Costamare Inc (CMRE) 2015 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the first-quarter 2015 financial results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the Company. (Operator Instructions). I must advise you that this conference is being recorded today, Wednesday, April 29, 2015.

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.

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 first quarter of the year, the Company continued to deliver positive results. Recently we placed an order, together with our partners, York Capital, for one additional 11,000 TEU containership vessel to be built by Hanjin in the Philippines. The ship is expected to be delivered in December 2016, and Costamare will own a 49% stake.

Our joint venture with York has been progressing quite well, and since inception, we have done deals of $1.1 billion. All investments have been performing well, and we are currently in discussions with our partner regarding the extension of the investment period.

Regarding the market, there is a positive momentum. Charter rates have been rising. The number of idled fleet is below 2%, and activity remains high. We have no ships laid up, while the ships coming out of charter this year provide an upside based on today's market conditions.

Now moving to the slide presentation, on slide 3 we are providing a summary of the recent developments mentioned earlier. These include the signing of an 11,000 TEU newbuilding; the discussion with our partners to extend the investment period under our Framework Agreement; and a dividend on our common stock and also dividends on both classes of our preferred shares.

On slide 4 we are providing a summary of the chartering agreements which took place during the quarter. As of today, the Company has no ships laid up.

On slide 5 you can see the first-quarter 2015 results versus the same period of 2014. During the first quarter of this year, the Company generated revenues of $121 million, EBITDA of $82 million, and net income of $23 million. For the same period of 2014, the revenues amounted to $115 million; and EBITDA and net income to $73 million and $17 million, respectively.

Consistent with our previous press releases, we feel that the EBITDA and net income figures need to be adjusted for the following non-cash and one-time items: the accrued charter revenues, and the resulting discrepancy between revenues received and revenues accounted for, based on a straight-line amortization schedule; the gains or losses resulting from derivative instruments; the amortization of prepaid lease rentals, which is a non-cash charge resulting from a sale and leaseback transaction; and the non-cash G&A expenses. Based on the above, the first-quarter adjusted EPS amounts to $0.38, and the first-quarter adjusted EBITDA amounts to $86 million.

On slide 6 we are showing the revenue contribution for our fleet. More than 90% of the contracted cash comes from Maersk, MSC, Evergreen, and COSCO. We have $2.2 billion in contracted revenues and a remaining time-charter duration of about 4 years.

Slide 7 is comparing existing market rates versus today's market levels for the ships opening during the remainder of 2015. As you can see, if we were to recharter today those vessels at today's market rates, the revenues for those ships would be, on average, 38% higher. For example, the 3,500 TEU ships in our fleet are getting today on average $7,300 per day versus a market today in the region of $13,000.

Based on the above, it is obvious that the Company does not face any rechartering risk. On the contrary, the ships coming out of charter this year are chartered at levels that are below today's markets.

And moving to the last slide, on the last slide we are discussing the market. Charter rates have been rising especially during the last months.

The number of idled ships remains at very low levels. The order book is at around 18%.

We feel we are well positioned to capitalize on market movements, either by chartering ships in a higher market or by acquiring assets in a low asset value environment. This concludes our presentation, and we can now take questions. Thank you. Operator?

(Operator Instructions) Ben Nolan, Stifel.

Thank you and good morning, Greg; nice numbers here. My first question relates to the JV. You made some reference to possibly (technical difficulty)

Hello?

I think his line dropped.

Okay. Then we move on to the next.

Fotis Giannakoulis, Morgan Stanley.

Yes, good morning, Greg, and congrats for the good quarter. I want to ask about -- your operating expenses were quite below your budget, quite below the Street estimates. What drove this outperformance? And is this something that we can see the following quarters, or this is just a one-quarter item?

Yes, on the operating expenses, these were on average around $5,900 per day per vessel. Also we need to factor in the fact that we have like 13 ships flying the Greek flag, which on average is more expensive compared to running a vessel with a flag of convenience like Liberia, Malta, etc.

Now, to some extent, we were helped by the euro-dollar exchange rate, which has moved in our favor. On the other hand, we are trying to be as efficient as we can. Being in shipping for 40-plus years definitely helps.

Now if I must predict whether going forward we should have as target running expenses at those levels, of course our target will be to go even lower. However, for budgeting and for modeling purposes, I think that it's prudent to be conservative and stick to the budget we have today.

That's very helpful. I want to ask also about your deal with York Capital. You mentioned that all the projects that you have done so far, they are performing well and that led you to expand your agreement for even longer.

Can you give us a little bit more color? What were the other reasons that made you continue this agreement?

I understand that Costamare has a lot of capital that they could deploy even on its own. What are the benefits of this agreement with York Capital?

Yes. First of all, regarding York, up to now what we have done is that we have ordered together 10 newbuildings: five 14,000 TEUs and five 11,000 TEUs, with deliveries starting from the end of this year. We have also bought together four more secondhand vessels.

In total, this is close to $1.1 billion CapEx. In today's environment, all those investments today are positive, and we feel very happy with our cooperation with York up to now.

This is the reason we thought about extending it further. It is a mutual beneficial relationship.

Of course, Costamare has capital on its own; the same applies for York, of course. But it is a capital-intensive business, and we share the same mindset with York, so we feel that since those investments up to now are doing well, since the relationship is in the same mindset that we also share the same risk tolerance, I think it makes sense to continue co-investing in deals going forward.

We are generally positive about the market. We feel that there will also be a lot of opportunities, so we don't see any reason why not to extend this relationship which, as I said, up to now has been quite successful.

Can you give us a little bit more color what led you order another 11,000 TEU vessel? Is there any precedence on this particular type of vessel? I have seen you have ordered 11,000 and 14,000 TEUs, and now there are liners that they are ordering even 20,000 TEUs.

If you can also comment about the chartering of the five 11,000 TEU vessels, do you feel very confident that this is going to happen soon? Or at least that -- what led you to order one more while the first four vessels they still have not got any contracts?

Yes, first of all, the five 14,000 TEU ships, they are chartered for 10 years at a rate which we feel makes sense, that -- so so far the whole investment is, I think, quite attractive. We think that this is a good deal both for the charterers and for the shipowner's perspective.

Now, regarding the 11,000 TEU ships, we have ordered four; you are right. And we have ordered one more from the same shipyard, and the deliveries will start from the end of 2015.

We feel very comfortable with this specific asset size. The ships are not chartered yet; however, these are 2016 deliveries.

There is a lot of interest from charterers. The contract price, although I cannot disclose the exact number, I can tell you that it is at competitive terms.

So regarding the chartering and then the subsequent financing of those vessels, today we feel extremely, extremely comfortable. On average on those five 11,000 TEU ships, Costamare on average holds a 40% stake and York holds the remaining 60%.

When shall we expect to see a charter? Is this something that is going to happen during 2015?

Yes, look, the first delivery is like end of 2015 and the last delivery is at the end of 2016. So there is due time. Our goal is to optimize our earnings from those vessels, and we don't feel that we should hurry, especially as we are going close to delivery.

So at this point in time we take our time. Of course, we are in discussions with the charterers in order to optimize the returns of this investment.

Greg, one last question about the market. We've seen the last three, four years, the big ships being able to get quite attractive charter rates with double-digit unlevered returns, but the smaller vessels for a long period of time they were totally stagnant, close to OpEx levels. And all of a sudden the last three months, they nearly doubled.

What drove this spike in Panamax and sub-Panamax charter rates? And what were the reasons that these vessels, they had been kept at so low levels the prior three years?

Yes, look, first of all, it's all supply and demand. Now, what happens -- what do you know? We have seen especially the 3,500 TEU ships charter rates picking up from levels in the region of $7,000, $7,500 per day, reaching $13,000 per day. Apparently there is a lot of demand there for those vessels.

To some extent this comes from the fact that liner companies they have launched new services, especially into Asia, which made sense also bearing in mind the price levels of the fuel expenses. So it is additional demand for that tonnage.

And in container shipping, as generally in shipping, when tonnage is required rates, charter rates, can pick up quite fast. And this is what we have now witnessed.

In the past, we saw the Panamax rates picking up. Let me remind you that, I would say, a year ago Panamax might be using $7,000, $8,000 per day; we have seen levels of $14,000, $15,000, $16,000 now. To some extent, this has been assisted by the concession in the US West Coast. And for the 3,500 TEU ships, as I said the launch in new services by liner companies, especially intra-Asia, taking advantage of low fuel expenses, have brought demand upwards for those ships.

I cannot predict to what extent this is sustainable and where rates will go. All I can say is that we've seen a rising market especially for those asset classes. And also regarding asset values, since they are correlated to charter rates, asset values for the 3,500 TEU ships have picked up considerably over the last months.

Will you -- can you give us an idea of the -- you have bought something like 20 vessels over the last three years of similar sizes; and the prices you have paid was around $10 million, if I am not mistaken, each of these vessels.

If you would have to sell these vessels today, what would be the price? Are there any thoughts, as asset prices move higher along with rates, to monetize some of these vessels?

I think those vessels -- and Fotis, in one of our slides we are showing the resulting upside from the ships opening in 2015; and we have quite a number of smaller vessels which are coming out of charter this year. I don't think that we have any intention of selling those ships today.

But what we will do -- I mean, assuming the same market conditions as of April, now, I think that those ships instead of $7,000, $8,000 per day, they could be getting $12,000, $13,000, $14,000. So there is definitely a rechartering upside.

Asset values today for those ships may not look as attractive as they used to be when we bought those vessels. So from our side I think it is the right timing to have some incremental returns from those ships.

Let's not forget that containerships have a 30-year useful life. And you know, good investments, meaning ships that we have bought in a low asset value environment, we intend to operate them for years in order to maximize our returns.

Thank you very much, Greg.

Ben Nolan, Stifel.

All right. What I was going to ask or one of the questions was related to the York joint venture. You discussed that some with Fotis.

But is this something that in the long -- well, maybe can you tell me what is the long-term plan for this? Is the idea to maybe buy the whole thing in? Or is it to continue to operate it as a separate joint venture indefinitely? How do you think about that going forward?

Look, the agreement we have with York is that we are co-investing. So both York and ourselves will put equity. We are mainly the ones who are sourcing the transactions, and Costamare has the technical information management of the vessels.

The original investment period was for two years, which are expiring in May 2015; and this is the period which we have agreed to extend. Now, going forward, let's not forget that we have started the process for an MLP which, because of market conditions, we are considering what would be the optimal time to launch.

But this is also something where those -- I mean, this is also a vehicle where newbuildings with long-term charters could find a home. We feel that this will be a good investment proposal for MLP investors. So this is one alternative.

Otherwise, after we stop investing with York, which -- it may take some more years, then you know we will consider what each one of us wants to do. They could sell their portion of the vessels; so we could buy their portion, etc.

There are a lot of alternatives. But let's not forget that the MLP, for which we have started the process, it's also a viable solution.

Okay. That makes some sense. Along the same lines with respect to the newbuilds, obviously you just ordered the additional one in the Philippines. Have -- can you maybe tell me or talk me through what is currently the market in terms of rates of return on these kind of newbuilds? Or at least roughly.

Are rates of return on newbuilds at what you would say are adequate returns on capital? Or is the fact that you haven't chartered those other vessels because we are -- the market is still not quite there yet? Or is -- I don't know; is there a sufficient appetite in the market for charters?

There is appetite. Look, there is appetite in the market for these type of vessels, and especially for 2016 deliveries. The reason that we haven't yet fixed those vessels is because we feel, on the contrary, that there is a lot of appetite, so we want to optimize that transaction.

Now in every single transaction, both York and ourselves, the first thing we are taking care of is to minimize our downside and have a deal within our risk-tolerance levels. So we feel that the [purchase] cost of those vessels, based on where the market is today, definitely covers our downside; and then the more upside we can secure, the better of course it will be.

I'm afraid I cannot go into more detail now in terms of what is our expected cash-on-cash return, or what is the expected charter rate for and for what period for those vessels, because we are in the middle of discussions. So you will have to bear with us for a bit; and when those ships are chartered and financed we can have a more detailed discussion on the transaction.

Okay. I certainly respect that. But keeping with the newbuilds and my last question is with respect to the activity -- and you alluded to it earlier. It sounds like your capital strategy at the moment, given a little bit of an improvement in secondhand prices, is maybe a little bit more towards deploying capital on newbuilds.

My question is, are you beginning to see newbuild prices fall or become a little bit more competitive? Obviously there has hardly been any tri-hull vessels ordered at all; and I am sure the shipyards are eager to fill their slots; and steel prices are down. So are newbuilding prices for bigger ships becoming a lot more compelling relative to where they used to be?

Yes, first of all, let me start with the secondhand prices. For instance, prices today for the 3,500 TEU ships, they are not as attractive as they used to be. We would -- today we might think twice buying a 10- or 12-year-old 3,500 TEU vessel, considering where market levels are.

We bought a lot of those ships in the past where asset values were at lower levels. So this is not what we might be doing today.

However, everything -- I mean, the situation might change in some quarters. So it's only a matter of timing and price. And for those single-hull ships today, as I said, they may not be as attractive as they were.

Now for newbuildings, we are looking at the newbuilding transactions with or without a charter. If it is with a charter attached when we put the order, we just want to make sure that our residual value risk is at levels with which we'll feel comfortable.

I don't want to predict where newbuilding prices will go. But I can tell you that also newbuildings today, with or without a time charter attached, depending on the specifics of its asset size and transaction, it may make sense. We are definitely looking both at newbuildings and secondhand prices and secondhand ships, of course bearing in mind that some secondhand vessels today may not be as attractive as they used to be.

Okay. Are you seeing newbuild prices coming down at all?

I'm afraid I cannot give you a direct answer because it depends on the size and it depends on the delivery. So I don't want to give an answer which might be misguiding you, okay?

Okay; that's fine. All right, that does it for me. Nice quarter, guys.

Thank you.

Mark Suarez, Euro Pacific Capital.

Hey, good morning, Greg. Listen, you talked about newbuild prices and secondhand prices here on the last question. I am wondering here; is the idea to continue to co-invest? I'm getting the sense that co-investing within the euro framework for additional newbuilds could be a good alternative in the near term; and if there is an opportunity to go over some secondhand charter attachment transactions you will do so.

Yes.

Is this something you are currently looking at? Do you have any potential targets in mind in the secondhand market?

And what sort of vessel sizes and segments are you looking towards? I know you talked about some of the 3,000 TEU range; but any other thoughts on that?

Look, we are looking at a lot of projects and we are inspecting a lot of ships, whether we end up buying them or not. Of course, we look at secondhand vessels; it is not only the 3,000 TEU vessels or the Panamaxes, which you know have also picked up, also other asset classes which we look at.

For obvious reasons now, without having any closed transactions, I cannot reveal more. But it is all a matter of price, risk, and return.

So ships that we find today that their asset value has picked up, we would think twice before buying them. On the other hand, buying ships or buying specific asset classes which are at historically low levels or close to those levels, of course we would consider.

We are looking at a lot of ships and of course we're also looking at the newbuilding transactions. But we don't have a predetermined growth rate; I mean, our goal is not to be the biggest one. Our goal is to be the healthiest one from a balance sheet perspective and from a cash liquidity perspective, and the most profitable one.

And profitability the way we measure it is in terms of cash-on-cash IRR. So under those two parameters, of course we'll look at a lot of projects. But we don't have to create volume; we don't have to buy ships for the sake of growing. We are buying ships just because we feel that the returns on each single investment make sense, otherwise we don't proceed with the investment.

Got you. Do you feel that asset price -- given the asset price run-up here on the secondhand market do you feel that they still meet your return benchmarks? Or do you feel you can still buy some time here and maybe over the next 18 to 24 months pull the trigger on better rate of returns?

Yes, look, not all sort of asset sizes have picked up in the secondhand market. Charter rates and asset values in the larger sizes, above 6,500 TEUs, they have not picked up. So there is a whole range of potential investments we would consider, and I [give] myself both secondhand vessels and newbuildings.

Got you. Then going back to the newbuilds, is there an opportunity here as to you going back and maybe going to additional newbuilds here? Would sale/leaseback transactions or additional sale/leaseback transactions still be a tool to maybe potentially monetize further acquisitions going forward, like you've done in the past?

Yes, look, if it's something that makes sense, of course we will consider it. We've done sale and leaseback transactions with -- it's actually a loan, but the terms and the structure, based on specific circumstances, it may be quite attractive.

So if it's something that makes sense for a specific asset, of course, we will consider it. We've done it quite a few times, successful up to now.

And as I said, I don't think that raising the debt is an issue, whether it is commercial bank debt, or whether it is a sale/leaseback transaction, or whether it is something more structured. However, in terms of debt this is something we can do, and debt is not the issue.

Our main concern is to find the right asset which will have the potential of first covering our downside risk and then hopefully providing us with upside. But the raising of debt today, or at least from our experience, it is not something that it is of concern to us.

Got you. Then lastly, and maybe -- and I apologize if I missed it. Going back to that one-off newbuild acquisition here, the 11,000 (technical difficulty) percent, was this prompted mostly by a very good rate of return that you can get out of the ship pricing?

Was pricing the main catalyst here (technical difficulty) recent transactions for vessels of similar size? What prompted you to go after this as a one-off, vis-a-vis the original four from the same shipyard?

Yes, I think the price; and also factoring in the delivery time, which is, we think, 2016; and taking into consideration our view about charterers' appetite for that type of vessel. Those all made sense to us, and this is why we proceeded with that transaction.

So you feel confident that you can -- is this, the chartering of those vessels here a possibility, an event for this year, 2015? Are you close at closing some sort of employment for these vessels here?

Yes, look, we feel comfortable with those newbuildings, extremely comfortable, otherwise obviously we wouldn't have put this additional order. Now I cannot commit when exactly the chartering of all those five ships will be effected.

As I said, we are not in a hurry. But we are extremely comfortable and confident with the medium- and long-term returns that those ships will generate.

Okay, well that's all I have for now, guys. Thanks for your time again, Greg.

Shawn Collins, Bank of America.

Great; thank you. Hi, Greg. Good afternoon and nice strong quarter. Hey, congrats on the newbuilding contract for the 11,000 TEU. Can you just comment on how you chose the shipyard and your past experience with this shipyard?

Yes. Look, in Hanjin Philippines we have already an order for four 11,000 TEUs; and on those four we have also added the fifth one. I can tell you that the price for all those ships, it is the same.

Both from a specs perspective and from a pricing perspective and also from a delivery time perspective, we feel extremely comfortable with the package we bought. So we feel comfortable with that investment.

There have been questions regarding the timing of fixing those vessels. And as I said, we take our time. We don't feel that we should be in a hurry. There is a lot of interest there for those type of ships, so we will try to optimize our investment.

Okay, great. That's helpful; thank you. Then I know it's early in how you finance it; you will figure out over time, and you've already commented on this event. But can you comment just in general on the health of the shipping finance market and, more specifically, how active the traditional shipping banks are?

Sure. First of all, compared to the situation we witnessed back in 2005, 2006, or 2007, I would say that the ship financing market today is much more healthy. Banks have become much more selective, which I think it is a good sign for the whole industry.

I can tell you that as far as we are concerned, raising debt is not an issue, whether this is in the form of commercial bank debt, plain-vanilla newbuilding pre- or post-delivery financing, or plain-vanilla secondhand financing for an acquisition of a vessel, or whether this is sale and leaseback, or whether it is a more structured type of a transaction. So raising the debt is not an issue.

Commercial banks, the traditional ship lenders, as I said have become more selective. A number of them are in the process of reducing their loan portfolio. This doesn't mean, however, that they don't extend loans as long as the fundamentals are there and make sense, and as long as there is a strong sponsor with a newbuilding, for instance, with a time charter attached, with a strong charterer where the cash flows can service the debt on a standalone basis. These are transactions that make sense, and those transactions should be funded.

And let's not forget today that asset values compared to where they used to be in 2006 or 2007 are at much lower levels. So a 60%, 70%, or 80% leverage today is much more healthier than a 70% or 80% leverage in 2006 where you had inflated asset prices. So the long story short, there is bank lending available; much more selective, which makes sense; and raising debt, as far as we are concerned, we don't consider this an issue.

Of course, we try to be as efficient and optimize our debt structure. But there are really a lot of alternatives.

Okay, that's helpful. That's great. Thanks, Greg. Just would you consider the bond market at all? The bond market certainly has been less active and receptive to shipping finance, but is that something you would consider possibly?

Look, for the time being, we haven't done any new bond financings for a couple of reasons. First of all, as a rule of thumb it's more expensive compared to commercial bank debt.

Secondly, if it is to acquire a vessel, let's say a secondhand vessel, a five-year secondhand vessel with like -- and you fund it with a bond, with a five-year bond, which is not amortizing, practically you are funding a depreciating asset with a non-amortizing financing instrument, which may or may not make sense. This may create a lot of residual risk and this may lead to substantial refinancing risk at the end of, let's say, the five-year period.

Now, I am not saying this is something we may not do in the future on a corporate level. But up to now, in every single transaction we have done we have found a commercial bank debt also [if] a sale and leaseback make more sense.

On the other hand, as a Company, as I am sure you've seen, we like amortizing our debt. Our capital repayment every year is close to twice our depreciation expense for the year.

And a bond which is not amortizing, it is something that might be a concern. It is something that we don't want to find ourselves with big bullet payments due in five or seven years' time where Costamare and consequently its shareholders would be assuming an excessive refinancing risk.

Okay. That makes sense. That's helpful; great. Well thank you very much for the insight and the time. I appreciate it, Greg.

Gregory Lewis, Credit Suisse. (Operator Instructions) Charles Rupinski, Global Hunter.

Yes, good afternoon, Greg, and congratulations on the quarter.

Hi, Charles. Good morning. Thank you.

Good morning. I just had a really quick question, sort of a technical question. Just on the newbuild program that you have, the ships in the yards, are there any aspects of the technical specifications that are geared toward the speed levels in the loops now and so forth?

And should at some point -- it certainly hasn't happened -- but at some point if the vessel speeds change, would there be the ability to retrofit or adjust the specifications, should that be the case?

Well, this ability is there. Those ships are the late eco-ships, and the ability to retrofit the ships is definitely available.

The way these specs have been decided both for those vessels and for the ships which are the 14,000 TEUs chartered, those have been decided bearing in mind the needs of the charterer. For instance, Evergreen for the 14,000 TEUs, and for charterers in general that are going to be chartering those vessels within the next year or so.

Okay. That's very helpful. Thank you and congratulations again on the quarter.

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

Thank you, and thanks for being here with us today. We are looking forward to seeing you again at the next quarterly call. Thank you. Operator, I think we are done.

Thank you so much, sir. Thank you, everyone. That concludes our conference call for today. Thank you for all of your participation. You may now disconnect.