Costamare Inc (CMRE) 2016 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 2016 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, Friday, January 27, 2017. 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 fourth quarter the Company delivered solid results. On the chartering side we continue to employ our vessels having chartered in total eight ships opening during the last three months.

Regarding our financing arrangements we have refinanced loan facility, which was originally expiring in 2018. Under the new agreement with the balloon payment of $30 million during 2018 has been extended to be amortized over the three-year period until 2021.

As mentioned in the past our goal is to strengthen the Company and enhance long-term shareholder value. At the same time we are actively looking at new transactions in a distressed asset value environment.

Regarding the dividend and the dividend reinvestment plan currently in place members of the founding family as has been the case since the inception of the plan have decided to reinvest in full the fourth quarter cash dividends.

And it now moving to the slide presentation, on slide 3 we are providing a summary of the chartering arrangements which have taken place since September. We charter in total eight ships over the last months.

On slide 4 we show the scrapping of the 2003-built, [5,000] TEU vessel Romanos for $6.6 million. Moreover, we show the refinancing we recently completed of an existing credit facility, which was due in 2018. The new facility of $32 million is amortized over the next five years and matures at the end of 2021.

On the next slide in November we issued $72 million worth of common shares. The founding family participated in the offering by purchasing $10 million worth of the new issuance. Moreover, in January we declared a $0.10 cash dividend per share on our common equity.

As already mentioned, the founding family have decided to invest alul the second, third and fourth quarter cash dividends in new shares under our dividend reinvestment plan. That is in addition to the latest common offering participation.

A moving to slide 6, on slide 6 you can see the fourth quarter 2016 results versus same period of last year. During the fourth quarter of this year the Company generated revenues of $110 million and adjusted net income of $23 million.

For the same period of last year the revenues amounted to $122 million and the adjusted net income to $33 million. Our adjusted figures take into consideration [deferred] and non-cash items; the [approach] of the revenues; the gain or loss on sale of vessels; 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 adjusted EPS amounts to $0.28 versus $0.44 the year before.

On the slide 7 we are showing of the revenue contribution for our fleet. More than 99% of our cost comes from charterers like Evergreen and (inaudible) Maersk [close to Hamburg Sud]. We have $1.5 billion contracted revenues and a weighted average remaining time charter duration of about 3.2 years.

On the next slide, on slide 8 you can see the resilience of our business model. The bars are the revenues and adjusted net income and 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 constantly performing based on its long-term [contracted] cash flow.

Slide 9 shows the smoothened impact on our debt repayment profile of the recent refinancings including the $32 million new credit facility, which refinanced an existing loan originally due in 2018. As you will see if there are now no debt maturities 2017, and we have reduced our 2018 balloon by approximately $400 million.

On slide 10 you can see our remaining CapEx commitments. These are rather low for a company with cash on balance sheet of about $210 million. Our remaining CapEx is less than $25 million without assuming any debt-financed on the fifth 11,000 TEU newbuilding. We are in discussions with our banks for the financing of that ship. Assuming a 50% leverage on this vessel the remaining CapEx commitments will be in total less than $3 million.

Slide 11 deals with the potential effect of the rechartering for the next 12 months. As you can see, even if we assumed a 40% on new charter rates and into June next year versus current fixtures, the difference in the revenue basis would be less than 4%.

And, finally, on the last slide we are discussing the market. Charter rates and asset values continue to be under pressure whereas box rates have been experiencing a positive trend. The [number 2,006] has been up to 6.9%. The order book has decreased to 15.7%.

As we have mentioned in the past we are well-positioned to continue to grow in such an environment, which provides good opportunities.

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

(Operator Instructions) Steven Tittsworth, Stifel.

Thank you for taking my questions. Just have a few. First one is that we have noticed that box rates specifically coming out of Shanghai going to LA, Shanghai going to Europe they are above $2,000 per day. Pretty much been staying at that level for a while now. Do you see that as an uptick in volume growth or is that more just liner efficiencies right now?

I think we have seen a positive trend in box rates starting a more or less from the second half of 2016, and you are right this is something that we know is still there. The latest GRIs, the general rate increases by the liner companies seem to have a sticking power. Now there is a short element of seasonality there. This is because we have right before Chinese New Year, and you can now use -- there are some additional shipments right before the closure of factories in China.

However, leaving that aside I can say that there is a positive trend in box rates. Whether this would persist after Chinese New Year, this means the second week of February, it remains to be seen, but generally the case up to now has been that there is positive trend in the month and at the same time there is supply management between liner companies, which has helped a lot box rates.

Do you see this leading to potentially higher ship demand assuming the trend continues?

Well, if the trend continues in theory, if there is more demand in theory you can argue that liner companies would need more ships. However, when this would happen I am afraid I would like to provide any forecasts now. Let me say, however, that witnessing a positive trend in box rates it is definitely good news for all parties involved. Now what is going to be the time cut if any between an uptick in box rates and charter rates? I'm afraid that I don't want to provide any forecast right now, but it is generally a positive trend.

Okay, perfect. And then my next question deals with the newbuilds you have been delivered this year. We noticed there is still no contracts on those. Have you made any progress with that?

You're referring to the 11,000 TEUs, because all the 14,000 TEUs have been delivered than they have a five-year -- sorry, they have a ten-year charter, all five of them.

Right, yes.

Now for the 11,000 TEUs only one of them has been delivered. This was delivered during 2016. The remaining four they are to be delivered within the first half of 2017.

Now there is a couple of points there. I think we mentioned also in the press release and in the presentation the funding for four proud of the five newbuildings has been in place, so there is no CapEx commitment there. We put all our equity in the delivery installment to the shipyards is to be paid by a committed debt.

For the fifth the one we are in discussions with a lender in order to again arrange a [50%] leverage, so there's going to be no equity cash outflow from our side. And Costamare has an average 40% of those five newbuildings, so practically we have like two ships.

Now regarding the rechartering, we don't want to put ourselves under pressure to charter the ships today, especially before the Chinese New Year where traditionally the market is softer. We take a medium to long-term approach. We are very comfortable regarding the potential of those ships. Under our loan agreements there is no obligation, there is no covenant to have vessels chartered during the tenor of the loan as long as of course we pay the [debt] service.

So, we don't feel under pressure there. Of course, we want to charter the vessels. We are in discussions, in active discussions with a lot of charterers. However, at the same time we want to make sure that we enter into a charter agreement that make sense both for ourselves. So, the long story short we are going to take our time. We are very comfortable with those ships. We are in discussions with charterers, and when there is a conclusion of the transaction we will definitely let you know.

Okay, perfect. And then my last question just deals with we have seen a little bit of a resurgence in Panamax vessels just giving how cheap they are. Do you think this trend towards perhaps using were Panamax vessels will continue in the future?

Will, in our case and I can tell you what we did and then I guess from that it is going to be evident what we feel about Panamax ships. As you saw, we have sold (inaudible) [Romanos]. This is a 5,000 TEU Panamax ship built in [2013], and in 2003 it is 14 years old and we sold it for scrap.

We have seen that there may be some increased buying interest in Panamax vessels for scrap or close to scrap. If we decide to invest our funds today in a ship I think we would most probably stay away from the Panamax vessels. Today regarding how we -- based on how we view their medium our long-term chartering potential. I think there are many more opportunities rather than focusing on Panamax vessels.

Now I am not saying that in the future, you never know, those transactions may turn out to be excellent deals, but the way we see the market, the way we see what the makeup of the fleet that today that is idle there is another type of (inaudible) Panamax ships. I think most probably would stay away from buying Panamax vessels today, and our latest transaction the disposal of Romanos I think supports it.

Okay, that does it for me. Thank you for your answers. Appreciate it.

Fotis Giannakoulis, Morgan Stanley.

I want to ask about the overall market and we have seen trend over -- four consolidation among the liner operators. How does this impact the overall containership market and particularly the charter owners both near-term and longer-term?

Look, there is consolidation and I guess this is because market conditions dictate that. The last players in the liner market I think the more efficiency there is, and the reason for that consolidation is to make the marketplace that are still in the game stronger.

And I think this is a positive sign, because from our side we want to have strong fantastic liners rather than having 50 liner companies and some of them they may not be able to service their obligations. So, from that point of view this is a positive sign and we have also seen box rates picking up over the last six, eight months.

Now you cannot use that short-term, because there is a different -- because the supply management now of vessels is in the hands of fewer players. Short-term more of vessels will be re-delivered to the shipowners and there may be less demand for new [tonnage] to be chartered in, which is something we appreciate.

However, I would say that medium to long-term, and container shipping is about long-term, this is a positive trend, because we need (inaudible) lines, and of those who will now survive will enjoy the benefits of a better market in the future. So, medium to long-term we definitely believe that this is a movement -- a move in the right direction.

Okay, thank you, Greg. Can you also comment about the new building market. Secondhand values add up, where is the decline to newbuildings given the very large idle capacity that is out there. First of all, these idle vessels, are they real. Are they going to be able to come back to the market or are these are all going to be scrapped? We shouldn't consider them a part of a fleet?

And, second, what will make asset values for secondhand vessels become more -- come more at parity with newbuilding prices? Is there a market for more newbuildings? A big part of your growth in the past has been signing long-term contracts for new building vessels.

Yes, first of all, regarding the ships that are being let out today, our fleet today is close to 7% of the fleet in the water, which is a big figure. Band of that number it includes close to 100 Panamaxes, which is another (inaudible) which is the main problem all -- is another -- this is one of the main problems of container shipping today. An excess of 100 Panamax ships that are there.

Now those ships are not scrap. Those ships are there for employment. We had record scrapping in 2016, watch was above 650,000 TEUs. Those six were not scrapped and the reasons that not been scrapped up to now it may have to do with financing arrangements in place where the long outstanding exceeds the scrap value or today -- at today's [uttered] values.

They may be accounting losses that shipowners or banks may not want to take. That is the other reason. From our side I think we did the right thing. We had the Panamax ship. We took an accounting loss and we repaid loan outstanding over and above what was the demolition price, because we felt this is the right thing to do. Regrettably this is not what everybody does.

Those ships may or may not be scrapped, but it is there for employment and this is what is driving the whole market down. Now regarding newbuildings today you can argue that there is no newbuilding market for containers. Liner companies are not willing to commit into new projects. They are forming alliances. For the time being I don't think they need additional tonnage, quite the opposite.

There are a lot of TEUs, especially larger vessels to be delivered within 2017. So, apart from some minor exceptions the newbuilding market today for containers is not existing.

Now asset values for the secondhand ships they are at very low prices. You can get the broader valuations that ships in some of the classes above 10, 12 years old, if they don't have charter employment they can be value close to scrap or slightly higher than scrap. What is going to -- it is going to be charter rate. Charter rates and [passage] values that they are highly correlated. And regarding the newbuildings, the newbuilding market, newbuildings the market is not very liquid. Probably this is why you don't see a lot of changes in the newbuilding prices.

But the pricing there may not be that important today, simply because in this market is closed, and for this market to open their needs to be additional requirements for tonnage, which I cannot see how this is going to happen within, I would say, the next couple of quarters at least. If not longer than that.

Greg, just to follow up on my previous question about consolidation, this consolidation has been limited so far on liner operators. We haven't seen any consolidation among charter owners or any sizable deals among charter owners. Given the fact that you recently raised capital, and your balance sheet is relatively stronger than most of your public and private peers are there any discussions? Is this something that -- a trend that it might flow from the liner industry to the charter owners of the next wave?

Look, the charter owners market it is much more fragmented compared to the liner companies. It is correct. On the other hand, although you know there may not have been this level of consolidation we have seen in the liner business you can see that there are very few players left to have the ability to enter into new business, to do and the secondhand transactions, medium to long-term charters, to buy ships. There are very few players left.

So, there may not be consolidation. However, a big part of the charter owners market is not able to do any new deals. Now from our side we are looking at transactions actively, very actively, no newbuildings, because there is no market, but secondhand ships from various sources. I think it will be a bit premature now to go into more detail of what we look at, but as you mentioned we have cash on our balance sheet and the main reason for this equity offering was growth. And to get that to this environment takes [the box].

And we have the joint venture with York, so we're actively looking at new business. Hopefully, we will be able to come with some news during our next quarterly results or as soon as there is something in place.

And one last clarification question, you initiated a dividend reinvestment plan last summer. Has the family participated in this quarter in this dividend reinvestment plan? And, also, can you remind us what is the ownership of the family and if you have any guidance of the family's intention on keep participating in this plan in the future?

Yes, since we put this plan in place the family has been fully participating. So, since this plan was instituted the family has not received any cent in cash dividends. All the cash dividends have been used in getting new ships.

The same applies for the last quarter, for the fourth quarter, where the family has fully participated in the DRIP. This is their intention going forward, however, as you can imagine, I cannot comment from now, but if you see what we have done still we put the DRIP together. I think this shows great support of the family to this Company.

Now after the latest equity offering, which we concluded in November, the family -- family's participation today is in the region of 60%, and I have to remind you that and the latest equity offering the family also bought $10 million worth of shares and has never sold a single share since the Company went public in November 2010. On the contrary, has participated in all common equity offerings and has been fully investing its cash dividends in the institution of a DRIP.

Thank you very much, Greg.

John Gandolfo, Clarksons Platou.

Thanks, guys, for taking my question. Just a quick follow-up on the 4Q -- the vessel [given] 4Q for the JV. Wondering what the status is on that in terms of it hasn't been chartered out. Is it currently idle, laid up?

Sorry, you are referring to the 11,000 TEU newbuilding?

Yes.

Yes, this was delivered in September of last year. The vessel is currently laid up close to the shipyard, correct. Yes, go ahead.

Yes, I was going to say now that you have laid up that vessel is there any cost savings opposed to actually taking delivery of the ship and idling it?

Well, and we made sure that the cost that have to do with laying up the vessels are being minimized. I cannot go into more detail, because this also involved the third parties. But the layup costs are really minimal. It is not worth discussing.

Okay. And just a follow-up, lasting on that, should we look for a similar situation as the remaining newbuilds deliver on the 11,000 TEUs until they are actually chartered out?

Look, they will be delivered within the first half of this year. I don't want to predict now when they will be charted for what rate and for what period. We can't charter the ships today, however, the rate together with the tenor may not be what we have in mind, so it may be worth waiting a bit.

It is not only for the newbuildings. If we have any six being laid up we make sure that the lay of course have been minimized, and we follow the same principle with those newbuildings. Should some of them be laid up in the future. But as I mentioned earlier our goal is to charter the vessels. We feel extremely comfortable with their chartering potential moving forward, and we shouldn't be forgetting those ships, those assets have 25 to 30 years for lives. So, whether there is going to be a good investment or not it is not something that should be judged within a month after the ships delivery.

Container shipping is about long-term. We are patient. We have been patient, so let's see what is going to be the final sort of -- the final return on those transactions.

Got it. Thank you very much for your time.

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

Thank you. Thank you very much for dialing in today and for your interest in Costamare. We are looking forward to speaking to you again during our next quarterly results call. Thank you.

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