Costamare Inc (CMRE) 2015 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the fourth quarter of 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, Thursday, January 28, 2016.

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. 2015 presented another profitable year for the Company. In December, we arranged predelivery refinancing with a leading Chinese financial institution for the two 3,800 TEU container vessels which are scheduled for delivery in the first and second quarters of 2018. Upon delivery, the vessels will commence a seven-year charter with Hamburg Sud.

Regarding the market, charter rates and asset values were highly under pressure, especially during the second half of the year, as a result of weak demand. We believe that today's depressed asset value environment provides attractive opportunities and the potential to increase our shareholders returns.

Moving now to this slide presentation, on Slide 3, we are providing a summary of the recent developments. Firstly, on January 4, we declared a dividend for the fourth quarter of last year. This is $0.29 per share and it is payable on February 4. We have also declared dividends on our B, C and D series of preferred stock. In December, we closed the financing of the two 3,800 TEU newbuildings chartered to Hamburg Sud. The financing was arranged on a predelivery basis with a leading Chinese bank. Finally, we disposed the 1986 built 2,500 TEU container vessel on which we booked an accounting gain of approximately $1.7 million.

On Slide 4, we are providing a summary of the chartering arrangements which took place during the quarter.

On Slide 5, you can see the fourth-quarter 2015 results versus the same period of last year. During the fourth quarter of 2015, the Company generated revenues of $122 million, EBITDA of $88 million, and net income of $33 million. For the same period of last year, the revenues amounted to $121 million and the EBITDA and net income to $81 million and $28 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; the gains or losses from vessel disposals; the gains or losses resulting from derivatives; the amortization of prepaid lease rentals, which is a non-cash charge; and the non-cash G&A expenses.

Based on the above, the fourth-quarter EPS amounts to $0.44 and the fourth-quarter EBITDA amounts to $86 million versus $0.41 and $83 million the year before.

On Slide 6, we are showing the revenue contribution for our fleet. 99% of our competitive costs come from first-class charterers like MSC, Evergreen, Maersk, Cosco, Hamburg Sud, and Hapag-Lloyd. We have close to $2 billion in contracted revenues and a remaining time charter duration of about four years.

I think that Slide 7 speaks for itself. You can see the resilience of our business model. The bars are the revenues and the EBITDA since 2007 and the dotted line is a time charter index. As you can see in a cyclical industry and irrespective of market movements, the Company has been consistently performing based on its long-term contracted cash flows without charters.

On Slide 8, you can see our remaining CapEx commitments. As you will notice, these are rather minimal for a company with cash on balance sheet of circa $160 million and debt-free assets. Remaining CapEx commitments for the two 3,800 TEU ships are in total $3 million and $19 million for the five 14,000 TEU vessels.

Regarding the 11,000 TEU ships, we have up to now paid all of the predelivery installments of 50% and the remaining 50% is to be paid upon delivery. We are currently in discussions with commercial banks regarding the financing of the delivery installment of 50% for those ships. Apart from the above, there are no other upfront commitments.

Slide 9 deals with the ships coming out of charter during 2016. As you can see, most of those vessels have been chartered in a low value environment, which means that the re-chartering does not actually pose a significant risk.

Most importantly, if you go to the next slide, on Slide 10, this shows a sensitivity analysis we ran on a revenue basis for 2016. As you can see, even if we assume a 50% or 70% discount on the new charter rates entered into June this year versus the current fixtures, the difference on a revenue basis is between 4% to 6%. We have about 75% charter covers for 2016 but, more importantly, only 6% of the total three TEUs are Panamax vessels opening during the year.

On the last slide, we are discussing the market. Charter rates and asset values have been under pressure. The number of (inaudible) ships has come up and it is close to 7%. The order book remains at levels of around 20%. As we have mentioned in the past, we are well-positioned to continue to grow in such an environment, which definitely provides opportunities.

This concludes our presentation and we can now take questions, thank you. Operator, we can take questions now.

(Operator Instructions). Ben Nolan, Stifel.

Hi, yes, this is [Stephen Pittsworth] in for Ben Nolan. I just had a question about your 11,000 TEU vessels. If you can't find long-term charter rates that meet your return requirements, we are wondering, could you give us an idea on the type of market you are seeing right now for the short-term rates for those type of vessels.

Okay, the market right now is not very liquid for those vessels. And it depends on how you define the short, medium, or long term. We cannot -- I think we can find, if we want, long-term type charter coverage. However, the numbers and the -- we're going to be looking in driving this for the next five, seven, 10 years may not be satisfactory. So if we feel that this is something that doesn't make sense, we may well decide to go for a shorter period, and this can be anywhere between like six months, one year, two to three years.

So as mentioned, we have already paid 50% of equity on those vessels. This means that if we don't secure a long-term time charter coverage because we decide not to based on today's market conditions, we can very well have a 50% leverage, which is something definitely manageable. And we will have flexibility and we definitely want to retain our flexibility to go for a shorter period. Depending on the market rate, we will negotiate and agree with our partner.

So are you seeing demand for those short-term charters from charterers?

There is demand. There are discussions. And there are discussions that have been going on as we speak now. I'm not in a position to be more specific for obvious reasons, because there are negotiations currently, but because we have also been asked in the past regarding the returns of that project and those 11,000 TEU's, we feel extremely comfortable with our charter potential and with the project returns on the medium and long-term horizon. And especially after the opening of the Panama Canal, we definitely feel that those 11,000 TEU vessels will be in great need from our clients.

Okay, perfect. Thank you. My next question goes back to the age of your fleet. I was wondering. Can we expect to see more scrapping from the fleet that's a little older rather than putting those vessels through a special survey?

Look, it depends on the physical condition of the vessel. And also it depends on the market. Generally, as a company, we tend to keep vessels whose physical condition is still acceptable up to the age of 25, 30, or in the past, we were also trading vessels which were about 30 years old and those were assets fully depreciated in our books. So it depends on the market and on the physical condition of the vessel, but as long as we can find a charter which we feel make sense, it's definitely above breakeven levels, and we feel comfortable with the quality of the vessel, we may very well continue trading those assets.

Does the requirement -- the new requirements for the ballast water treatment plants change that dynamic at all?

No, in our fleet, it's not something that I think is going to be changing neither our business model nor our decision on whether we're going to be keeping the vessel trading for a longer or a shorter period. I wouldn't say that.

Okay, that does it for me. Thank you very much for your time.

Fotis Giannakoulis, Morgan Stanley.

Yes, hi Greg and thank you. Greg, can you give us a little bit of an overview of your liquidity? I think that there are a lot of concerns for every shipping company about the liquidity position. You have about $160 million of cash, but at the same time there is a debt and some CapEx that you mentioned. How many -- how much cash can you grow from the debt-free assets and under level vessels that you have?

Yes, look, there may be questions about the liquidity generally in shipping for obvious reasons, but I don't think that this would be a concern regarding Costamare. And let me just (inaudible) this year that in the past, we've seen reports from people who have definitely miscalculated our liquidity position.

Now, to be more specific, as of year-end, we have customer balances of $163 million. At the same time, we would expect, based on the compliance certificates we are going to be providing our lenders with, this is our obligation as per our loan agreements, to have a leverage ratio in the region of 55% to 57%, around those numbers.

And if you look at the last pages of our press release, at the Costamare Inc. level, we have seven ships which are debt-free without counting three debt-free vessels which we own together with York.

So from a leverage perspective, I think we are at a very comfortable level I would say. We have debt-free assets and we also have ships that, should we wish, we can lever them up or we can take some debt on existing vessels.

Now, instead of going through specific numbers per vessel, because we don't have anything today and we haven't signed any new loan agreements, or probably we wouldn't be doing this now because there's no need, but if you want a point of reference, I think that as a rule of thumb, we could raise cash of close to $100 million, if not more than that, simply by leveraging debt-free assets or ships with low leverage.

Now, regarding the CapEx commitments and because there was in the past some confusion on that as well, and this is the reason we have added this slide, for the 3,500 TEU newbuildings, we have recently arranged financing. The Costamare portion of remaining CapEx commitments for those two vessels, it is in total $3 million. For the five 14,000 TEUs, the remaining CapEx commitments for the Costamare portion, it is $19 million. So, in total, we took about $22 million.

And for the 11,000 TEUs, we have paid 50% of the delivery costs up to now. The remaining 50%, we are currently in discussions with the bank for arranging a 50% sort of leverage on those vessels without assuming any upside from future chartering, etc. So, I think that our CapEx commitments today for the size of the Company and considering its liquidity position are quite manageable.

And can you also talk to us about the refinancings? You have some credit facilities maturing in 2018. Have you started discussions about the -- extending these credit facilities? And how much debt do you expect that you can get? Will you able to refinance them in full or you're going to need some of your liquidity?

Look, 2018 -- like we talk about 2.5 years ahead and how much debt can we finance or not is also a function of the value of those assets at this point in time. However, I'm sure people have noticed that we are a company which is repaying its debt quite prudently. And for this year, our debt repayment obligations are twice our depreciation expense.

So we do have debt repayments due in 2018. There is one facility which is maturing at this point. However, this facility has like 17 ships as collateral and those vessels will be debt-free. So taking into account the balloon and the expected value of those vessels, this is not something with which today we feel uncomfortable.

Being proactive, we may start discussions in advance and we may not wait until the middle of 2018 to finance this facility. But bearing in mind that this (inaudible) 17 vessels, this is something which we feel relatively comfortable today.

And let's not forget that our liquidity and track record is something that Costamare has been instituting for 42 years. We've never -- not even restructured facilities. We have never even breached a single financial covenant, not even in 2009. So, we feel quite comfortable regarding our debt arrangements.

Thank you, Greg. And can you talk to us about your investment strategy our capital allocation? You mentioned that you have over a $100 million incremental debt capacity liquidity than your cash position, and you made reference of a potential acquisition opportunity in the current weak market. And my question has to do -- where you see these opportunities? What type of transactions, and whether, given your stock trading at 17% yield, whether a share buyback or a preferred share buyback would be part of your plans?

Look, we are quite open to a lot of things, including the share buybacks, and the preferred buyback, but we are a shipping company. And traditionally, in shipping, you're better off if you buy and charter at the low of the market like the market we are experiencing today. And wait, be patient, especially in container shipping, in order to generate some returns over the coming years.

So, we do see opportunities, especially in the secondhand market. In the secondhand vessels, if you look at what we have be doing in the past, we have been buying many ships which may be at the age of 10, 12, 15, 17 years old with or without charter, and buy them with equity. And we tend to lever the vessel at a later stage when we found a longer time charter employment. So, we could be doing transactions like that.

We can also be looking at newbuilding transactions similar to the one we did over the last couple of months. So, I think we are quite flexible, but it's definitely -- the market environment today, it's probably the lowest market we've ever seen since 2010. So I think that there are opportunities as long as the Company has -- sort of a player has liquidity and has the sufficient size in order to weather the storm.

And one last question. If you can talk to us about your outlook about the market. The market demand last year grew by around 1.5% and the supply grew by 8% and it seems that we're going to have 4% to 5% supply growth this year. When do you see the -- how long do you think that it's going to take for the market for rates to start moving up again given the current oversupply and the idle capacity that exists in the market? And based on this outlook, how do you view your dividend distribution policy the next few years?

Yes, look, regarding the market, I'm afraid it's our position that we never forecast the market. We may have a view, but every single transaction we enter into is based on its merit or it's based on the numbers and what is our equity at risk.

Now, you're right that demand has been pretty flat or with a very low increase in demand during 2015. We didn't have a lot of scrapping during the year. It was like a bit less than 200,000 TEUs scrapped.

I'm not sure that I can forecast when we're going to see the market rebounding or when we are going to see box rates picking up. However, let me remind you that, the fourth quarter, container ships in the fourth quarter is historically the less strong -- also the weakest quarter of the year. And on the other hand, we have a down market in container shipping, which goes for I will say six, seven years. So this is a cyclical industry and at some point, it could definitely have to turn. But I'm afraid that I cannot predict a specific point in time that this would happen.

Now, regarding the dividend and capital allocation, first of all, regarding the dividend, I have to remind that we have close to $3 billion of contracted revenues and we have a remaining time charter duration of close to four years.

Now, the dividend, it is something that is being decided by the board and there is a balance and a fine line between dividends and return on capital on the one hand, and on the other hand, about growth opportunities. We like dividends. I have to remind you that the founding family owns 65% of this Company, so it is a substantial recipient of those dividends. On the other hand, as I said, there is a balance between growth and also return of capital which the board is evaluating every quarter.

Okay, thank you very much Greg.

(Operator Instructions). Brandon Oglenski, Barclays.

I want to follow up on the liquidity discussion. If the market remains down as much as it is, what is the strategy for the fleet here? Do you think that you'd be in a net reduction mode, or would you be looking to utilize the capital that you do have available to go out and get a little bit more aggressive on expansion? What should investors be thinking is the priority?

Look. First of all, regarding liquidity, we have a slide which shows that the vessels coming out of charter in 2016, even if they recharter at the 70% discounts based on today's fixture, which means that if today they get $10, next year they will be getting $3, you can see that the delta in our revenue sits in the region of 6%. And this is because the backbone of the fleet is chartered out for a long period and without ships coming out of charter in 2016, and we should have because we need to have staggered maturities, but those ships, most of them have been bought in a low market and have been chartered at an age which are not very far away from today's market.

Now, going forward, of course, if we continue having a market like that and there are opportunities, we will definitely consider them because that's our -- this is our business and this is what Costamare traditionally has been doing.

Now, it doesn't mean that because there's a down market and because we may have liquidity and a relatively low leverage, we're going to go out and buy whatever is available. We're going to be selective, but definitely, if there are opportunities, I think it's our responsibility to have a very close look at those.

Okay. But I guess what I'm getting at is would that take priority over the dividend?

Well, it would have to be such opportunities which together with leverage, this would be huge or they should be big enough so that we cannot sustain the dividend. Up to now, for the last five years, we never had to cut the dividend or to reduce the dividend in order to grow. On the contrary, over the last three years, we have raised the dividend three times and when Costamare went public, had 41 ships. And now we have -- we have a total of 72 basis, including the newbuildings. So, as I said, this is a board decision, but we like dividends the same way we like growth.

I'm afraid I cannot give you a specific answer now because we don't know what the opportunities will be. But I can tell you that, regarding the dividend, this is something we definitely care about the dividend. It's sustainability and it's growth moving forward.

Okay. And you talked about leverage in the form of debt to your total capitalization, but markets are quite volatile right now. So Wall Street can be very fickle. But from I think an investor perspective, we'd be worried now that lending spreads could go way up and not only that, banks might start looking at asset values and saying is that really the right way to measure leverage right now?

Do you feel that you are going to hit some more constraints in the financing market here? Are costs going to go up considerably, or do you feel that this is still an asset class that can be relatively cheaply financed?

Look. Regarding banks and asset values and covenants, if that was part of the question, the way our leverage is being calculated, there is a predefined formula which we apply. We cannot change it because we are in a down market the same way we didn't change it when we had a better market for instance the first half of 2011. So, there's a predetermined formula which doesn't change. And investors, if they don't want to spend time going through how we calculate our leverage and our bank loans, they can also look at our EBITDA coverage, which is like EBITDA over net interest, which is more than three times. Or an easy calculation regarding our leverage is that if someone takes the next 12 months debt to EBITDA, it's less than that, also it's close to four times which, in today's environment for a shipping company, I would say is pretty low.

So I think that, from a leverage perspective and covenant-wise, we feel extremely comfortable.

Now, as I said, there are opportunities and probably there will be more based on where the market is shaping things for next quarter, and we definitely are looking at those. Some may materialize, some may not, but we don't have to grow just for the sake of growing. If it's something that makes sense today, we will definitely do it. And up to now, we have been able to secure debt, board commissioned bank debt, also debt in the form of leased axles. So commercial bank debt, it's still available for companies and for projects that are structured the right way.

Okay, thanks guys.

Shawn Collins, Bank of America.

So Greg, in the quarter, I know you sold a ship. You sold the Challenger for $5 million for the use of demolition, which makes sense to us. I just wanted to ask how that negotiation went and what the appetite in the market looks like for demolition. Thank you.

Look, this was all for demolition, and there is appetite. The question is the price. So scrapper prices now are not where they used to be. They are now in the region of you can say between $280 and $300 versus $400 or $500 we used to see in the past. But still, the appetite is there. It is a matter of pricing.

Now, for this specific vessel, it was 1986 built ship, so this was like close to 30 years old. It is a ship that had already I guess sort of had its equity invested more than one time. So we felt that this was the right approach. So, for demolition, there is a market. It's just that scrap prices are at levels which are close to $280 to $300 per ton.

Okay, understand. Thank you. And then just a second question, a general question on your capital commitments. And I know you've covered this quite a bit, so I don't want to overdo it. And you have laid out your capital commitments pretty clearly. And it looks to me like you have a very strong liquidity position. But as you pursue discussions with the commercial banks on the financing for the 50% of the $86 million obligation on the 11,000 TEU ships, I know you cannot comment specifically. It wouldn't make any sense. But I wanted to ask what the tone is the message is that you are getting in the commercial banks, especially given the current soft shipping environment and the somewhat uncertain economic environment. Just wondering how the banks sound to you relative to your past dealings with them. Thank you.

Look, I think it's -- we talk about 50% leverage on ships that have been ordered at prices which are not the high prices for this type of vessels. So there are banks. There's a number banks who are more than willing to put part of their balance sheet on this deal. And I feel it makes sense. We talked about the 50% leverage, and for ships that, in the past, they might be ordered for values of about $100 million also. So, it's not something that doesn't make sense.

At the same time, if you have sponsors with size and a track record, then again, it makes even more sense. So there is appetite on behalf of the banks for this specific project. If there was not, simply we wouldn't have put it in our presentation.

Understand. That's helpful. That's great. Thanks for the time and insight Greg. That's all for me.

Charles Rupinski, Seaport Global.

Hi Greg. I'm sorry I didn't get off the queue. My questions definitely have been answered. A very thorough overview. Thank you.

(Operator Instructions). Seeing no further questions, I would like to turn the conference back over to Mr. Zikos for any final remarks.

Thank you. Thank you very much for being here with us today. We are looking forward to speaking to you during our first-quarter 2016 results. Thank you.

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