Costamare Inc (CMRE) 2016 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen and welcome to the Costamare Incorporated conference call on the first-quarter 2016 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, Thursday, April 21, 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. During the first quarter, the Company delivered solid results. In a challenging market environment, we keep employing our vessels having chartered in total nine ships during the first three months of the year. On the market, charter rates and asset values are at historically low levels as a result of weak demand. We believe that today's environment provides attractive opportunities and the potential to increase our shareholders' returns.

Moving now to the slide presentation, on slide 3, we are providing a summary of the recent developments. On April 1, we declared a dividend for the first quarter of the year. This is $0.29 per share and it is payable on May 4. We have also declared dividends of our B, C and D Series of preferred stock. In January, we extended the majority of the credit facility for three years. This relates to a $42 million balloon originally due in 2017, which has been extended until 2020.

On slide 4, we are providing a summary of the chartering arrangements, which took place during the quarter. We have rechartered in total 11 ships from the beginning of the year.

On slide 5, you can see the first-quarter 2016 results versus the same period of 2015. During the first quarter of this year, the Company generated revenues of $120 million, EBITDA of $82 million and net income of $30 million.

For the same period of last year, the revenues amounted to $121 million and the EBITDA and net income to $82 million and $23 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 items -- the accrued charter revenues and the discrepancy between the revenues received and revenues accounted for based on a straight-line amortization schedule; 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 first-quarter EPS amounts to $0.45 and the first-quarter EBITDA amounts to $85 million versus $0.38 and $86 million the year before.

On the next slide, we are showing the revenue contribution for our fleet. More than 99% of our (inaudible) [cash] comes from first-class charterers like MSC, Evergreen, Maersk, COSCO, (inaudible), Hapag-Lloyd. We have close to $2 billion in contracted revenues and a remaining time charter duration of about 3.5 years.

Slide 7. I think that slide 7 speaks for itself. You can see the resilience of our business model. The bars are the revenues and 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 with first-class charterers.

On slide 8, you can see our remaining CapEx commitments. As you will notice, these are rather minimal for a company with cash on the balance sheet close to $135 million and debt-free assets. The remaining CapEx commitments for the two 3,500 TEU ships are in total $3 million and $15 million for the five 14,000 TEU vessels.

Regarding the 11,000s, we have up to now paid all the pre-deliver 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 installments of 50% for those ships. Apart from the above, there are no other unfunded commitments.

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

Most importantly, if you go to the next slide, slide 10 is an update of a similar slide we used in the past. It is a sensitivity analysis on the effect of re-chartering. As you can see, even if we assume a 50% or 70% discount on the new charter rate (inaudible) during the year versus current pictures, the difference on the revenue basis is going to be between 4% to 6%. We have a 75% charter coverage for 2016.

Moving to the last slide, on the last slide, we are discussing the market. As already mentioned, charter rates and asset values have been under pressure. The number of [pilot] ships has come up to 7.4%. The other group stands out 19%. As we have mentioned in the past, we are well-positioned to continue to grow in such an environment, which provides more opportunities. This concludes our presentation and we can now take questions. Thank you. Operator.

Thank you. (Operator Instructions). Donald McLee, Wells Fargo.

Good morning, guys. My first question is around counterparty risk. It's been a rising headwind with a couple of liners looking to amend charters amid restructuring negotiations. I believe the direct impact at Costamare is a bit limited so far, but could you talk about how you view the health of the liner group over the past couple of quarters and maybe also talk about the current level of counterparty risk compared to historical levels in 2011 and 2012?

Yes, first of all, let me tell you that I can only speak for our charterers and we have a pie chart in the presentation where you can see who -- what are major charters, meaning where the cash flow is coming from, which a company like Maersk, COSCO, MRC, Evergreen, Hapag-Lloyd, (inaudible), etc. Now we feel extremely comfortable with the credit quality of our charterers with whom we have been working together for a lot of years.

And let me remind you that generally the time charter contract is a fixed-rate contract, which are legally binding for the time period for which they are effective. Now, I cannot comment about other charterers or about what is going on in the market and I have to say that it's all speculation because we don't have the full and final picture yet.

Now what we see today is we see a lot of consolidation in the industry, especially between liner companies. And from our point of view, this is good news because we definitely want to have (inaudible) and profitable charterers and I think those arrangements, whether it is consolidation or whether it is [load] sharing arrangements, I think they are steps towards positive -- or towards the right direction.

Thanks. That's helpful. My next question is just around your order book. Can you provide an update around the financing and employment for the unchartered newbuilds scheduled to deliver over the next couple of quarters?

Yes. We have -- you are referring to the five 11,000 TEU ships?

Correct.

Well, Costamare has on average 40% of those; the rest, 60%, is owned by our partners, York Capital, so practically we have two out of the five ships. So for the Costamare part, we talk about two vessels. Now up to now, we have paid all the pre-delivery installments, which are 50% of the contract price and the remaining installment is to be also -- the last installment is to be paid upon delivery, which is a delivery installment. For that, we are in the (inaudible) discussions with various lenders regarding providing us with a 50% loan to value financing and in order to make sure that there will be no additional cash outflow from our point of view. Now -- and the deliveries will start over the coming months and we are in discussions with banks for that.

Now for the chartering of those vessels, I can tell you that for those ships we have been taking our time. We are in discussions with the charterers. I think we will have a much better picture when all the discussions regarding alliances and (inaudible) arrangements are taking place that will be crystallized. And also I have to say that the opening of the Panama Canal, which is rather imminent, it's something that we believe it will definitely help the employment of larger ships, including ours, or including our 11,000 TEU vessels, which are ships that will be able to navigate through the Panama Canal.

Thanks. That's helpful. One quick follow-up around time charter rates. For the 9000 TEU class, I think rates are down 34% year-over-year. Has there been a similar decline for the larger ships in the 11,000 TEU class?

I think the market today is not very liquid, so -- and because we are in discussions regarding the chartering of those vessels, you will allow me to refrain from any numbers which may be misconstrued or misunderstood from various people.

Fair enough. And then just my last question is how should we interpret the recent extension on your credit facility from 2017 to 2020? Is that any indication around you thinking that the charter option might be exercised?

Look, this charter option will be kicking in in two years time or so, so we don't have any picture on that. But I think you can view it as an example of the great relationship we are enjoying with our lenders. So this extension of the balloon is not subject to the vessel being employed for the period 2017 until 2020. This is irrespective of whether the current charterer is going to exercise this extension option.

All right. Great. That's all my questions. Thanks for taking the time.

Ben Nolan, Stifel.

Thanks. Yes, I was actually going to follow on maybe a little bit on that last question with respect to the Alpha credit facility. Obviously, you guys from time to time do have maturities on your existing facilities and the intention is certainly to refinance those and spread it out over a longer amortization period. Was curious how much more of that or how many other of those types of situations there are upcoming and what your current -- subsequent to this what your current debt repayment profile looks like and then what you think it might actually be in terms of what you think your actual repayment of debt on an annualized basis would be going forward.

Yes, look, we have announced this extension for the Alpha facility, but I can tell you that we are in advanced discussions regarding extension of other facilities as well. Those have not yet been announced simply because they have not been yet disclosed -- documented and closed. So you will allow us some more time, hopefully late in the quarter, in order to get back to you on those. And then I think we will all have a better picture of the debt repayment profile going forward.

But the intention is that for ships that have charter and for ships that the cash flows are there, in case it makes sense, we will have and we currently have discussions with banks regarding a potential refinancing of those loans and we are generally proactive. So we talk about maturities of 2018 or 2019.

Okay. So -- and as it stands right now, without having refinanced those, can you remind me what your repayment obligations are now for 2016 and 2017?

Yes, it's close to $200 million per year with the capital repayment.

Okay, perfect. And then my last question has to do with some of the renewals that you did, which are pretty impressive given how challenging the market is and how much idle capacity there is. But a number of those ships are already 25 years old. I'm just trying to think through how you guys perceive or make the decision as to whether or not to continue to renew older vessels like that rather than scrapping them. And I suspect it has to do with when a special survey date is. So at these levels, is it fair to assume, as you approach the next special survey on some of these 20, 25-year-old ships, if rates don't get better, that it just doesn't make sense to keep them in the fleet?

Look, it's a couple of things. First of all, let me start by saying what we used to say in the past that we feel extremely comfortable with managing and owning and chartering older tonnage and sometimes the best returns are coming from older vessels. So you are right that now we have -- like in the first quarter of 2016, we have in total recharter like nine vessels and some of them, as you can see, are 1991 built or sort of 2000 built, or 1995 built and for those vessels, we have found employment, which in today's environment stands out pretty well.

Now the decision on whether to scrap a vessel does not necessarily have to do with the next special salvage (inaudible), it has to do with the physical condition of the vessel and with whether we feel that those ships can still generate cash flows. If that's the case, of course, also factoring in the next dry docking, we may continue managing those vessels and owning those vessels and in the past, we were owning vessels, which were like 35 or 37 years old, fully depreciated and they were still yielding positive returns.

So we don't have a problem with age as long as the ship can still be seaworthy and as long as we feel that there are still some returns to be made. And I think that the rechartering of the first quarter proves that. So that ships 1991, 3000 TEUs, they may be getting charter rates not far away from what younger tonnage is getting today.

Let me tell you, in a good market, all the ships will find employment. In a bad market, again, if the physical condition is there -- of the vessel is there, still older ships still can make money.

Okay. No, that's helpful. I appreciate it. Thanks and nice quarter, guys.

Fotis Giannakoulis, Morgan Stanley.

Hi. This is Sherif on for Fotis. Just a quick industry question to start. Rates are sitting at all-time lows and idle capacity has continued to rise. So what do you attribute to that besides the delivery of newbuilds? Are there any specific routes that have been particularly weak, or is it a general slowdown of global trade and do you see any difference in the way liners redeploy vessels across different routes?

I think that generally I would say that -- first of all, as we mentioned, the number of pilot fleet is close to 7.4% of the total fleet and close to two-thirds of this -- of those vessels that are laid up are being owned by non-operating owners, means by shipowners like us and the charter rates together with asset values, I can tell you that today are at historically low levels. Especially there are some specific asset classes that have definitely underperformed, especially the Panamax vessels or the post-Panamax ships.

Now regarding the trade, we have a picture for the first two months of the year up until February, which may be a bit distorted because this year in 2016 the Chinese New Year came up a bit earlier. But I can tell you that generally the demand is I would say anemic and if you factor in together with supply, which is well above today's demand, this is what is creating today's supply/demand imbalance and this is why you see bulk rates and the charter rates being at very low levels.

Okay. Thanks for that. You also mentioned in the press release that the current challenging environment provides attractive opportunities. Can you elaborate on what deals you are seeing out there and what stopped you guys from making any acquisitions this quarter?

Yes, today, we are mainly referring to several [hundred] ships. There have been no new building orders for the first months of this year and probably this is not something that you know will be changing soon. But for secondhand vessels, there are some specific asset classes where, with or without charter, you can buy ships at rock-bottom prices where, if you operate those vessels for a couple of years, you can make your money and then it's all upside. And let's not forget that containerships have a useful life of 30 years and we have proof that 1991 built ships can still get $6000 to $7000 per day in today's environment.

So in the secondhand market, we definitely believe that there may be transactions and I'm not only referring to the so-called distressed builds coming out of financial institutions, but generally there may be some acquisition candidates, which may make sense to look at them.

Okay. Thanks. Just one more. If the market stays weak for an extended period of time, some of your vessels will have to roll over at lower rates. So what kind of alternatives do you have to boost your liquidity? You have some debt-free assets and you are still paying heady debt repayments twice the level of your depreciation. So how much cash can you release from that and are there any discussions with your lenders to extend your loans?

Yes, it's two things. First of all, regarding the rechartering of the ships coming out of charter in 2016, for the remaining nine months of 2016, starting from the end of the first quarter, we have a slide, we have to have two slides, slide 9, slide 10 would show that from that rechartering, the net effect of our 2016 total revenues is not going to be substantial.

Now regarding the market, it is where it is. We will not provide any forecast, but, as you said, we have debt-free assets, which you know we may be leveraging and at the same time, as we did in the previous quarter, we may be extending some debt maturities. So I think we do have some tools in our tool chest should the market continue being like that for the future.

Now, I have to say, however, that the backbone of the fleet has been chartered out for a longer period, so we have no big ships coming out of charter, not in 2016, nor in 2017. The first is coming out of charter of a bigger size out of the 9,500 TEU COSCO vessels coming out of charter in 2018 and then the newbuildings which will start being delivered from now, the 14,000 TEUs ships, they have a 10-year charter. And for instance, the 9000 TEUs ships we have chartered to Evergreen and to MSC are going to be coming out of charter between 2020 and 2023. So on a weighted average TEU basis, we have a remaining time charter duration of close to 3.5 years.

Okay. That's very helpful. Thank you for taking my call.

Amit Mehrotra, Deutsche Bank.

Thanks for taking my question. There's obviously a lot going on with respect to the liner companies. Costamare is not directly impacted by what's going on in Korea; that much I think I know. But from some higher-level standpoint, Greg, it would just be helpful if you can comment on how these things usually play out. I understand these contracts are legally binding, like you said, generally speaking, but they are also long-standing relationships, which I guess ideally everyone wants maintained.

So in that context, can you just give us some understanding as to who has more leverage in these types of negotiations and what are some of the main things that you think as owners that you are trying to balance in your mind as you discuss these items with liner companies? And again, I'm talking more generally and not really about any particular situation. Just trying to get a little bit of a better understanding on how you think about (inaudible).

Okay, first of all, I have to reiterate what I said at the beginning of the call, that we feel extremely comfortable with the credit worthiness and the quality of our charterers and that all the charter payments as far as we are concerned are current. So this is the first point.

Now, this is a generic question, so I'm afraid I will have to provide you with a very generic answer as well. I think that these are legally binding contracts and let's not forget that the shipowner is controlling, managing and owning the asset and the asset, it is providing -- it means that it is providing the necessary cash flows both for the shipowner and for the liner company. So in my mind, the shipowner is a kind of secured creditor.

However, I don't have a lot of experience on this, so I'm afraid that this is something I wouldn't like to discuss in more detail simply because whatever we say, it's going to be just speculation and I don't think that anyone of us has a clear picture about what's happening and how will those situations be resolved.

Okay. That's fair. Let me just ask you maybe another question where you have a little better insight with respect to the new alliance that's brewing, or that's announced and some of your customers are obviously involved in that and just try and understand what type of implications you think that could have on ships and new structures or consolidation and maybe the impact of the idle fleet potentially and charter rates. Any sort of deduction you can get from what this alliance means from an actual fundamental business standpoint for the owners?

Yes, so, look, the latest we have all heard has to do with the new alliance or the new proposed alliance between CMH, COSCO, Evergreen and OOCL and on the other hand, there have been some headlines regarding the Hapag-Lloyd and [UAAC] cooperating, also merging and the one becoming the holder of the other. But these are just the headlines in the news. How those things will evolve, we don't know yet.

I have to say that especially in today's environment those alliances definitely make sense. We talk about our clients here, the liner companies, and from our point of view, we definitely want the liner companies to be profitable and to be healthy. And I think this is the way forward in today's market environment. So we feel that these are positive steps. You may be right that sort of in the short or medium term that the (inaudible) ships may go up partly because of those alliances. But, at the end the day, it's all supply and demand. Container shipping, it's about -- it is a long-term business, a long term. We definitely want to have profitable and healthy and strong clients. So I feel that these are steps towards the right direction.

Great. Okay, very clear. One last quick one from me and, Greg, you talked about sort of having tools in your toolkit and for us analysts, it might be just a little bit easier if you can provide some quantitative measure around what you think actually your liquidity is and what I mean is not just your cash on the balance sheet. Obviously, I also mean the ability for you to extract additional liquidity from some various different tools in your toolkit. Is there some magnitude of number that you can just help us out with so we can understand what your tool kit actually comprises of?

Yes. Look, I have to be generic because if there was something that we would have done up to now, we would have disclosed it. But generally, apart from the cash balance on the balance sheet and the positive EBITDA, and let's not forget that we have close to 60 ships in the water today, we have debt-free assets and we also have assets which have relatively low leverage.

On a corporate level, I can tell you that we will be providing compliance certificates to our lenders and we would expect our leverage to be in the region of 55% to 57% based on the compliance certificate we are provided with our commercial bankers. So there are some assets which are debt-free. There are some assets that have low leverage. There is positive EBITDA and there's also cash flow -- and there's also cash on our balance sheet.

Now, if you are asking for a number, I could give you a range. I don't think that it would be difficult to raise between $50 million to $100 million, somewhere there, from debt-free assets and from solid financing, at least. Now -- and this leaves aside whatever discussions we may have in the future for extension of loans. And of course, leave aside also other toolkits, which -- or sort of other tools which in today's environment probably they are not optimal.

But definitely there are a lot of solutions in case the Company finds acquisition targets. We've never missed out on a transaction because we couldn't raise debt or because we couldn't get the liquidity required. And so that I'm not being misunderstood, we do not contemplate any equity offering in today's environment. So I just want to make it clear that especially today this is not in our agenda.

Got it. Well, that's very helpful. Thank you so much for answering my questions. Appreciate it.

Gregory Lewis, Credit Suisse.

This is Joe Nelson on for Greg. Just kind of following up on an earlier question, given the announcement earlier this week that it looks like most of the major alliances are going to be shaking up -- and I know you guys have spoken today, you are in advanced discussions on some of these uncontracted newbuilds. Has this shakeup impacted those negotiations at all and to what extent you can speak to that?

It has. It definitely has because, until after its liner company knows in which alliance it will be operating, it is going to be difficult to commit for tonnage for the medium or long term because simply because they don't know what needs exactly they will have. So we feel that over the next couple of months, probably we will have a better picture, which is something that would also help our plans going forward with chartering those vessels.

Okay, great. And then maybe another question somewhat related. We are about two months away from the Panama Canal, the new locks opening and there really hasn't been much in the way of announcements as far as new services taking advantage. And this particularly relates -- it looks like you guys have the five uncontracted vessels that are that new post-Panamax class.

Amongst your customers, how are they thinking about it in relation to their own capacity and utilization? Is this something where people are going to be taking a little bit more of a wait-and-see approach, or should we expect to start seeing some more announcements over the next couple of weeks about new service lines maybe upgrading their capacity to some more post-Panamax class vessels?

First of all, I think that this is a question that should normally be addressed directly to the liner companies who have their own -- and this company has its own specific circumstances, planning and network and trade routes. I wouldn't like to say something which may be applicable to some liner companies and not to some others. But what I can tell you is that, as far as we are concerned, that the opening of the Panama Canal will definitely assist in the trading of some specific asset classes, especially for the post-Panamax vessels and we feel that the Panamax ships, which up until now they have definitely underperformed, are going to be obviously hit because, to some extent, they will be redundant for the purpose they were built. They were purpose-built vessels in order to navigate through the Panama Canal. Of course, they may find employment in other trade routes. However, the opening of the canal, I don't think it provides them with a bright future.

Okay, great. That's it for me.

(Operator Instructions). Showing no further questions, I'd like to turn the conference back over to Mr. Zikos for any closing remarks.

Thank you. Thank you very much today for being here with us. We are looking forward to speaking to you again in the next quarterly results conference call. Thank you.

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