. So it seems like just about everything is available in one way, shape, or form or another, as opposed to a couple of years ago.

When you look at either what is out in the market or what is at the parent today -- and, again, I don't want you to jump the gun in terms of actually laying out that path, but is there a preference at CPLP when you think about adding to your asset base, which markets you would prefer to gain exposure in?

Well, I believe assets that offer us the best accretion. So that will be the criteria that we will use.

Fair enough. When you look at the different markets that you are in right now and on a forward basis, what do you think actually offers you the best accretion right now?

I think if you look at the containers we have, where we will be able to communicate you in the not-too-distant future certain charters for them, we will probably communicate certain charters potentially for the MRs. And then we will be able to give you the spot rate. But as I said, this is going to happen later in the quarter or in the second quarter, so you will be able to see better what happens.

The trade facility, in any case, allows us to buy either Post-Panamax containers or product tankers. So we -- and that is what we build at Capital Maritime. So it is pretty straightforward what we will be looking at.

Fair enough. Great. Okay, thanks for the time, guys.

Ken Hoexter, Bank of America.

How should we look at the increasing reliance, I guess, on Capital Maritime? It seems like one of the vessels went off charter to BP and you are adding another vessel onto Capital Maritime. Is there a reluctance of charterers to sign up for the shorter-term charters in the market? Is it -- I'm just trying to understand why we are seeing an increasing flow toward Capital Maritime rather than out into the market with the end users.

Ken, I wanted to say a couple of things. The percentage of revenue that was with Capital Maritime in the quarter was 28%. In the third quarter it was 33% and the year ago was more around 45%. So, certainly, in actual numbers, the reliance to Capital Maritime is decreasing, not increasing.

And certainly if you look at the number of MRs that we have with Maritime, there are fewer than there were before. I think, at the peak, we had nine. Now we have seven.

But we have the Suezmaxes that we fixed. I think I mentioned or Jerry mentioned some numbers. I think these are attractive charters and they have profit-sharing agreements. These today are not available from other parties.

BP had the Amore Mio for a particular trade. This trade has finished, and the rate that they were offering was not as attractive as the rate of Capital Maritime. So that is how it is, but overall, the reliance on Maritime is decreasing.

Can you give us any update on the health of Maritime?

I think I mentioned to you in the previous quarter some numbers. Maritime does not have any updated financials. So for the six months, as I mentioned, the assets of Maritime were close to $1 billion. It had a very strong cash position, and its total equity as a percent of the total assets was more than 60%. Its leverage is very little. So I can reiterate that today.

Wonderful. And then, you went over the order book for the MRs. Obviously it has scaled up quite a bit, I guess, over the last couple of months. Any thoughts on if that is beginning to impact or maybe cap the potential of rate increases? Or is that -- do you still see it moving in terms of the growth of global demand, given the shale development and the product demand? Or do you see it capping rates?

This Jerry. I think up to now we have seen an improving period market. And especially if you see it from our perspective, because period market tends to be a little more stable than the spot market, and you look what has happened over the last few years, you will see that from 2010, where we had an average one-year [DC] rate for MRs at $13,160, today, for 2013, the average one-year rate was $14,350 and, if anything, today we are around $15,000 or above.

We have seen recent fixtures to continue to lock in MRs for one year at around $14,750 to $15,000, while 3- to 5-year charters are between $15,500 to $16,000. These are all numbers that we haven't seen since 2008, 2009.

In addition to that, which I think is probably the most encouraging sign, is that there are a number of charterers out there that continues to take tonnage. So in 2013 we had 250 fixtures. In 2012 we had 180. And just in 2012 it was only 85.

So there continues to be appetite. So until now, we haven't seen supply affecting period rates. If anything, I think period rates are still on the rise.

So I don't disagree with anything you just said. That is kind of obvious and we are seeing what is going on with the rates right now. And I understand the increased fixtures.

I am talking about the excitement that you have had, I guess, being in this market relative to the scale and size of which we have seen the order book grow for 2015, 2016 deliveries. Does it temper your growth potential into those years, given the size and the scale of the order book ordering that has gone on over the last year?

There are two sides to this. One affects supply, and there continues to be slippage, which is something we have discussed in the past. And while slippage in 2011 and 2012 might have been closer to 50%, 2013, it was still one-third of the expected order book.

So maybe the order book has grown, but supply probably is not going to be what it looks like. That is one thing. Secondly, I think what is very -- what makes us feel comfortable in the market is demand. I think the demand story continues to be very robust.

Deadweight demand continues to be above expected fleet growth. And while we felt comfortable with demand when the story was about refinery dislocation, the added demand that is coming from the excess crude production in the US, as well as -- and the exports that are coming out of the US Gulf, means that demand will continue to be robust over the next couple of years. So I think we feel pretty comfortable, despite the increased order book.

Okay. Yes, but -- I will move on, but I guess if you have already seen the slippage go from 50% to 33%, I presume that is going to continue to decrease, given that the market is improving and people want to take deliveries. And so, again, I think you're going to see an increased scale there. But, again, it doesn't matter because right now you are seeing a good pricing on the market.

The new build commitments, Ioannis, you talked a bit about what Capital Maritime has. Would Capital Product Partners ever be the one to place the order? Or would it always go through Capital Maritime or secondhand vessels and get the charter already in by the time you take delivery? Or would you go ahead and make any new build commitment?

No, it will be Capital Maritime. Capital Products will not place new buildings.

Okay. Is there any -- you mentioned the vessels that Capital Maritime has coming. There's no update or any additional vessels that we have seen since then, right? It is just the ones that --

No, three containers and eight product tankers.

Wonderful. Appreciate the time.

Matthew Phillips, Clarkson.

Sorry to beat a dead horse in the product tanker market, but the rates, spot rates in particular, have taken a bit of a nosedive the past six weeks or so, and this is traditionally one of the tightest times of the year. I mean, do you expect that to bleed over into the period market at all? Or do you view this as more of a short-term blip?

As Jerry mentioned just a moment ago, we haven't seen that. We have seen very strong activity. We have seen rates going up. So, really, we have not seen that.

Has there been any significant ice class premium? Or has that been in line with historical averages mostly?

To be honest, there hasn't been much. It is not yet the time to see. If anything, in the next quarter, we will see if we see anything.

And also, could you comment on the employment update for the ships for this quarter? There is a bit of a delta between the Aias and the Amore Mio. Was that just a function of the ship's age?

Certainly. And the consumptions.

I'm sorry?

And the consumptions.

Okay. Great. Thank you.

Justin Yagerman, Deutsche Bank.

Trying to think about the distribution here. Obviously, coverages improved. The container ships helped out a lot.

Are you guys just waiting to get through the rechartering that you have in the first half of the year and feel more confident about the market? I'm trying to figure out what is holding you back from raising the distribution. It seems like you have the firepower with your facility to do what you need to do and your coverage is good. So what is the wait?

Well, that is a good question. I think that we tried to communicate a bit more clearly what our intentions are, and I think we have pointed to our intention being that in the future, we will be increasing our distribution guidance. We have put that in black and white.

But we also, in some questions that we answered earlier, is also regarding the dropdowns of the vessels in 2015. Probably something that we would like to communicate is how we see these going ahead, and that will be important also for you to see what will happen afterwards.

I am not sure I followed that. So basically, you are still considering what kind of dropdown activity will take place in 2014, so in the meantime, I mean, that would in theory add to your coverage. So you want higher coverage in order to increase the dividend or the distribution? Or are you comfortable where you are, but you are just waiting to get through what the first-half market looks like?

I think we also want to offer you better visibility, so you can also have better ability to gauge what future distribution increases can look like.

Okay. So I don't want to put words in your mouth, but it sounds like the coverage needs to go up for you to raise the distribution.

No. I think that is what you understood. If anything else, I mentioned to you is that the factors that affect the coverage point to an improvement in 2014 anyway. So the better rates that we have in product tankers and the better market compared to the rates we have, that will allow for better rechartering of the products, as well as the fact that we will have full-year contribution from the containers. And that will certainly help.

I think that what I was saying -- so that points to a better coverage anyway. What I was saying is that, for any impact on the valuation, because that is what we want to see, is to see and to have this improvement in the guidance be viewed as sustainable. And given that we potentially can add a number of vessels through the partnership, we like to structure it in a way that you will be able to see how -- and calculate that sustainability. That is what I am saying.

That is a lot clearer and I appreciate it. So what is target leverage, then, when I think about how you go about doing that? You guys are fairly low leverage. I think you probably want to stay at a lower leverage given that you have this distribution coverage need.

So where are we going from -- with the $150 million that you have at your availability? Will future acquisitions be financed fully through that? Or should we expect a mix of equity and debt?

As I mentioned, this facility allows for up to 50% of the value of the assets. But the distribution will provide only half of the funding. So the other half we have to, as I say, find it and structure it in a way that will be accretive.

Okay. Great. Now, a more technical question: When I think about the charters that you have in the product tanker market, and many of them do have profit sharing on them, one thing that we have noticed in the recent product tanker market has been that the benchmark rates -- TC-2, TC-14 -- are not necessarily indicative of what is going on in the broader market from a spot standpoint.

How do you think about that when structuring profit-sharings right now? And do you feel like you are using stale benchmarks to judge your product profit shares?

The profit shares that we have in our product tankers relate to IWL. So effectively, they apply mostly to routes that IWL prevails, i.e., routes that are mostly ice capped. So this is the profit share we have.

Okay. So it is just an ice issue. Last question. And I think Ken asked this a little bit, but maybe getting at it from a different angle, is the rationale behind the re-charters to Capital, even though you have got an expressed desire to lower the exposure -- is that added flexibility in your mind? If the market really takes off, do you think Capital would release those ships and allow you to go to a third party, as I think you have in the past?

I think that it depends if we and Capital agree, and the conflicts committee agrees for that to happen. That's number one. But I think what I mentioned earlier, the exposure to Capital is reduced, evidenced also quarter on quarter, fourth versus third and third when compared to 2012.

But I want to say that if you look in the past, in the recent past, when you wanted to fix with a charterer, most of the time they were looking for an optional year in their favor at the same rate. So the flexibility that Capital Maritime was offering us was at this particular rate -- this particular optional year they didn't request.

So that effectively allowed us to create this staggered exposure that every year the market increased to fix the vessel at a better rate. Had we not had that, then we will have stuck over the past two years, for instance, at a lower rate compared to what we would have had, or what we had with Capital Maritime.

That's very fair. Now is not the time to give away options. Thanks for the time.

(Operator Instructions) Mr. Lazaridis, since there are no further questions, sir, I will pass the floor back to you for closing remarks.

Well, thank you, everybody, for finding the time to participate, and thank you once again. Bye.

Thank you, sir. With many thanks to our speaker today, that does conclude the conference. Thank you for participating. You may now all disconnect.