Costamare Inc (CMRE) 2017 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the Second Quarter and First 6 Months 2017 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the company. (Operator Instructions) I must advise you that the conference call is being recorded today, Wednesday, July 26, 2017. We'd like to remind you that this conference call contains forward-looking statements. Please take a moment to read Slide #2 in 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 second quarter, the company delivered solid results. We recently accepted delivery of 3 secondhand vessels, which have been chartered for periods ranging from 5 to 7 years. During the quarter, we entered into debt financing arrangements for 2 of them, and we are into discussions regarding the debt finance of the third ship.

As of today, all of our new building program is fully funded, with remaining equity commitments amounting to only $2 million during 2018. On the chartering side, we have no ships laid up. We continue to charter our vessels, having chartered in total 6 ships since the last quarter. 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 second 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.

Turning now to the slides presentation. On Slide 3, you can see the vessels delivered during the quarter. As already mentioned, 3 secondhand ships were delivered, and the debt for the 2 of them has been arranged. We are currently in the process of arranging the debt for the third ship as well. Also, the last of a series of 5, 11,000-TEU new buildings were delivered. This vessel was bought under our JV with York, as upon delivery, she commenced her charter employment.

On Slide 4, we discussed our recent common stock offering. The offering was upsized from initially $12.5 million shares to $13.5 million. The net proceeds amounted to $92 million. Insiders, as has been the case in all of our common stock offerings, participated by buying $10 million worth of shares.

On Slide 5, you can see a summary of the chartering arrangements, which have taken place during the quarter. We chartered in total 6 vessels and today, we have no ships laid up.

Moving on to Slide 6, we are showing the dividend declarations. We declared $0.10 cash dividend per share on our common equity and dividends for all 3 classes of our preferred stock. As already mentioned, insiders have decided to invest all their second quarter cash dividends in new shares under our Dividend Reinvestment Plan.

On Slide 7, you can see the second quarter 2017 results versus same period of last year. During the second quarter of this year, the company generated revenues of $105 million, and adjusted net income of about $21 million. For the same period of 2016, the revenues amounted to $119 million, and adjusted net income to $32 million.

Our adjusted figures take into consideration the following noncash items: the accrued charter revenues; the gain or loss of sale of vessels; the gain or loss resulting from derivatives; the amortization of prepaid lease rentals, which is a noncash charge; and the noncash G&A expenses. Based on the above, the second quarter adjusted EPS amounts to $0.21.

On Slide 8, we show the revenue contribution for our fleet. Almost 100% of our productive cash comes from first-class charterers like Evergreen, MSC, Maersk, Cosco and Hamburg Sud. We currently have about $1.4 billion in contracted revenues and a remaining time charter duration of about 3.1 years.

On Slide 9, you can see the resilience of our business model. The bars show the revenues and adjusted net income since '08. The dotted line is a time-charter index. Irrespective of market movements, the company has been consistently performing.

On Slide 10, you can see on the left-hand side, our remaining CapEx. Following the financing agreement of the last 11,000-TEU vessel, the company has just about $2 million of remaining CapEx during 2018. On the right-hand side, we also show the recent acquisitions as part of our fleet renewal. As already mentioned, the 3 secondhand ships have been chartered for periods from 5 to 7 years to Maersk Line, with contracted revenues in excess of $100 million.

On the last slide, we are briefly discussing the market. Charter rates moved up during the first months of the year and have softened over the last weeks. The idle fleet is at the low rate of about 2.5%. There have been no meaningful orders year-to-date, bringing the order book down to about 13%. Box rates have been stabilizing.

As already mentioned, we are actively looking for new transactions in this market environment. This concludes our presentation, and we can now take questions. Thank you.

Operator, we can take questions now.

(Operator Instructions) And our first question today comes from the line of Gregory Lewis of Credit Suisse.

This is Joe Nelson on for Greg today. Just first one for me. You guys mentioned you have 1 vessel left to finance, it's got a long-term charter. But just kind of more generally speaking, kind of post the capital injection a few months ago, are you starting to see the lending market maybe thaw a little bit here now that you've got a combination of maybe a little bit of a better backdrop and kind of post that capital injection, as we think about maybe new financings and refinancings going forward?

Okay. For the third vessel, the Maersk Kowloon, we chartered for 5 years to Maersk. We are in discussions with European -- with a major European financial institution. We have an agreement of terms and we are now in the process of finalizing the documents, the loan documents. This is something we would expect to close over the next weeks, but it's not closed yet. Now generally, I would say that, of course, we did an equity offering end of May, and as you will notice, we have cash on balance sheet of about $240 million. Generally, however, I would say that the commercial bank debt market is open for containership owners with a track record and for deals that make sense, especially on the back of charter coverage with a major liner company. So up to now, I don't recall ever missing on an opportunity because the debt could not be secured. Also, the first 2 ships, the 2014 wide-beam vessels, which have a 7-year charter age, they were funded as well, of course providing our corporate guarantee, but on the back of the contracted cash flows from Maersk.

Great. And then maybe just kind of one, maybe just more industry -- I mean in -- idle fleet is down, charter rates are -- while it doesn't look like they're great, but they're certainly better than they were a year ago. Are you starting to see your customers look maybe towards having discussions again about chartering for more term? Or do we still need to see a little bit more improvement before those conversations start to happen again?

Yes. First of all from our point of view, we have seen term chartering for 5 and 7 years, since -- this is what we did in the previous quarter. I would agree, however, that this is definitely not the norm today. And that the market has not reached a stage where liner companies are generally willing to commit for long periods, especially comparing to the charter periods we used to see in the past. Now if you look at charter rates, summer 2016, summer 2017, we are definitely in a much better market today. However, overall, the containership market is down. I mean, asset values and charter rates, if you look at them from a historical perspective, I think no one would disagree that we are now experiencing a down market for quite some time now. And we believe that in this market environment, there are and that there will be definitely more opportunities.

And the next question comes from Chris Wetherbee with Citigroup.

This is Prashant Rao on for Chris. I wanted to pick up on the last question a little bit. So clearly, you guys have had strong execution and the market is -- fundamentals are getting a little better than what we expected entering the year. And new alliances are supporting some of the rates as well. I kind of wanted to get a sense then, I mean the rest of the market though isn't as strong as you guys are. And so when you look out in terms of the macro view, how do you think about that in terms of thinking about, A, financial performance and what your capital commitments are over the next several quarters? Timing of the turnaround? And then, two, more specifically, when does -- when do we start thinking about reassessing the dividend or is it too early to enter that discussion? I mean is that something that given where we are today and your performance, we could think of as early as 2018, as we lap some of these CapEx commitments or would you need to see the market firm up even for -- even more to give you some assurance?

Okay. Let me start with the second part of the question that has to do with the dividend. Now we are paying $0.10 per share per quarter. And we have the drip in place and the founding family -- insiders have been fully utilizing the drip. Now the dividend, first of all, I have to say that it is subject to the board's discretion. And this is a decision taken by the board. On top of that, I would say that -- and as the founders own more than 50% of the company, I think we have fully-aligned interests and we definitely like dividends. However, the dividend growth should have on the proper way, on [shelter] basis, meaning that it should come out at the same time with incremental excessive contracted cash flows coming from new business. Otherwise, just to raise the dividend, which if you were to do, could do tomorrow morning, but just to raise the dividend for the sake of raising it, without these sort of cash flows being based on surely contracted revenues, I don't think that this would be the proper thing to do.

Now regarding the first part of the question, where we are with our CapEx commitments and how we see the market? We have mentioned in our press release and also in the slide presentation, that today we are pretty much covered regarding our CapEx commitments, which is nothing, it's close to $2 million during 2018, and it has to do with the 2, 10,500-TEU ships, which will be delivered, and those are chartered to Hamburg Sud for 7 years each. So we have no CapEx commitments. We have cash on balance sheet in the region of $240 million and we still see opportunities. Now charter rates moved up in the first 3, 4 months of the year. We have been witnessing some softening in the market thereafter. Still, we do believe that today asset values and charter rates are at historically-low levels, and we definitely see opportunities. However, we're not going to rush to enter into new transactions without making sure that the fundamentals are there, and that these are transactions that they make sense. So we will continue executing hopefully. But we will also continue being selective.

Okay, that makes sense. Also wanted to touch on, you mentioned that the commercial bank debt market is open for more established players, and particularly of chartered-linked cash flows of established liner companies. We've seen the order book be fairly controlled, we've got all the pieces in place for a recovery in the containership market. But if the financing side is starting to open up again, do you think there's any risk that the order book could build back up even if it's long-tailed like building out to like 2019? Or is there some other factor that might constrain that? Are we seeing some sort of -- are we seeing more rational thinking by participants in the market? Or how should we be thinking about that given that, that aspect of the market is improving?

Yes, I think that first of all, commercial bank debt, as already mentioned, is available today. Banks have a budget to meet, and they are looking for transactions with established players -- transactions that [solely] didn't make sense. Now there is some discipline also in the lending area, which is a healthy sign. And I think that there is no reason why this would not continue in the future.

Also, regarding new transactions and new building orders, as you mentioned, you also need that this -- of equity, which I think today, there are very few players who have the means to put equity and also secure the debt terms that make sense.

And the next question comes from Michael Webber with Wells Fargo.

Couple of quick ones. You've already parsed over this a little bit. But I was hoping you could kind of sketch out maybe a more defined kind of priority list in terms of use of equity proceeds and kind of using that cash balance. Are we more likely to see new builds or picking off existing secondhand assets that aligns and to what degree do you expect York to be involved?

Yes. The new building market today, as we speak, I think it's closed. Year-to-date, there have been no meaningful orders, neither from liner companies nor from pure containership owners on a speculative basis. So most of the builds that have been taking place and it's quite an active S&P market. So for secondhand vessels, we know we will continue being active, either ships that on which we can secure employment, like what we did in the previous quarter, or like we've done in the past, secondhand vessels without charter, which we can buy with equity. And that we may start the chartering then opportunistically. And only when we have a fixed employment, we could then lever the asset. Now respective -- with regards to size, age, et cetera, we have been and we will continue being quite flexible. But where the market is today, I would say that it's got to be more of secondhand ships, simply because liner companies as well are not willing to commit for new building projects.

Yes, that makes sense. In terms of the blocks of ships you are looking at, are you looking at anything that's big enough where you would need to bring in a JV partner? Or are these 2 or 3 vessel ships that you could handle with the cash balance you've got?

No, I mean -- we could -- I think, as I said, we can be pretty flexible. First of all, we have the JV with York. We can do banks [simset] together with our partners, and this partnership, up to now, has been going extremely well.

Right. Yes, I know you guys have -- I know you have a lot of flexibility. I'm just curious, as to specifically what you are looking at? Now are you looking at anything that would be big enough that you would need to actually kind of tap up those additional resources?

I don't think so today. But -- I mean, of course, I can never predict the market, then -- I am not from the future. However, the way we are set up today with our cash and balance sheet, with our ability to access the commercial bank debt at quite good terms, I cannot foresee today the reason to raise fresh equity, if that's a question, at common stock today and dilute our (inaudible).

No, it's not, not really. I could follow up with the F-1. It's just -- trying to get a sense of the scale of the block of ships that you are looking at or investigating whether they're -- how large they were? But I can follow up off-line. Just one more and I will turn it over. This is just eye level, it kind of gets into the new build question, but we've seen some -- a handful of press releases throughout the first half of the year. I think most recently with MLL, announcing a design with I believe it was Samsung, for an LNG-powered 20,000-TEU containership, and it seems like we are not quite there yet. But the -- I'm trying to get a sense of how a third party vessel-owner, or asset provider thinks about that new technology? And I guess, maybe if you looked at -- one, have you looked at anything in earnest that would involve kind of LNG as a marine fuel? And maybe, can you talk a bit about how you would look at the residual value risk associated with that first gen tech as opposed to say something secondhand in the conventional space? How much more worried would you be about stepping in and providing that kind of tonnage to somebody in like a 5- or 10-year basis?

Yes. First of all, because you touched upon the residual value risk, which normally the shipowner is taking, in all of our transactions, whether it's a new building order or secondhand ship, we first try to cover our downside, which is the residual value risk. Now we are aware of the discussions for such projects. I don't think that we are there yet. If in the future, this is something that our clients will ask us to do, as long as we feel comfortable with the residual value risk and with the cash flows and everything, we would, of course, look at it. But I think it is a bit premature today, especially when there is no new building market at all. I would say that it's really premature. But in a way, we would be there, of course, if there is a need, we will definitely look at it.

(Operator Instructions) And the next question comes from Ben Nolan with Stifel.

This is actually Steven Tittsworth on for Ben Nolan. Just one quick question. I know in the past, you've talked previously about scrubber technologies given the new fuel emissions that are going to hit the market in the next couple years or so. Can you provide just a little more color or update on your thinking behind whether to install emission scrubbers on your vessels or not?

Okay, it's a couple of things. First of all, the regulations regarding the water ballast treatment, which have been -- there are discussions about postponing these for a couple of years, means that from 2017 to 2019. These are the discussions now. Now regarding the water ballast treatment, the cost that how to do with our fleet, this is something that we have budgeted. The fact that it is postponed for a couple of years, from a pure cash-flow perspective, you can argue that it has [spoiled] it for the shipowners. On the other hand, if it's something that would slow down scrapping of older ships, of course this is something that does not share the sector as a whole. Because scrapping, especially last year, has been quite helpful in managing supply and demand imbalance. Have you -- have I covered your or not?

Yes, the water ballast treatment makes sense. I was wondering about the fuel emissions, look for the [little softer shore] regulations that are coming into the market?

Yes, this is something -- yes, this is something which is factor, which is going to be determining the cost and like -- whether the scrubbers are required will be the cost of this fuel. And whether there is such a difference in the cost which would justify installing the scrubbers. And those of whatever are the technical implications, the installation of those scrubbers involves. I think this is going to place it down the road in 2020. So for us, it would be a bit premature to give you a concise answer from now. This is something we definitely are looking at. But it will depend on a number of factors and those are mainly on the oil price.

Okay. Assuming you want to go ahead and install the scrubbers on your vessels, how much time do you think you would need to give a shipyard in order to meet the regulations' deadlines?

I think, look, this is something we would -- if we were to do it, we would do it in advance. We wouldn't wait for the regulations to kick in, especially if it's something we have added with a charterer And then go to the shipyard. I guess we would start the discussions of the negotiations, plus covering all the technical aspects quite some months in advance. Now whether this would be 3 or 5 months, I cannot tell you from now. But we would definitely be proactive.

And the next question comes from Brandon Oglenski with Barclays.

This is Eric Morgan on for Brandon. Just wondering if you could comment on consolidation among the liners. Is there a way to kind of quantify or how would you describe how recent M&A in the line ships are impacting rates relative to other factors? And I guess in light of Cosco or OOCL, would you say that this recent wave of consolidation is nearing an end? Or do you think there are more opportunities out there?

Okay. The first part of the question. Consolidation in the liners definitely is something that has been going on for a couple of years now or even more. It's something that from the liner's perspective, I think it definitely makes sense. And now you have like the 3 alliances that are controlling close to 80%, 85% of the global trade. That was not the case if someone looked at the liner-company landscape 4, 5 years ago. Now from our point of view, you can argue that there are less lines, however, we want to have healthy and strong credit lines also from a credit perspective and also from a profitability perspective. So this is where the whole sector is heading, we are fine with that. And as long as this is helpful for our clients, I guess this is something that we would also welcome. Now you can argue that there is more bargaining power, however, what is the value of having more line of companies around if some of them cannot meet their debt service payments or all their charter-hire obligations. So I think the consolidation, as I said, is something that makes sense, there are synergies to be achieved. And it's something that I say -- I think that was expected. It's not something that has caught us by surprise.

Okay. And then just one more on the market. Could you give us some insight on the demand side of the equation? A lot of that global ditch -- global trade data looks pretty strong right now, just wondering how the liners are thinking about the outlook on trade.

I think that from the demand point of view, demand has been okay. If you look at the major trades, for instance, Asia-Europe year-to-date, overall, you have a growth in the region of 5%. Asia-U. S., transpacific, you are in the region of 8% less, I mean this is based on broker's perspective. So demand, although we don't have the previews 3x GDP multiple, it's still something that overall is fine. It is the supply of the vessels, and it is the sort of a $1.5 million -- $1.7 million to use to -- scheduled to be delivered this -- next year, that has been great in getting balance between supply and demand. We have an order book of around 15%, and we saw the book, I mean, as it stands today, assuming no new orders, is very thin from 2019 onwards. However, there are a lot of big ships to be delivered or scheduled to be delivered without factoring in any slipups in 2017 and in 2018.

And at this time, I would like to return the call to management for any closing comments.

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

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