Costamare Inc (CMRE) 2017 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 2017 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, April 28, 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 statement.

And I will now pass the floor to your speaker today. Mr. Zikos, please go ahead.

Thank you. Thank you and good morning, ladies and gentlemen. During the first quarter, the Company delivered solid results. On the chartering side, we have now chartered all 5 11,000 TEU newbuildings for periods of up to one year, and we have secured the finance for the last remaining 11,000 TEU ships.

As of today, all of our newbuilding program is fully funded, with remaining equity commitments amounting to only $2 million during 2018. We continue to charter our ships, having chartered in total seven vessels since last quarter. We have no ships laid up.

At the same time, we are renewing our fleet. We have bought three secondhand vessels, which have been chartered for periods ranging from five to seven years. Those vessels are expected to be delivered within May. The ships have been bought with equity and we are in discussions with financial institutions regarding their finance.

Finally, on 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 first-quarter cash dividends.

As mentioned in the past, our goal is to strengthen the Company and enhance long-term shareholder value. In that respect, we are actively looking at new transactions selectively.

Moving now to the slide presentation, on slide 3 we are providing a summary of the chartering arrangements with regards to our 5 11,000 TEU vessels. The vessels have been fixed for periods of up to 1 year at an average daily rate of about $18,000. We also bought 3 modern secondhand ships, 2 2014-built wide-beam 5,000 TEU vessels, and 1 2005-built 7,500 TEU ship. All the ships have been fixed on long-term charters to Maersk at [current] rates.

On slide 4, we are providing a summary of the chartering arrangements which have taken place since January, which are in total seven vessels over the last month. We have no ships laid up.

On slide 5, we saw the financing of the last 11,000 TEU newbuilds. The new $44 million facility is on similar terms to the facilities for sister vessels and will be used to fund the delivery installment. During the quarter, we also sold for demolition two vessels.

On slide 6, we are showing the dividend declarations for the first quarter. We declared $0.10 cash dividend per share on our common equity and dividends for all three classes of our preferred stock. As already mentioned, members of the founding family have each decided to invest all their first-quarter cash dividends in new shares under our dividend investment plan.

On slide 7, you can see the first-quarter 2017 results versus the same period of last year. During the first quarter of this year, the Company generated revenues of $105 million and adjusted net income of $21 million. For the same period of 2016, the revenues amounted to $120 million and adjusted net income to $34 million.

Our adjusted figures take into consideration the following non-cash items: the accrued charter revenues; the gain or loss on sale of vessels; the gain 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 adjusted EPS amounts to $0.23.

On slide 8, we are showing the revenue contribution for our fleet. More than 99% of our productive cash comes from first-class charters like Evergreen, MSC, Maersk, Cosco, and Hamburg Sud. We have $1.6 billion in contracted revenues and a remaining time charter duration of about 3.3 years.

On slide 9, you can see the resilience of our business model. The bars -- other revenues and adjusted net incomes since 2008, and the dotted line is the 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 top charterers.

On slide 10, you can see our remaining CapEx commitments. Following the financing of the last 11,000 TEU ship, the Company has of that $2 million of remaining equity commitments.

On the right-hand side of the slide, we also saw the recent acquisitions as part of our renewal of the fleet. The three vessels acquired, which are expected to be delivered next month, have all rechartered for periods of five to seven years to Maersk's line, with contracted revenues in excess of $100 million in total.

Slide 11 deals with a potential effect of the re-chartering for the remainder of 2017. As you can see, even if we assume the 30% discount on new charter rates entered into during the next nine months versus current figures, the difference in the revenue basis would be about 5%.

Finally, on the last slide, we are discussing the market. Charter vessels picked up across all asset classes in recent months. The number of idle ships has significantly been reduced to 3.4%, which are levels we haven't seen since the third quarter of 2015.

The order book has decreased to around 15%. We are actively looking for new transactions in this market environment and our goal is to strengthen the Company and enhance long-term shareholder value.

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

(Operator Instructions) Chris Wetherbee, Citigroup.

Wanted to ask about sort of the opportunities in the market. You guys were pretty busy during the quarter -- lots of transactions and demolitions. Want to get a sense of maybe as you look at the landscape right now, we just saw, I think, a large fleet yield done recently in this space.

Are there those opportunities for you? How are you positioned for that? I guess what is -- where are you most focused now in terms of the fleet? Is it -- obviously, there's re-chartering needs, but when we think about acquisitions and demolitions, what is out there, what are you interested in?

There are today opportunities. And you saw in the last quarter we put three ships chartered to seven to five years to Maersk. There are definitely opportunities, especially in the secondhand vessels. As we all know, the newbuilding market today is not very active; I would say quite the opposite. So there are no significant newbuilding orders year to date or even during the previous quarters.

Now, as I said, we are active, and at the same time, we are selective in how and where we are going to be using our equity. How do we position ourselves -- this was the second part of the question.

We have cash on balance sheet of -- north of $180 million. We have access to bank debt -- to commercial bank debt. We have access to Chinese leasing. We have done quite a lot of those. And at the same time, we have the JV platform with our partners, York Capital, which has an investment period up until 2020.

We have no ships laid up. And at the same time, we are extremely comfortable with the quality of our charters going forward. If you look where the charters are, you will see that these are the best things today in the sector.

So overall, I would say that we are first very well positioned to move ahead and we will continue being active, especially in today's environment. And there are opportunities.

However, at the same time, as I said, we are selective. And we are going to make transactions that really make sense from a pure shipping perspective as well.

Okay, that's helpful color. I appreciate it. And then when you think about sort of the depth of the charter market out there, obviously there's a lot of transactions in the quarter. Everything continues to be on relatively short duration and understandably so.

Do you feel like as we strengthen -- potentially strengthen through the spring that there will be opportunities to get a little bit longer-term charter opportunities out there for you? Just want to get a sense of how you feel the depth of the market is currently.

Look, you are right that generally, most of the figures we see now are for revenues speaking to shorter periods, especially if you compare with the charter [demos] we used to see some years ago. At the same time, we fixed three ships for periods of north of five years. The one vessel, five years and the other two for seven years.

So there are opportunities. The thing is that you need to be patient and at the same time active in order to capitalize on those opportunities. But there are definitely a lot of transactions out there which, you know, definitely make sense.

Okay, that's helpful. I appreciate the time this morning. Thanks very much, guys.

Noah Parquette, JPMorgan.

I just wanted to follow up on those charters. The five- to seven-year charter is pretty good in this market. Can you talk a little bit -- those weren't vessels sold by Maersk and leased back, right?

No. Those are vessels which have been bought from a third-party seller. We bought them and we chartered them to Maersk.

Okay. And --

Yes?

And so what do you think has changed in the mind of somebody like Maersk, where they want charter coverage for those vessel classes? Are they looking at the pop in the Panamax rates or is it just something different?

Apparently they needed those specific vessels for a longer period, and that didn't make sense. Also, if you look at our fleet lease, we have three ships chartered to Maersk -- 1996, 1997 built -- which, you know, middle of this year will be phased out. So it was a transaction which overall I think made sense both -- for both parties. But those ships, the five- to seven-year charters, apparently, they meet the demand of Maersk for this type of tonnage.

Okay. All right, that's all I have. Thanks.

Fotis Giannakoulis, Morgan Stanley.

Greg, you mentioned about the increase in charter rates and the impressive decline in idle activity. If I notice well, you said that the idle capacity right now is about 3.8%. That used to be a few months ago at more than 8%.

What has changed in the market? Why this appetite by the liner companies to secure tonnage? Is this because some of the vessels that they have currently in their fleet, they come out of contracts? Or you see some improvement in global trade? And if that's the second, which areas do you see that the global trade is improving?

Yes, first of all, the number of idle ships today based on the last vessel-related information we have is 3.4 of the total fleet in the water. We just launched to several hundred thousand TEUs, which is a very low number. And this is the lowest figure we've seen since 2015.

I would say that the demand is generally at healthy levels. There is some increased demand from liner companies to chartering tonnage. The alliances now have been settled, so I mean, apparently liner companies know what their chartering needs are. And [all discussions] contributed to the number of idled ships falling substantially.

I cannot predict the market, but I can tell you that year to date, charter rates have substantially improved. And also the same time, the number of idled ships is slightly below 700,000 TEUs in terms of tonnage, which is a very low number also from a historical perspective.

At the same time, order books stands at 15%, which again from a historical perspective is a very low figure. There is a very thin order book for ships to be delivered in 2019. So definitely all these are positive parameters.

Can you also comment where these vessels are deployed or they are going to be deployed? Do you see any specific regions or any specific trades that they have attracted their liner's interest to add additional tonnage?

I don't know. I think each overall -- if you look at the trade growth in Asia, Europe for 2016 and for the first couple of months of 2017. Also, the transpacific trade -- or the transport [turning] trade. All these, they have been posting charter growth levels.

I cannot be more specific for a specific trade, but generally, especially after the settlement of the alliances, there is some increased need for chartering in tonnage, which has been reflected in charter rates.

And it also has been reflected in the number of idled ships that has fallen. There are some specific asset sizes that have posted significant charter rate increases over the last couple of months. But overall, the market over the last months has been very positive.

Thank you. That's very helpful. Given this improvement, and it seems that the world is growing nicely and it seems like this is a more an overall growth rather than specific region growth, at what point do you expect that the liners will have to start thinking further ahead in the future?

And I'm talking about how far away for -- from liners to start thinking chartering long-term newbuilding vessels. Is this something that is going to take a year or is you see that's two or three years ahead?

I'm afraid that first of all, this is a question that needs to be firstly answered by the liner companies. I cannot predict. I can tell you the fact that in 2016, you can argue that we had the negative growth in supply.

In terms of the TEUs being scrapped, the number was higher than the newbuilding orders being put during that year. But going forward, what it's going to take or how long it's going to take until we come back to the time where liner companies can commit for longer periods -- 5, 7, 10 years, or north of that for newbuildings -- I'm afraid it would be difficult to predict right now. I don't want to give a prediction which -- you know, it's also based on other companies' considerations.

And my last question, in terms of the latest deal that you announced, you didn't give a lot of details about their economics. We have -- used to see from your transactions that they give double-digits EBITDA yield.

What -- are these deals comparable to the previous ones that you have done? Or have you seen any return contraction, given the previous months of oversupply?

Look, for this transaction, we have given the charter rates and the tenor and the name of the charterer. The only thing we have not disclosed is the purchase price, which for commercial reasons we couldn't disclose.

Also, this transaction with Maersk -- as I said, it's a deal which also involves three additional ships chartered to Maersk, which, as of the middle of this year, will be phased out. But overall, if you see this deal, it is providing us with contracted revenues of north of $100 million on a standalone basis.

And if you look at our past EBITDA margins, you will see that it is a build that we definitely feel it makes sense, especially if we combine it with bank debt at attractive terms, which we are now in the process of doing. Hopefully, the next quarter, we're going to be in a position to also announce the funding and the terms of funding for those assets.

Shall we assume that returns -- return expectations of the Company have remained the same as they have been all these previous years? And can you also remind us at what levels -- at what cost are you able to secure bank debt in today's market?

The returns expectation also of the way we look at the transactions. It has been the same throughout the last year. So since the Company's inception, we haven't changed the way we look at things. Just that in a [sight] like today, it's obvious that we are more active.

Now the bank debt, it's not only a function -- in how competitive it is, it's not only a function of the cost of the debt, but it is a function of what is the leverage, what is the debt repayment profile. What of the covenants, if any, that come together with that debt.

If you go to our 20-F, you will see that on average, our all-in cost of debt sheds is in the region of 5%, 5.1%, but hedged for the years to come. So I will say that it is overall a general competitive rate.

Thank you very much, Greg. Great quarter.

Gregory Lewis, Credit Suisse.

Greg, I just wanted to follow up on Fotis's question in a little bit different way. Congratulations on those charters, and realizing you can't disclose the purchase price and there's still some details that need to be ironed out. But as you -- this is more from, I guess, a modeling standpoint.

As you think about the earnings accretion on these vessels, should we think about -- given where we are in the cycle, which things are better, but it's still pretty lousy, should we think about the amount of financing or financing cost ex-amortization at this point? Should we think about these deals being earnings accretive or maybe earnings neutral? If you think about it that way.

Yes. I think that you should think of those still as being definitely earnings accretive.

Okay, great. And then clearly we've seen the idle fleet go down. It seems like clearly there is the seasonal pickup. It looks like we saw something similar last year.

Do you have any sense over the -- as that, what, 5% of the fleet has gone back to work, have these been longer-term contracts? Or is this something where there is a nice seasonal pickup, but the liner companies' customers are really more worried about securing tonnage for the next, call it, three, six, seven, eight months as opposed to the next year?

I would say that overall the tenor of the charter part or of the commitments are relatively short. Of course, you know you may have transactions of five to seven years like what we just did.

But overall, I think that charter tenors are in terms of months, I would say three, six, nine months, or something like that, generally speaking. Of course, you can have longer or even shorter figures, but I would say that generally the figures are for a relatively short period today.

Okay, great. And then just since you are -- since the Company has gotten a little more aggressive, makes sense where we are in the cycle. The sellers -- are these sellers -- the transactions you are coming across, are they primarily financial institutions, other distressed charter owners that you can kind of sort of parcel that out in terms of -- where are the vessels coming from that are for sale that are a little bit more -- that are already on the water?

Yes, it could be other shipowners who may be experiencing some -- a liquidity issue. Or it could be also financial institutions. Or it could also be shipowners who don't have a liquidity issue, but they may not feel comfortable with the potential of the asset or they may not be able to charter it.

But it could be a mix of pretty much everything. It's an open market, so it could be both banks and shipowners with or without liquidity issues.

Okay. Hey, great. That sounds like a lot of opportunities are going to be showing up at your doorstep. Hey, guys. Thank you very much and have a great weekend.

Ben Nolan, Stifel.

So I wanted to follow up a little bit on this vessel acquisition. And you laid it out pretty well in that these are effectively replacement vessels for Maersk. And obviously it looks like the existing time charter contract was cut by six or nine months.

And I assume that was a little bit of a give-and-take. You replaced vessels with more modern ships and you also, at the same time, were able to leverage that into longer-term contracts.

I guess what I was curious is you think there might be other opportunities to do that, where maybe you can shorten the duration of an existing contract and swap it out for longer contracts either on the same vessels or for newer vessels? That seems like an interesting way to compete for some of the longer-term business that might be in the market.

Yes, definitely. You know -- and we did transactions like that back in 2013 and 2014 as well. It's just that in that case, we had scrapped some ships, although those K class ships, which are going to be in essence replaced by the three younger vessels, may not be scrapped. They will continue being deployed.

But yes, this is something we've done in the past and this is which something we feel definitely makes sense today. And if you have a very strong charterer and you can extend existing charter arrangement for a longer period and at the same time renew the fleet, I think it is a win-win for everybody.

On now on top of that, if you can combine this fleet renewal with a competitive debt structure in place, this is where the returns are coming from.

Yes -- I mean, I think it makes sense. Is that -- is the reason -- or given that these are effectively replacement vessels, is that why these transactions were done outside of the joint venture? It seems like almost all the other acquisitions lately had been through the JV. These aren't -- has anything changed there or this is just sort of a one-off?

No, there is no change there. But those ships that will be replaced, they are ships that were bought in the past and are 100% Costamare owned. But leaving aside -- so these transactions could be done only at the Costamare level.

However, the JV with York is active. We are looking at things together with York. We have an excellent relationship. And as I mentioned earlier, we have an investment period up until 2020. So there is still a lot of time and we feel extremely comfortable with this platform.

Okay. And then lastly for me, obviously you scrapped two vessels in the quarter. It looks like these three Maersk vessels going to be off contract are little bit older. How should we think through how you guys are going to be scrapping vessels over the next year or so? What is the plan for fleet renewal in terms of removing ships?

Yes. The scrap would be something we look at on a case-by-case basis. Those three Maersk vessels may or may not be scrapped. They may continue trading. It depends on the physical condition of the vessel and it depends on the market potential and to the upside.

So we look at it on a case-by-case base. However, when we feel that there is not a lot of upside, I think the right decision is to scrap the vessel, which is something that is helping the whole market.

Okay, so there is not a definitive plan? It's just as-needed, I suppose?

Correct, correct.

All right. That does it for me. I appreciate it, Greg. Thanks a lot.

(Operator Instructions) At this time, there are no further questions and I would like to turn the floor back over to Mr. Zikos for closing remarks.

Thank you very much for dialing in today in the Costamare Q1 2017 results call. We are looking forward to speaking with you again during the next quarter results. Thank you.

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