Costamare Inc (CMRE) 2013 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare conference call on the third-quarter 2013 financial results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the Company.

At this time, all participants are in a listen-only mode. (Operator Instructions).

I must advise you that this conference is being recorded today, Thursday, October 24, 2013. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number 2 of the presentation, which contains the forward-looking statement.

I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir.

Thank you and good morning, ladies and gentlemen.

During the third quarter of the year, the Company delivered positive results. In accordance with our newbuilding program, we accepted delivery of the fifth and sixth 9,000 TEU newbuild containership vessels out of a series of 10. Both vessels commenced their charters.

This addition to the fleet, together with the newbuildings already delivered and the remaining four vessels currently on order and subject to charters, will contribute in excess of $1.3 billion of contracted revenues throughout the duration of their charters.

Regarding the transactions, together with our partners York Capital, we ordered two 9,000 TEU vessels to be delivered by the end of 2015. We are participating in each of the two contracts with a 49% stake.

Despite continuing challenging market conditions, our recharter in Greece is minimized. The charters for the vessels opening in 2014 account for approximately 3% of our 2014 contracted revenues.

Finally, on October 1 and on October 8, we declared a dividend of $0.36 per share on the redeemable perpetual preferred stock and $0.27 per share on the Company's common stock, respectively.

Consistent with our dividend policy, we continue to offer an attractive dividend, which we consider to be sustainable based on the size of our [covenant] cash flows, required of our charterers, and the good management of our balance sheet.

And now, let's move to the slides -- the presentation. On slide 3, we are providing a summary of our recent transactions, mentioned earlier. We accepted delivery of another two 9,000 TEU newbuild containership vessels out of a series of 10. We now have four remaining vessels under construction, two of which are expected to be delivered by the end of this year and two in the first quarter of 2014.

At the same time, the recently ordered newbuilds will be delivered towards the end of 2015. In August, we completed our preferred share offering. The Company enjoys access to the capital markets at very competitive terms. Finally, in October we declared dividends for both our class of shares.

On the next slide, you can see the third-quarter 2013 results versus the same period of 2012. During the third-quarter 2013, the Company generated revenues of $110 million, EBITDA of $69.5 million, and net income of $20.4 million. For the same period of 2012, the revenues amounted to $95 million and the EBITDA and net income were $54 million and $12.5 million, respectively.

Consistently with our previous press releases, we feel that the EBITDA and net income figures need to be adjusted for the following items. First, we accrued other revenues and the resulting discrepancy between revenues received and revenues accounted for, based on a straight-line amortization schedule. Secondly, the gains or losses resulting from derivatives; and, thirdly, the gains or losses resulting from other disposals.

Adjusted for the above, the third-quarter EPS amounts to $0.38 versus $0.31 for the same period of last year and the third-quarter EBITDA to $77.9 million versus $62.5 million for the same period of last year.

Overall, the Company generated strong results during the quarter, based on solid fundamentals.

On slide number 5, we are showing the revenue contribution for our fleet. Our revenues come from, first, our charterers. More than 90% of our contracted costs come from Maersk, MSC, Hapag-Lloyd, and COSCO.

As you can see on the right-hand side, we currently have charters with all of the top six charterers and have cooperated in the past with most of the line companies which are in the top 20 list.

Slide 6 provides information on our cash flow, charter coverage, but also the significant building growth of the Company. We have today $2.6 billion in contracted revenues, while the TEU-weighted average remaining time charter duration of the fleet is approximately 5 years. We have pretty much eliminated the near-term recharter in Greece, and, as you can see in the bottom chart, our fleets under coverage exceeds 70% over the next three years.

As the newbuildings hit the water, they will generate significant revenues, adding estimated annual revenues of approximately $150 million and EBITDA of approximately $119 million upon delivery of all vessels, up 39% and 47% from 2012 full-year revenues and EBITDA, respectively.

Moving on to the next slide, slide 7 is dealing with the theoretical re-chartering risk the Company would face in 2014. The long story short here, based on our [public] assumptions, the Company as of today has a 2014 cash EBITDA of $369 million, if all ships coming out of charter during the remainder of the year and into 2014 are rechartered at the same rate.

You can see the cash sensitivity. For a 70% rate being equal to a 30% discount on all 2014 rechartering, the cash effect is about $14 million, which goes up to just under $30 million for a 60% discount.

If we go one step further and touch on the ships coming out of deployment during the year, and which prior to 1995 are sold for demolition, assuming a scrap price of $400 per ton, cash proceeds of $38 million more than offset the cash shortfall.

In order to assess the Company's real rechartering risk, someone needs to focus on cash, since this is what is servicing our Company's debt obligations, and cash available for distribution is what is paying the dividend and allows for further growth. Based on the above, we do believe that the dividend we offer today is very attractive, based on its quality and sustainability.

Moving on to the next slide, on slide 8 we discuss our balance-sheet management. The debt repayment is smooth, evenly spread in the coming years, and it is not backloaded, ensuring no refinancing risk. Distributable cash flow is not of the future enhanced. The loan portfolio is 80% hedged at the weighted average rate of 4%, which adds to the cash flow visibility.

Liquidity as of the end of the quarter stands at $175 million in cash and equivalents. At the same time, we have unencumbered vessels and a moderate risk leverage.

We consider the Company to be in a competitive position with a comparatively stronger balance sheet, which, together with our joint venture agreement with York, will allow us to make attractive acquisitions in a depressed market.

And moving now to the last slide, on the last slide we are discussing the margin. The current order book stands at around 21%, up 3.6 million TEUs. From a historical perspective, the order book is at low levels. It is heavily [stood], however, towards larger vessels. 85% of the order book is for vessels above 5,000 TEUs.

On the demand side, although year to date there is growth in the Asia, Europe, transpacific, and transatlantic rates, this is not enough to absorb the capacity available in the market. As a result, box rates have been dropping.

The number of idle ships has come up to 2.6% of the total fleet. Charter rates and asset values continue to be at historically low levels. As I mentioned in the past, we think we're well capitalized to act and deliver superior returns, [especially at the time] in low asset value environment.

Thank you very much. This concludes our presentation, and we can now take questions. Operator?

(Operator Instructions). Michael Webber, Wells Fargo.

Just wanted to touch on a couple operational issues, or questions, and then some bigger-picture stuff. First and foremost around the vessels from the JV with York, I don't believe this has been disclosed. Can you talk about your thought process around chartering those and what indications you might have of interest there and period rate, things like that?

So you talk about the newbuildings or the secondhand vessels?

The newbuildings. The newbuildings with York, the ones that can be upgraded.

Yes, okay, because the secondhand, you know, those have been chartered now.

Right.

The newbuilds, we put the order end of July of this year. Those vessels will be delivered -- they are scheduled to be delivered at the end of 2015, so there is still time.

We feel quite comfortable with the specifications of the vessel, with the asset size and with the acquisition cost. We are not in a hurry to charter them and to raise funding, but we feel quite comfortable and happy with the investment now.

Regrettably today, I cannot give you more color on the chartering because it is not concluded yet. But rest assured, we will try to make sure that this delivers superior returns to our investors.

Got you. And maybe if we had a backing away from just the specific vessels and looking at the market as a whole, if you comp today versus a couple of years ago, would you say that returns across the space are starting to come in, just in terms of day rates falling a bit faster than asset values, just based on spec investment? And where would you pinpoint where market-level returns are right now on a long-term basis, where IRRs are right now?

Look, those -- let me go back a couple of years. In the past, those vessels could be ordered for a price in the region of [nine to] now also $95 million. So starting from there, we have bottom in today's environment at a significantly lower construction cost, because this is the market.

And as a rule of thumb, you have a better deal when you are buying lower and chartering lower versus the opposite, and let me remind you that at the peak of the time, those vessels were ordered at the prices of above $100 million, at least $110 million or even $120 million.

So starting from the acquisition cost, I think the basis is there in order to have good transactions. Now, of course, we're going to make sure that the quality of the counterparty, meaning the charterers, and the charter rate will be short so that we can arrange good funding, in order to further [does].

Right, okay, that's helpful, and obviously we have seen your counterparts out in the market, too, looking at doing new deals, and it seems like just overall returns have inched in a bit, which you would kind of suspect, but no, that's helpful.

From an operational perspective, you guys came in ahead of budget on costs, it looks like, certainly relative to our model. Can you maybe talk about what's helping you guys drive down OpEx on a sequential basis. I believe it's the last three quarters in a row where you guys have come in below budget. Is that just a function of replacing some of the older assets in the fleet that have been a bit of a drain on that (multiple speakers)

(Multiple speakers). No, this depends on which quarter you're comparing, but generally as a rule of thumb, the age of the fleet has been going down, and now the asterisk, however, is that we have some of our ships managed by V Ships where we have an agreement with V Ships Greece and we try to be as competitive as we can in our operating expenses.

So if you look at our fleet, at an average level our vessel is, let's say, 10 years old, [five hundred and a half thousand] TEUs, and is renting at below $6,500 per day, including close to 25 vessels which have the Greek flag. So, overall, these running costs are quite competitive.

Now for next year, and if your question is referring to what's the way forward and haven't we been close to budget for next year, you know, we will not be revising the budget. We're going to have further discussions with all the managers, V Ship, Costamare Shipping, Shanghai Costamare. And then, we are going to be providing you with a new budget, but we try to be as cooperative as we can.

And another aspect of it, because we fly the Greek flag in some of our vessels, we have some Eurodollar exposure. Now, the dollar has recently depreciated. It has reached 1.37. From our side, we have been gradually shaving this exposure at below 1.3 exchange rate, which helps us minimize our operating expenses.

Got you. That's helpful. So you are revising the budget for 2014. For Q4, we can use something pretty similar to what we saw in Q3. There shouldn't be any major changes there?

I don't know. I think unless we revise the budget, I am not sure it would be wise to use the related results. But let us get back to you on that because we are now in the process of finalizing our 2014 operating expenses (multiple speakers)

Okay, all right, fair enough. Just one more for me and I will turn it over. Just a bigger picture, Greg. You talked about weekday rates and then a soft environment, and certainly the market's oversupplied, and when you think about the amount of money that's coming into the space now, both from third-party owners and from container lines going after eco-class assets to really drive down that dollar per slot cost, how do you think about a turn in this environment?

And is that measured -- it seems like it's certainly measured in years, and not quarters, at this point. But just your bigger-view take on this market, and whether or not this influx of eco-capacity is pushing out a recovery by a year or two?

Look, I think we have mentioned this in the past that we are not in the business of predicting the market, but, you know, we do have a view. But the way the Company is run, we make sure that we cover our downside with [up] cash from the side. And then, we try to realize some upside.

But regarding the market, we have seen the charter rates coming under pressure, also for the bigger-sized vessels, so -- which has, in the past, under -- performed better compared to the smaller vessels.

So demand today for ships at 6,500, 8,500 TEUs is quite thin, compared to where it was three or six months ago. So the charter market is definitely distressed. We talk about Panamax rates in the range of $8,000 per day. We have seen asset values for the Panamax vessels coming down substantially, especially bearing in mind the latest transactions.

Now, whether this is going to last for a couple of quarters or more, I'm afraid I don't want to predict. But let's not forget that we are in a down cycle for five years. There is not much room for charter rate, especially for Panamax vessels, for instance, to go below today's levels, which are close to breakeven.

So I'm not sure whether we are at the bottom of the market, but we are definitely at an extremely low level.

Sure, okay. All right, that's all I've got. Thank you for the time, Greg. I appreciate it.

Fotis Giannakoulis, Morgan Stanley.

I want to follow up on Mike's question about the earning capacity of newbuildings. Shall we expect -- I know that you cannot comment on the rate that you are expecting, but shall we expect very similar returns to the newbuildings that you are taking delivery right now?

Yes, well, our goal would be to have better returns compared to the previous transactions, and those should normally be better deals because we bought the same assets, instead of $95 million, at $81 million, so the rate is going to be lower.

But at the same time, the deal, you will have an asset which you bought at the low levels of the market, so there is more upside.

So as I said, I cannot predict and it wouldn't be wise for me to predict any returns or EBITDA yields or charter rates or duration. But from our point of view, we would try to do better compared to the previous deals' returns.

If I remember well, the previous ones, they were giving close to 13% unlevered yield. You think that recent transactions in the market are moving around the same levels?

Yes, but the yield is one indicator; you need to see where the yield is coming from, meaning with the charterer, and what is the credit worthiness of the charter providing that yield.

And also, what is the tenure of the transaction. So the 13% customer, in fact, that we had bought a 95 and would charter at close to $41,000, $42,000, this was the 13% comes from.

We would look again at the -- at an EBITDA yield, which is healthy, but also the quality of the charterer and the funding we can get and the duration of the contract they chose, so important factors in calculating -- in evaluating the whole package, I would say.

Can you remind us where does the debt market stand today? For a vessel that has a good contract of more than five years, how much debt do you think you can get? And what are the spreads that they are available in the market, and particularly that they are available to your Company?

Okay. Let me start by saying that in end of 2011 for those newbuildings, for five of those, we got 80% leverage at an ordinary cost of debt, yes, which was in the region of 4% or four point something percent.

Now I am not sure what would be the capacity of the banks today or the willingness to lend today, but I think -- and from our side, we never like overpromising, but I think that the 70% to 80% leverage, this is something we would look at, assuming that the charterer is a bankable name, and, of course, it is something we're going to take care of.

And I want to ask you, according to the agreement with York Capital, you have the flexibility to invest between 25% and 49% on this acquisition. You chose to put the maximum amount of 49%. Why is that? And what did you see on this transactions that made you go to the maximum amount?

Yes, it's two things. First of all, from a structural point of view, our agreement with York, it is a true joint venture where both parties are contributing amount of equity which is substantial.

So we are not in the business of managing other people's money by buying assets. We are in the business of putting our equity at work and co-investing because we see some additional benefits with the private equity investor. Hence, this is why we will not fall below 25% in any transaction.

Now, why we put 49% in those deals, because we believe in the asset, the size, the acquisition cost, and the potential of those deals. And so, this is why we put the maximum amount of equity, and we don't have any customer strains.

So, now it doesn't mean that in every transaction going forward, we're going to be putting 49%. If it is a bigger sort of a newbuilding order, we may have a smaller participation. But up to now, we put 49% because we felt that the economics of the deal we have in mind justify that.

And Greg, I want to ask about the preferred that you issued, and if you can explain us what was the rationale of this preferred equity? And on the top of that, you filed very recently a shelf, a mixed shelf. What is the purpose of this mixed shelf? Is there a thought of additional equity issuances in the future?

Look, first, regarding the preferred we did, it is a new source of funding. We did it end of July and we raised $50 million at the coupon of 7 5/8.

This is a true perpetual without any step-up options, which is -- which can be redeemed if the Company wishes to do so after year five without any financial covenants and without any other restrictions.

So we felt that the transaction we did and the terms we got from the market were probably the most competitive ones offered to a shipping company. And it is a new source of funding, as I said, which opens the door for anything in the future we feel that we have a project that the returns would justify an equity cost of 7.6% or close to that range, we would do it again.

Now, regarding the shelf, the shelf, we filed this for pure housekeeping purposes. If you ask me whether we have today any intention to raise funds, either common or preferred, within the next weeks, I can tell you that we do not have any such intention. Very simply, the previous shelf had been exhausted, so we have put a shelf in place for $300 million, which can be utilized over the next three years.

And as it is normally those types of filings, this covers a wide range of instruments, which could be debt; it could be convertible; it could be common; it could be preferred; it could be a lot of things. But we don't have any intention of raising common or preferred today.

Let me ask you another question regarding the preferred. Given the fact that you have access to this preferred equity at less than 8% cost, and debt at around 4% total in cost, shall we expect that any future growth should come through preferred issuances, given the fact that gives you an average cost of capital of around 5%?

Look, of course, it depends where the market will be for the preferred and where interest rates will be, and the reason we rushed to do it end of July is because we had taken the view that interest rates will be going up since then, which, to some extent, it turns out to be the right decision.

But the preferred is something we would definitely look at again if there is a market that allows us this opportunity, definitely.

Now, of course, the preferred is something that we use as equity and it has a cost. Commercial bank debt or debt generally, it is the other component, and there we rely on commercial banks or on other type of structures that provide debt at levels which we find attractive.

And there is -- you have some vessels which are still debt free, including one 8,500 TEU vessel, which is quite modern. When do you think will be the time to use this debt capacity? I assume you can get more than $50 million debt out of this vessel. Why this vessel has been debt free for such a long period of time?

Yes, first of all, yes, it is three vessels, and one of them, you are referring to the Navarino, 8,500 TEUs, which is a 2010 build.

Now, this vessel, we put the order in the yard and we didn't fund it with debt because we didn't have a fixed employment which would be going for years in order to amortize the debt, so we played it safe and it remains debt free today.

Now, normally you would get the best debt from the bank if you chartered the vessel for a long period with a strong charterer, and in that case, you could ask for the best credit terms they could be offering.

Now, we haven't raised debt on those assets today because we don't need it today. And the terms might not be optimal because these vessels don't have long-term charterers. But in any case, even on a charter-free value, I think -- I am not sure whether it would be $50 million or $40 million or $55 million, or whatever the number is, but these are assets that can be monetized. However, monetizing those assets should be done the right way, and not in a hurry, not under pressure.

If there is something which we feel justifying raising it at this amount of debt which can be then used as equity for other transactions, then we would consider it. But thank God, up to now we haven't found ourselves in a situation where we couldn't raise debt on a deal on a standalone basis.

And my last question, it has to do with the market, the overall market. Obviously, we are in a very weak chartering market, which is a little bit irrelevant for you from your chartering perspective since your vessels are covered. But from the acquisition perspective, we haven't seen a lot of acquisitions, given the capacity that there is under the JV agreement.

I noticed on page 9 on your supply/demand balance that you show that the demand exceeding supply in 2014. Does this mean that 2014 will be a year that you are expecting to see recovery for charter rates, and how long the acquisition window will be open for you before asset prices, they start moving higher?

Okay, let me start from our joint venture with York. Now, this joint venture was signed and -- this framework agreement with York was signed end of May, so it's not a long time since we put this platform together.

And the total acquisition will come, the secondhand ships are (inaudible) value of close to $30 million, plus two newbuildings of a total value of $160 million. So it may not sound like a huge amount, but I think for the next three, four months, I think it is something that makes sense.

Now, because we have this capacity in place and because we have this platform available, it doesn't mean that we cannot ask to do transaction for the sake of volume. And let's not forget that we have a two-year investment period, and both York and ourselves, we have 100% returns on the assets. So, if the returns are not there, we're not going to be bringing down our internal benchmarks.

Now, going to the Clarksons graph that is in our presentation, the source is Clarksons and this is what we believe -- so this is what they believe. From our side, we refrain from making any predictions on the market.

Clarksons is a broker, an established one. Different brokers may have a different view. We just put it there in order to show what reputable brokers think, but from our side, I can tell you that we have never relied on the broker saying that the market is going to go up in 2014 so that we are going to have to buy things today and sell them in 2014, because we're going to be making a return. I mean, I wish it was that easy.

So on a case-by-case basis, first of all, in making an acquisition, first of all, we evaluate what is our downside, what is our equity at risk, and as long as we feel comfortable for that, then we can oppose the transaction to an extent where there is also some upside for us.

We don't spend an enormous amount of time in trying to predict where the market is going to be next year or in two years' time. We may have a view, but we tend to focus on the economics and on the numbers of each particular transaction.

And if the market recovers sooner than what we expect, then we may have more upside, but -- or on the other hand, we may leave some money on the table because we may have chartered long. But in any case, as long as we have our downside covered, we feel pretty comfortable.

Would you mind sharing this -- your view with us, at least your best estimate, about when will this market be turning around?

I don't know. We are not that smart. So the question is, when is the global GDP going to have a growth of 3% or 4% or 5%, and whether China will continue growing at rates which are above today's rate, and whether we are going to be seeing the 10% growth rate in China we used to see.

I don't know, but what I can say is we have a five year within this down market. It's a very high cyclical industry. The question is not if the market will turn. The question is when the market will turn. And let's not forget that it's also supply and demand. So if there are a couple of ships only short the market, then prices can jump extremely fast and very, very easy. We have seen this in the past.

So, I wouldn't be surprised if this happens sooner or later, but I am afraid I'm not in a position to give you a more specific timeframe.

Okay, thank you very much for your answers.

Brandon Oglenski, Barclays.

Just following off that conversation there, and thanks for all the details you have provided so far, but what is the risk here that the industry is just ordering away the upside? We are seeing new order activity really ramp up here. You guys are obviously out in the market; a lot of your peers are, as well. Is that going to dilute the potential upside in 2015, 2016, when things could look a lot better, to your point?

The order book today starts at 21% of the total fleet. And there are not a lot of, I believe, there is, let's say, in 2016 today. Of course, 2016, this depends on how many orders are going to be booked from now until the end of 2014, which I cannot predict.

But overall, and if you look at it from a historical perspective, an around 20% order book is not a huge number. Let's not forget that at the peak of the market, 2007, we had an order book -- or 2008, beginning of 2008 -- we had an order book which was close to 60% of the fleet in the water.

So I think it mainly has to do with demand, compared to what the order book is going to be like in two years' time. But the way it stands today, it is not something which is -- should be scaring people away.

I guess it sounds like there's a little bit of a shift in strategy, because the last couple of years, you were really focused on renewing the assets on the Costamare balance sheet. Is that still a focus as well as we sit at this low asset value territory? Are you looking at renewing more vessels as you did in the past?

I think we have done quite a substantial fleet renewal. We have scrapped older vessels. We have renewed some vessels and we put in. We're building orders.

I think that today the way we look at transactions, we look at returns. And if the returns are there and if the downside is covered and there is an upside, we would be doing either a 15-year-old ship, like we did in the past, with or without charter. At the same time, we would be doing a newbuilding.

So it's not mainly about renewal. It is about optionality and returns. Now with the newbuildings, it's two things. You tie up some capital for a couple of years and you have some funding costs, but then you make up five, seven, or 10 years of cash flow streams secure, which can be the backbone of your fleet and can fund a substantial part of your operations, as in the case of the -- in Costamare.

With secondhand vessels, you may buy a ship close to scrap value, 15 years old,. You may charter it for a couple of years, and then you may find yourself operating this vessel for the next five or 10 years where you realize extremely good returns.

So it's two different types of transactions, which can both generate returns. I think that -- theoretically, the best thing would be to do both. But it's not up to us which transactions show up and not up to us which transaction we finally win and execute.

And I guess from a longer-term perspective, with that in mind and with the JV now, what is the growth strategy for Costamare? How large would management like to see the Company? And is it more focused on this more diversified JV growth or is it the core balance sheet as well? What are some longer-term targets that we can think about?

The goal, either through the joint venture or on a standalone basis, has never been to be big and to manage X number of vessels and have a compound annual growth of so much percent every year in terms of TEU or asset size or whatever.

The goal is to be profitable and to be able to realize double-digit returns. That's the goal. So at the peak of the market, we should consider whether we should be disposing of some assets and probably returning one of dividends to our shareholders because we cannot find any better use for the funds.

At a low market like today, we are trying to expand opportunistically. But in a cyclical market like shipping, you cannot have a predefined growth rate. Now, because we have operations in place, we wouldn't like to go to a very small number of ships, but assuming a minimum number of operations, I think that we don't have a predefined type of growth strategy.

Okay, great. I appreciate it. Thank you.

Ken Hoexter, Bank of America.

On your agreement, I just want to revisit that for a quick second. Why did you limit yourself to 49% on each vessel? And is it full ownership? If you buy 10 vessels, you can own four of them, or are you just owning a minority of each of those vessels as you go on? Again, just understanding how ultimate ownership pans out.

Yes. The way the agreement is structured on each specific transaction, if it is a newbuilding, we have two months within which to state whether we want to go north of 25% or not. And when there is a secondhand boat, we have one month to state whether we want to get 25% or up to 49%.

So our percentage can vary from transaction to transaction, and we have one or two months to declare our option, depending on whether it is a secondhand vessel or a newbuilding.

But 49%, or even 30% or 35%, it is a substantial amount of equity, especially if someone bears in mind part of joint venture where the stakeholder may have a much smaller equity stake.

Now, the 49%, it is something -- and in any case, all the decisions are unanimous. So whether it is 30%, or 40%, or 49%, or 25%, both partners need to decide together if it's -- whether the vessels will be disposed of, rechartered, refinanced, and whatever has to do with the operation of the vessel. So the percentage does not preclude us from having to agree on everything.

Now the 49%, at the same time, makes our balance sheet more flexible because we don't have to consolidate the debt. So we may be getting on our EBITDA the gain or losses in terms of the equity pickup method on our P&L, consolidating in brackets that percentage of the profit and loss on every single transaction, depending on our ownership stake, without having to consolidate the whole asset and the liabilities following that asset on the balance sheet. So I think this gives us a lot of flexibility.

So you don't see it as a detriment; you really think you're going to get the sum of the parts valuation credit or the return on equity credit through that consistent minority investment?

Yes.

Okay. When you were looking over on page 7, do you sell -- do you plan -- are there thoughts on selling to scrap or was that just an example? I just want to understand maybe more on your thoughts. I think you were getting to this with the last couple of questions in terms of -- I will stop there, and then I will jump in on the next one. Go ahead.

I think -- this is just for the sake of an example and to reinforce the argument that we don't have any real rechartering risk in 2014.

So we normally operate vessels -- in the past, we have operated vessels who are 20, 25, 30, or 35 years old. We scrap the vessels, and the decision to scrap it or not has to do with the physical condition of the asset, with the earnings potential, with the loan outstanding, and whether we think that this asset can generate additional returns or not.

So the reason we put it there is to say that, look, this is our rechartering risk and this is the cash EBITDA effect if all the new chartering comes at so much discount. But in any case, but the worst comes to worse, even if we scrap all the vessels, whatever discount, this is more than offset by the scrap value of the assets, but it is not [indication] to sell these vessels.

Yes, and I guess my follow-on to that, and just my last one, thoughts on market moving to the larger vessels. Only in the mid-size vessels, how do you feel in terms of those assets on the balance sheet, I guess, going forward as everybody moves to that larger, lower cost? I think you are alluding to this earlier. I just want to make sure I understood the answer there.

Look, we have ships on our balance sheet. We have Panamax vessels, and we know that the Panamax vessels today, the consensus is that they don't have a bright future and that their earnings potential can be quite limited, especially after the extension of the Panama Canal, because these are purpose-built assets.

What we do, our whole group when we bought these vessels, we tried to buy them at historically low levels. We have chartered them, so that our residual risk is minimized. Those vessels have been gradually repaying their debt, so at the expiry of their charter party, we don't expect to have any big minute payments due.

So even if you buy an asset which turns out to be not the best in market conditions in five or 10 years time, if you buy it at low levels, charter it, amortize the debt prudently, you don't find yourself in a weak position.

So we have some Panamax vessels coming out of charter in 2016 and we have some of them coming out of charter in 2015. Whatever the chartering rate for those vessels we assume internally in our internal cash flow and budgeting models, it is not something that is going to hurt the Company financially to a meaningful extent.

Okay, wonderful. I appreciate the time, Greg.

Ben Nolan, Stifel.

I had a couple of questions related to maybe some of the earlier questions, as it relates to the market and then, also, as it relates to the Navarino. I noticed that in the fleet list, it doesn't look as though there is a -- there has been a new charter associated with that. I was just curious, that's obviously a relatively modern, relatively larger asset.

First of all, is there a reason that it hasn't been put on a longer-term charter? And then, secondly, could you maybe talk to the willingness among the liners for that type of 8,000 to 12,000 TEU-type vessel for putting -- taking assets in on a long-term basis? Are you seeing the same level of interest for that? What is the duration that is being kicked around among liners at the moment for that type of ship?

Yes, the Navarino, it is -- this is a vessel which we have debt free. It is a 2010 build and we have [1,000] TEUs, whose charter party has expired.

Now, the market today for this type of vessel with a prompt delivery in the water is weak. So we don't want to rush and to charter that vessel, especially for a long period, at a rate which is definitely below historical average levels.

Now the fact that this is a debt-free asset in that we don't have to service debt or that we don't have the bank having a say in its commercial management, it's helpful. But we have seen the market lately, up until the last two weeks or month and a half or two months for those type of vessels, that there is not a lot of demand from liner companies.

So we may sit and wait a bit, and we are not in a rush to decide because, first of all, we don't want to leave money on the table. And at the same time, we don't have to have a charter hired for that vessel today because there are no debt obligations attached to it.

Now, the second part of your question -- I think I have answered most of it -- is that the market today for the 8,000, 8,500 TEU vessels is very weak. This just happens. We are in a -- we are not in the big season. We are in the fourth quarter of the year, which traditionally is relatively slow.

So we will sit and wait, and we will try to come up with the best possible alternative. We could go for a shorter period with a time charter which could be relatively low, or if we feel that the charter rate satisfies us, we could go for a year, a year and a half. We will see.

But I am afraid that today, I am not in a position to give a safe indication of the chartering of that vessel.

Okay, that's helpful. And then, maybe somewhat related, but with respect to, say, the vessels that you have ordered as part of the joint venture, could you maybe speak to -- clearly, I would think that along the way, you have been in discussions with liners for potential charters, and maybe it's not anything imminent, but certainly have a feel for where the liners are thinking.

Is there a reasonable market for long-term charters of these larger eco-ships? And if so, are we thinking five-year terms or is there even 10-year terms being thrown around in the market right now?

There is interest for those vessels today. Those vessels will be delivered in 2015, so there is interest today for chartering those vessels upon delivery from various liner companies, and we're in the process of discussing those offers.

But it would be a bit premature now to give any indications or sort of any estimates, and also, commercially, I don't think it will be the wise thing to do.

Okay, I can appreciate that, for sure.

My last question has to do with some of the secondhand assets. I know that as part of the joint venture, you acquired a few -- three earlier in the summer. But we have heard a lot of noise that private equity has begun to be much more active in acquiring the smaller, Handy class, a little bit more vintage container ships.

I think there is an idea that given -- they're gearing and lower drafts and that sort of thing, that they're a little bit more insulated. Have you seen an increase in the level of competition for secondhand assets? And if so, I think, is it -- how does that change your thinking on moving on the secondhand side of the business versus newbuildings?

Look, those three secondhand ships we bought with York during summer of this year, the values today for those vessels is up since then.

And to some extent, for smaller vessels, asset values may have come up a bit, which is not 100% justified from the charter rate. So there is not a perfect correlation there.

Now, there may be people who are willing to pay a premium or to pay above what we consider is a fair market value of an asset, because they may have cash available and because they may have their view on market recovery.

From our side, the fact that we have the platform in place is not going to make us compete for transactions where we think that the prices are not logical or are not very justified, factoring in where charter rates are today.

So, there may be a lot of capital available also for secondhand container vessels, but we're going to compete for the transactions and up to the point where we think it makes sense for our shareholders. Otherwise, well, we are not going to compete in order to increase volume or size, because let's not forget that being the bigger or the biggest around does not mean that this Company is the strongest one or the most profitable one. So we're not going to be competing on every single transaction.

Okay, that's very helpful. That certainly gets to an answer to my question and I appreciate it. That's it for my questions. Thanks a lot.

(Operator Instructions). This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Zikos for any closing remarks.

Yes, thank you very much for being here with us today. We appreciate your interest in Costamare. These are challenging times for container shipping, but we hope that over the next couple of quarters, we're going to be able to come up with transactions that will hopefully generate shareholder returns for our shareholders. Thank you.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.