Costamare Inc (CMRE) 2013 Q4 法說會逐字稿

Thank you for standing by. Ladies and gentlemen, welcome to the Costamare conference call on the fourth-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. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

I must advise you that this conference is being recorded today, Tuesday, January 28, 2014. 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 statements.

And 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 fourth quarter of the year, the Company delivered positive results, while at the same time implementing a split renewal and expansion strategy. Together with our partners, we have ordered in total nine newbuildings, with delivery starting from the end of 2015. Five 14,000 TEU ships have been chartered to Evergreen as their long-term charters, representing total contracted revenues of approximately $850 million. Regarding our existing newbuilding program, we accepted delivery of the eight out of the 10 newbuildings ordered in total. The last two deliveries are expected to take place in March and April of 2014.

On the financing front, we have agreed to refinance three of our newbuildings with a leading Chinese financial institution. And last week, we completed a public offering of 4 million special deferred shares, raising gross proceeds of $100 million. Regarding our chartering arrangements, our re-charting risk is minimized. The charters for the vessels opening in 2014 account for approximately 3% of our 2014 contracted revenues. And finally, on January 2, we declared a dividend on our Series B preferred stock. And on January 6, we declared a dividend on our common shares.

We are successfully executing on our growth strategy, having invested together with our partners close to $1 billion in new projects since the inception of our joint venture eight months ago. This year marks the 40th anniversary of Costamare. We feel we are well-positioned to continue to grow selectively and on healthy grounds.

Moving now to the slide presentation, on slide 3, we are providing a summary of our recent transactions mentioned earlier. We have ordered, together with York Capital, nine newbuildings, with delivery starting from 2015, while five of these vessels have been fixed on long-term charters with Evergreen. Over the last couple of months, we accepted delivery of another two 9000 TEU newbuild containership vessels out of a series of 10, and we now have two remaining vessels under construction. On the financing side, we entered (inaudible) by transaction with a leading Chinese financial institution for three of our newbuildings.

Moving onto the next slide, on the chartering front, we fixed the 8500 TEU Navarino containership for a year. The vessel is expected to be delivered to the charterers in March. We also entered into an extension agreement for one of our smaller 3500 TEU vessels. Last week, we completed our Series C preferred share offering, which was well-received by the market, raising $100 million. And finally, at the beginning of January, we declared dividends for both of our class of shares.

Moving to slide 5. On this slide, you can see the fourth-quarter 2013 results versus the same period of 2012. During the fourth quarter 2013, the Company generated revenues of $112 million, EBITDA $71 million, and net income of $25.9 million. For the same period of 2012, the revenues amounted to $95 million, and the EBITDA [net income to $62 million], at $22.9 million, respectively. Considerably with our previous press releases, we feel that the EBITDA and net income figures [interferes doesn't] for the following items.

First, the efforts of the revenues and the resulting discrepancy between revenues received and revenues accounted for based on a straight line amortization schedule. Secondly, the gains or losses resulted from derivative instruments; and thirdly, the account gains and losses resulting from market disposals. [A dozen for the above], the fourth-quarter EPS amounts to $0.41 versus $0.32 for the same period of last year, and the fourth-quarter EBITDA to $75.7 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 6, we are showing the revenue contribution of our fleet. More than 90% of our costs comes from Maersk, MSC, Evergreen and Cosco. We have $2.8 billion in contracted revenues, and the remaining time charter duration of about five years.

Slide 7 is dealing with the theoretical re-chartering risk the Company would face in 2014. You can see the EBITDA sensitivity. Based on our public assumptions, before ships coming out of charter in 2014 are rechartered at the 70% rate, being equal to a 30% discount in other 2014 re-chartering, the cost effect is minimal, almost 3% of our annual EBITDA, which goes up to about 6% for a 60% discount. In order to assess the Company's re-chartering risks, someone has to focus on cash. Since cash is what the servicing companies debt obligations, a cash available for distribution is what [springs to EBITDA] 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, essence and ability.

Moving onto slide 8. On slide 8, we discuss our balance sheet. Liquidity as of the end of the year stands at $152 million in cash and equivalents. At the same time, we have unencumbered vessels and a moderate [leverage], estimated to be in the region of 55% after the compliance certificate given to our lenders. Our loan portfolio is 80% hedged at a weighted average rate of 4%, which adds to the cash flow visibility. The debt repayment schedule is smooth and even expected in the coming years. The distributable cost low on a porto-service basis is not artificially enhanced. We consider the Company to be in a competitive position with a comparatively stronger balance sheet, which, together with our joint venture with York, will allow us to continue making attractive acquisitions in a low market.

And moving to the last slide. On the last slide, we're discussing the market. The current order books stands at around 23% of 3.9 million TEUs. From a historical perspective, the order book is it low levels. It is heavily skewed, however, towards larger vessels, with 85% of the order book comprising vessels above 5000 TEUs.

On the demand side, based on numbers published by (inaudible) statistics, this growth in the area of Europe, transpacific and transatlantic trades. These combine with the further capacity management by liner companies has resulted in an increase of boxed rates over the last couple of months. The number [of fiber ships] has come up to 4.5% of our total fleet. Charter rates and other values continue to be at historically low levels. As mentioned in the past, we think we are well-capitalized to act and deliver superior returns in such a volatile and low [artist value] environment.

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

(Operator Instructions). Gregory Lewis, Credit Suisse.

I guess my first question is related to the sale-leaseback transactions you were able to execute more recently. Could you just provide a little bit behind the thought process of how you're thinking about those? What types of return we think that -- whether we want to look at it all on the three-vessel package or on an individual basis, how we should be thinking about the return on those sale and leaseback purchases? And also, should we think that there's going to be more opportunities to take advantage of this, and potentially drop other assets that are in the fleet, into these similar types of structures?

Yes. Let me first give you a background of the transaction. It refers to today's newbuildings, which we ordered back at the end of 2010. And those ships have a 10-year charter to MSC. The first was delivered in January, and the last two will be delivered in March and April of this year.

Now those ships were initially branded through a commission-backed loan, where the Europeans together with Chinese banks were participating. At this point in time, beginning of 2011, the terms of the loan were fine. But I think the packets -- the financing packets that was now offered by the Chinese leasing companies was much better. And it was much better in the following ways.

First of all, it releases some of our equity, because we go for a relatively higher leverage ratio. Although on a cash flow basis, the ships' EBITDA more than cover the debt service requirements. We talk about the same tenure, 10 years, as long as it is the charter coverage. And we talk about the whole package, where bearing in mind the covenants offered, the duration, the balloon, the terms, the pricing, the equity relief, as I mentioned, I think they may get a very attractive proposition.

Now this is the first sale and leaseback transaction we have concluded. Now the question whether this is something that is going to be the way forward, I think it's too soon to tell. You know we enjoy a great relation with the commercial banks who have supported us for the last couple of decades. This was one transaction which opens the way probably for more transactions like that, or for more orders to be founded that way. But I'm not sure I can tell whether this is going to be the way forward.

Now, regarding the returns, I cannot give specific numbers. But factoring in that we are releasing the equity, I think this makes the project returns more competitive compared to the previous financing we've had in place.

Okay, great. And then if you could provide a little bit of color -- and I apologize if I'm pronouncing the name wrong -- but on the re-chartering of the Navarino, if you could give us any sort of terms on the duration of that contract? And then the other thing what I would want to know is, given the fact that this vessel was previously idle and now it's getting back to work, should we sort of look at this as a sign that we are going to start to see a pickup in chartering activity for secondhand tonnage over the next two to three to four months?

Yes. Look. The Navarino was chartered for a relatively short period, which it flows to a year, starting from March of this year, of March 2014. I'm afraid, for commercial use, I cannot give you the exact rate. But regarding whether chartering activity picks up ordering, generally speaking, if you look at it from a historical perspective, chartering activities normally picks up after [taking a] year. Now whether this is going to be the case now and whether we're going to be seeing more activity, it remains to be seen. However, generally speaking, I think that we've all witnessed that the last month's ships of about 6,000 -- 7,000 -- 8,000 TEUs.

There is not enough demand. And we have seen, generally speaking, a fall in charter rates for those sizes. Although in the past, those sizes, they have outperformed the smaller vessels. The way the market is now, I think overall interest for this type of vessels is much thinner compared to what we witnessed some months ago.

Okay, great. And then just my final question is going to be on -- you did the preferred share raise; clearly, you freed up some cash with these Chinese -- with the Chinese financial institution transactions. When we think about this equity that's being released, should we think about this cash as primarily going into the joint venture? Or should we still think -- or do we have -- or will there be an opportunity for Costamare to sort of go down the curve and maybe buy some older secondhand tonnage at this point in where we are in the cycle?

Yes, all this cash, it is for growth purposes. And regarding growth, we are a bit flexible. Now we've got those newbuildings. Now, because this will found to be an attractive transaction, but it doesn't mean that we are not actively looking for secondhand vessels. So whatever makes sense and whichever deal the numbers work, we're going to look at it. So, the cash is reserved for growth. It is not in order to refinance debt.

Regarding our current commitments, I think we can grow with that cash, also including our current commitments and CapEx requirements. And whether it's going to be secondhand or newbuildings or a combination of both, this has to do with the timing with the opportunities that will arise in the short or medium-term.

Okay, but so just -- and sort of thinking about that, it sounds like there's potentially better return opportunities in the secondhand market versus, say, going out and ordering a newbuild?

It depends. Because you may get a higher EBITDA multiples in secondhand. Also you may get a higher EBITDA yield on secondhand deals. But for a shorter period, then you also need to factor in the quality of your counterparty. On the other hand, with the newbuildings, you have a long-term cash flow stream. We say it supports the Company in the long run, while at the same time we renew the fleet.

So it can be a mix of both. I'm not saying that's going to be only newbuildings or secondhand vessels, but secondhand vessels beginning to have a great reward toward a counterparty, which is going to also help in the leverage of the assets. And the duration of the charter park must be long enough in order to advertise the equity risk assumed by the ship owner. So I don't think it's black and white or white, I think it's out in the middle.

Okay, perfect, guys. Thank you very much for the time.

Michael Webber, Wells Fargo.

I just wanted to follow-up on a couple of Gregory's questions, specifically around the appetite for tonnage. And you mentioned it was a bit thinner for the larger assets, which is where we've seen most of the growth coming from for you all and your competitors. I'm just curious, given the smaller order book, are you seeing any appetite at all for smaller carriers, either Panamax or within maybe 1000 TEU band around that size? And if you are, what sort of size are we talking about?

Look, from our side, we look pretty much at everything. And the order book for the smaller vessels, you know it's much smaller compared to the order book for the bigger sizes. We look at everything. At now, if you look at our charter record since 2010, we have been ordering larger vessels -- 9000 TEUs or about up to 40,000 TEUs. Because this is what the charterers have been asking, and we need to cater to the needs of our clients. Now at the same time, we're quite flexible. And, as I said, if the numbers work, whether they're secondhand or a newbuilding, we're going to look at it, because we have capital that has to be employed applicably.

So I'm not prepared to give a prediction regarding the size of the newbuildings we may be ordering. I think we're going to order everything that makes sense.

Got you. That does make sense. Kind of along those lines, in terms of the competition going out and looking for new tonnage, how would you characterize that today versus, say, a year ago? Is the availability of capital kind of thinned out the parties that are out there competing with you looking for some of this -- other of these sale-leaseback opportunities or some of these on-block transactions?

Look, I think for the deals we are willing to bid, and for the deals we are willing -- where we think that the quality of the charterer, the size of the vessel, and if the economics makes sense, there may be some competition. But the competition is not huge. So I think it's only a handful of well-capitalized companies that have access to commercial bank debt, and have access to the equity capital markets, and have the balance sheet strength and the experience, and the relation with the charterers.

You put all those ingredients in order to have a successful transaction, and the transactions ultimately make sense for their shareholders. So let's not forget that the KD systems that, in the past, was liable for close to 6% of the order book, is no longer the case. So, compared to the competition of 2005, 2006, 2007 or the beginning of 2008, I think they're as much as competition today.

Okay, that's helpful. Just kind of along those lines and just kind of one of the theme of the things changing maybe year-over-year over the last couple of years, has there been any change, in your view, in terms of which kind of asset class is going to get, I guess, more squeezed than the others, in terms of the cascading effect of some of these larger assets start hitting kind of Asia to Europe and Trans-PAC routes? I guess it is still kind of a 6000 TEU asset class that you think is going to be kind of squeezed the hardest? Or has it moved down towards the smaller vessels? Just any update there, I guess, year-over-year.

Yes. Look, I think the size that has been squeezed more than anything else are the Panamax vessels because the older Panamax designs up to 5000 TEUs. With today, they may be getting the same rate [7000] TEU more they may be getting close to 7000 or max, 8000. This is a situation that a lot of the Panamax vessels which were ordered at the tip of the market with high leverage. With today they cannot break even or servicing their interest same as you.

This is a situation, you all know that. Now predictions regarding the 8000 or 9000 or the higher -- or the bigger sales or the small ones, we don't feel like predicting the market. We just make sure that on a vessel by vessel basis, we try to buy the assets of the historically low of the market or close to low levels. Lever that put it -- prepay at the [30%] of the charter party. And then whatever is left after that point is upside for our shareholders.

Got you. That makes sense. And just kind of along those lines as well, just one more for me just around the dividends. You mentioned that growth in the larger assets base is easing off a bit here, but that could be seasonal. And clearly, there's plenty for you guys to do. But how do you guys think about kind of also augmenting your dividend? And if you were going to look at moving it, what are the key metrics that you're looking at in terms of payout ratio or valuation?

Yes. First, let me start by saying that the dividend is the Board's decision. And now I'm not in that position to commit or to make any predictions. However, I'm sure you will remember that a couple of years ago, when we started our newbuilding program, which is the same 9000 TEU newbuildings, what we were saying to investors is that there is only one way for the dividend, this is to go up, especially after the sort of delivery of the newbuildings.

Now, up to now, we have [accelerated] delivery of the eight out of the 10 newbuildings. The cash is coming in as contracted. We haven't experienced any significant delays. The debt is being drawn. So I think it might make sense for the Board to consider whether, at this point or soon, a dividend increase might make sense. But as I said, I'm in no way qualified to make any commitments on this point. However, bearing in mind that the first wave of the newbuildings is pretty much delivered, it might make sense to award the shareholders for supporting our growth.

Got you. We'll keep looking for that. All right. That's all I've got. Thanks for the time, guys.

Okay. Thank you.

Fotis Giannakoulis, Morgan Stanley.

Hi, Greg, and thank you. I want to follow up on Mike's question about the dividend. I understand that you've been quite conservative; it's been over two years that you haven't raised your dividend. And I want to think if you're going to consider such a move, how you're going to think that the level that you can increase it to? Given the fact that right now, compared to two, 2.5 years ago, you have a larger fleet, a younger fleet -- is this going to play any at all the age of the fleet? Because, at this point, I calculate it to pay approximately twice as much as your depreciation.

Yes. Look, the dividend -- you're right. The last time we increased it, it was the summer of 2011. So it's like 2.5 years. But we have increased it to 8% at this point in time. Now, as I said, I think the dividend policy could consider, especially after all discuss with our status kicking in from the newbuildings. I think it is a matter of a jump between further growth, and also at the same time, rewarding our shareholders. And never forget that the founding family has a 65% interest in the Company, so you have interest fully aligned here. And this could be in the form of dividends increased for some quarters going forward.

But, as I said, I don't have any sort of indications now and I cannot commit. But bearing in mind that we are consistent, I think this is something that the Board might want to consider sooner rather than later.

Just to add an update to that, given the fact that right now compared to 2.5 years ago, you have more financing alternatives, we saw the recent preferred equity offering, you have access to preferred equity, you have access to common equity -- is there any thought in the future to start looking to repay less of a debt in order to release more free cash flow for dividends? Or you think that you're going to keep paying -- repaying debt at this rapid pace?

Look. We -- the sale-leaseback transaction we did, I think we have released some equity. And the idea is that this equity would be put, as we discussed, would be put into work in order to deliver some returns. And so if we want to release more equity, we can leverage some that we asset, or we can finance some ships already financed. So we have ways. As you already said, we have access to the preferred equity -- we raised $100 million within a day. So we have a lot of alternatives and options. All discussed, is mainly going to be for growth. However, at the same time, we will make sure that the investors are going to also feel happy that part of that growth is going to be -- it will finally end up putting through the dividends.

Thank you for your answer. One last question about the environment right now. I understand that the chartering environment is still pretty weak. And although this does not affect your earnings and your cash flow, how do you see the acquisition environment? We were pleasantly surprised to see so many newbuilding orders with charters. Are there more opportunities compared to what they were six months ago?

And also, if you can give us a little bit more color on the charters of these newbuildings; I understand that five of them are already chartered. What's going on, on the remaining ones? And what kind of returns and cash flow yields are we expect?

Yes. Now, regarding the newbuildings, five of them are chartered to Evergreen. We have enough value to line to rebuild neither the charter nor the returns or the charter rate. But both those figures I can tell you that the returns are close to the previous newbuildings we did, which were the 9000 TEU. Of course, bear in mind that these are larger vessels and they have a higher CapEx cost.

Now there were opportunities for deals in the past. On some of those, we passed. We did not bid because we might not feel extremely comfortable with the quality of the charter or with the whole structure of the deal. This transaction with Evergreen, there was some competition, but this is something we definitely want to do. We feel extremely comfortable with the quality of the charter, and so this is a deal we are very happy with.

Now there are now opportunities and there will be opportunities both for newbuildings and for secondhand vessels. But the fact that we may have cash flow access to preferred equity and to debt, and at last our joint venture with York, doesn't mean that we are not going to be selective. So we are going to be doing deals selectively that we feel that can be, first of all, easily funded by banks or by leasing companies. And the deals that the quality of the charter is going to merit our equity investments.

Thank you very much, Greg.

Sure. Thanks.

Brandon Oglenski, Barclays.

This is Keith Mori on for Brandon. A lot of answers -- questions have already been answered actually, but just one on the newbuild program. When you were out there talking to the shipyards, are you seeing an increase in competition in the larger ship classes for new orders? And is that kind of driving the prices up here? Or what's your view on prices in newbuilds coming up recently?

Look, there is definitely an increase in newbuilding orders. If you look at the orders, at the new orders portal within 2013, those were in the original close to 1.9 million TEUs, much higher than the equivalent number we had in 2012. So, plus the vast majority of those orders were in relation to bigger vessels. So there have been orders because prices have been at historically low levels.

Now prices may have come up a bit compared to where they were some months ago. However, they are still, from a historical perspective, relative orders. And if someone can combine them with a charterer that needs the vessel and has access to funding, we see no reason why not to proceed with that transaction. Let's not forget that putting an order at a low price, which also allows us to offer to the charterer a low charter rate from a historical perspective is a good thing for everybody -- and does for the charterer. And we definitely need to -- we wish to cater to the needs of our clients.

So, if a charter can -- looking a larger vessel according to its needs for the next 10 years, at the very competitive rates. So I think it is a good thing for everybody, because according to the bank with the leverage today, historically, it is a much lower leverage, because the same ships in the past 2005, 2006 or 2007, they were ordered at the 30%, 40% or 50% premium compared to today's prices.

Okay, that's helpful. And maybe just one on the joint venture here. We think about the leverage that you'd like to put into the joint venture relative to the existing balance sheet at Costamare, should we expect it to be in the 80% range, 70% range? How should we feel about leverage in that portfolio?

^ Okay. Look, up to now, in the joint venture we have bought secondhand vessels, and we have ordered in total nine newbuildings. And out of those nine newbuildings, five are charter. Up to now, we have not raised any debt in any of those assets. Now what's going to be the leverage? This is something we are currently working on, especially for the five ships out of Evergreen. We have a lot of options. We're discussing and comparing the proposals and we'll see.

In the past, the Evergreen vessels, those we did in 2011 under the Costamare umbrella, we had 80% leverage. Now I think it's a bit premature to indicate what is the leverage level we're going to be finally arriving at.

Okay. And I guess one on the quarter -- we saw general and administration costs kind of tick up here. Is there something one-time going on in that item or --?

Yes. No, you are absolutely right. I think it is one-time nonrecurring item there. Probably we could have adjusted for that; we didn't. But it is a one-off and going forward. No good but I would expect that the general cost is going to be at levels similar to the past.

Can you maybe give us a little background on what the one item cost is? And how much (multiple speakers) --?

Yes, it is a provision we do regarding about the expense of $3.7 million. This is why the number is like a bit higher. It was a platform, this number, the $3.7 million, I think it's more or close to normal levels. It is a provision we took on a conservative basis but we consider it to be a one-off item.

Okay, thank you for your time, gentlemen.

Sure. Thank you.

Ben Nolan, Stifel Financial.

I had a question -- well, a few questions. First of all, from a macro level, there's been all sorts of issues lately in Panama with respect to contractors. And I think, at this point, there's no question that the expansion of the canal is going to be somewhat delayed. Has that changed the thinking of the liners at all about moving into that 9,000 -- 10,000 TEU ships, or pushing back demand for those type of vessels? Or how is the implications of Panama troubles playing into the market, do you think?

Yes. Look, from our side, because this is mainly a question that it refers to the line of companies, and you know it's the liner companies' strategy. I mean, I can tell you from our experience this is for 2000 TEUs. Evergreen, they decided that they needed those vessels back in December. We bid for that transaction. And I think this transaction will go ahead irrespective of the final completion time of the current canal. These are vessels that they need for the -- for instance, Europe right now.

We haven't seen anything else. And let's not forget that the tariffs and the cost structure over the Panama Canal -- and leaving aside for a moment the fact that it may be delayed -- I'm not that clear yet, so we're not sure whether from a pure economical point of view there will add a little benefit to the liner companies or not. So I think from our side, we cannot judge. Again, the 9000 TEU ships that we ordered back in 2011, the companies wanted them, and I don't think they have a very specific timeline for the Panama Canal expansion. But I'm afraid that this is a question that needs to be mainly addressed to them. We're just following their needs. We're not going to drive receipts in that respect.

Okay, okay. I completely understand. And then as it relates to the Company a little bit more specifically, I was just curious following the recent preferred deal, the order for -- within the joint venture for the newbuildings, the sale and leaseback -- could you maybe give a rough estimate of what you feel like you're -- or what the liquidity within the Company is for acquisitions today? How much is available to be used as equity in however you choose to use it?

Look, this is also a function of how much debt we're going to be raising. First of all, on the five newbuildings we have charted to Evergreen, and then the other four newbuildings which are not started yet. So -- and whether this leverage is going to be 60% or 80% or 85%, this is a 25% difference, it will ultimately make a difference in the capital available for further growth. But I can tell you that even under quite conservative leverage assumptions and conservative chartering assumptions for the four newbuildings not chartered today, we have the capacity to grow without raising additional preferreds; or, of course, without raising common, which you know, is going to be probably one of our last options for dilution purposes.

So I cannot give you an exact number, but I can tell you that class going to be leasing a standard amount of equity from this sale and leaseback transaction we did for the two -- for the three newbuildings. So, I cannot give you an exact number but I put it in the region of $100 million or $150 million, which can be levered at least -- amount it can be utilized. (multiple speakers) But -- (multiple speakers)

Sure. (multiple speakers) Okay, well, that's helpful.

It really depends on the leverage of the kind of assets, so.

Yes, I completely understand. Okay. Well, and then my last question, again, as it relates to sort of the Company specifically. When thinking about some of the older, a little bit smaller assets that are coming off charter over the course of this year, are those -- would you think of those more as candidates for sale or scrapping? Or do you think that there is substantial market such that either there should not be any trouble and continuing finding employment for those type of assets?

Yes. I mean, these are mainly vessels built from 1991 until 2003, which is the youngest one. I talk about ships that come out of charter within this year. Most of those ships that were chartered they were initially bought at low levels. They were not bought at the market.

So, of course it depends on market conditions, but I think that should we experience a market as it is today, one option would be to renew or to extend current charter arrangements for a three, six or nine-month period, based on more or less the same charter rates. And then I take it from there. So there would be above that breakeven levels, servicing debt obligations. Of course, without the same time providing a huge upside for the next month. However, having bought those vessels at low levels, it gives us a lot of flexibility, and the fact that they service their debt, it's also a plus. So we feel quite comfortable with this re-chartering activity during this year.

Okay. Okay, that's helpful. All right. Well, that does it for me. I appreciate you guys taking questions here.

Okay. Thank you, Ben.

Chris Combe, JPMorgan.

It's actually Nish Mani on for Chris. Most of my questions have been addressed, but thank you so much for hosting the call. Just one last follow-up on finance costs. Noticed that it came down considerably in the fourth quarter versus the third quarter, and wanted to get a sense of what was happening there. I understand that most of the debt is fixed at 4% anyway, and the debt balance didn't change so much. So, were there some loan fees that were not being accounted for? Or what exactly was driving the move here?

No, I think, first of all, not all of our debt is hedged. You know, close to [8%] of our debt is hedged. And for the unhedged portion, obviously, you know lower sort of a base rates or lower sort of interest rates, they are bringing the costs down.

Now apart from that, we had less commitment fees, mainly for the fees for the ships that have been delivered in the past. And this, together with the lower base rate, I think that more than offset increased financing costs after the delivery of the vessels. But I don't think it's a huge difference.

Got it. Okay. So you mean the big driver is commitment fees?

Well, I think the difference was revenue margins. Right? I mean, we didn't have a difference of $10 million or $15 million quarter-on-quarter. I think less commitment fees, together with a lower base rates for the [largest] portion of the debt more than offset increased financing fees for the ships delivered.

Okay, understood. That's actually it for me, guys. Thank you so much for your time.

Thank you.

Shawn Collins, Bank of America Merrill Lynch.

Hey, on the new chartering agreement for the Navarino -- I apologize for my enunciation -- it's for a period of one year. Can you just talk about the dynamic behind that, and your decision-making to not make it longer-term? And whether that was your decision or MSC's decision?

I think it was -- we didn't want to go for a longer period because the market there today for these type of vessels is at its lowest. So, in a low charter rate environment, we wouldn't want to go for a longer period -- let's say, for two, three or five years -- because we would be losing all the upside. Should the market turn at some point, now this size ship is debt-free, so we have the flexibility to be patient, and to wait and do charter for a shorter period.

So, the way it has been structured, the vessel will be delivered in March of this year, and will be coming out of March -- in March of 2015, right after the Chinese New Year of 2015 -- which, from a historical perspective, after the Chinese New Year, then the market normally has a stronger potential. But the whole idea is that in a low market, we don't want to be going for a long period.

Okay, great. That makes a lot of sense. Thank you. I have a second question. Congrats on the $100 million preferred raise in January. I think that's your second preferred offering. Can you just comment on why you decided on a preferred offering versus other options, such as common equity or straight debt, and just the dynamic around that and the cost? I know the coupon was 8.5%, and just how you think about that relative to other options -- financing options?

Yes. First of all, we have to do this to be a very flexible instrument. Being a perpetual preferred, meaning that it has not bothered our balance sheet because it's treated as equity. And it is treated as equity for the simple reason because it is perpetual, so we don't have to repay it. But it is another option whether we will repay it in full or in portions after year-five.

So it is a very flexible instrument, a fixed dividend. And we have the right to repay after year-five as we wish. It does not carry any financial covenants. And I think this flexibility is what we find appealing; at the same time there is a market, especially the retail market, which seems to have a strong appetite for those type of instruments. So for this particular transaction, we have started with a $50 million deal. And within the next couple of hours, we upsized it to $100 million.

Now, compared to some other financial options, we also did a sale-leaseback where we have at least some equity on three of our newbuildings. Regarding common, the common there we will think about it twice, especially now. Bearing in mind that this would be dilutive, both for the free float shareholders as well as for the founding family owning 65% of the equity. So, I cannot say that we are never going to do a common stock transaction again; but as long as we have other alternatives which makes sense, we're going to go for those.

Okay, great. That's very helpful. Thank you. Just my last question. Congrats on the sale and leaseback transaction. Can you just say who the leading Chinese financial institution was?

I'm afraid -- no, look, I think there's only a few, it's like three or four, maximum five, but I think it's less than five, so it's one of those. I'm afraid I cannot for commercial reasons. And you know this is an understanding we have. So -- but there are very few, so I don't think it's going to be very difficult to imagine the names.

And there are really companies which may be part of a larger bank or not, where they can get competitive funding, and getting into the sale and leaseback transaction business where they buy the vessel, and they charter it to us under a better boat structure. We pay the better boat charter rate, which actually is a payment of interest and the payment of capital. And our normal charter arrangements with them is to continue. So it is a bit more complex transactions, but the leverage levels together with the whole package offer in terms specific -- is something like our [shares] may make sense.

Okay, great. That's helpful. I understand. Thank you very much, Greg.

Thanks, Shawn. Thanks.

(Operator Instructions). At this time, there are no additional questions. We will conclude the question-and-answer session. I would like to turn the conference back over to Mr. Zikos for his closing remarks.

Yes, thank you very much for your time being with us today. We appreciate your interest in Costamare, and we're looking forward to speaking with you again soon. Thank you.

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