Costamare Inc (CMRE) 2021 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc.'s Conference Call on the Fourth Quarter 2021 Financial Results -- pardon me, it's the first quarter. 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, Tuesday, June 1, 2021.

We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read Slide #2 of the presentation, which contains some forward-looking statements.

And I will now like to pass the call over to your speaker, Mr. Zikos. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. We are pleased to announce the results of another profitable quarter. The market rebound that began in the second half of last year has continued, drawing strength from favorable supply and demand dynamics. Strong demand for goods, restocking of inventories and a balanced container vessel market have all helped the charter market reach levels that we have not seen for a decade.

Since the beginning of the year, we have agreed to acquire in total 15 secondhand vessels, and we have taken delivery of our last 2 newbuildings, which have commenced their 10-year charters. Employment already secured for the new acquisitions, together with the newbuildings delivered, is expected to provide incremental contracted revenues of more than $830 million.

Since our previous quarterly earnings release, we chartered out a total of 17 secondhand ships at increasingly high levels of hire. We have a total of 23 ships coming off charter over the next 18 months, which is a favorable position, should the current market conditions continue.

Finally, on the financing side, we have recently concluded the issuance and listing of the first shipping unsecured bond on the Athens Exchange for EUR 100 million. Based on an exceptionally high demand, the bond was priced at the low end of the yield range with a 2.7% coupon for a 5-year period. Based on these business developments and our increasing long-term cash flows and liquidity, management is pleased to recommend to the Board of Directors to increase our second quarter 2021 dividend by 15%.

Our balance sheet, together with cash flows from operations and liquidity position provides us with the ability to increase the dividend without any impact on our growth plans.

Moving now to the slide presentation. On Slide 3, you can see a company snapshot. More than 47 years in the shipping industry, uninterrupted dividend payments since going public, strong family support, never had to restructure our debt, smooth debt repayment profile, fully aligned interests, steady management and ownership and high growth potential with no legacy debt restrictions.

On the next slide, Slide 4. Here, you can see the resilience of our business model, steady revenues and net income in a highly volatile shipping environment.

On Slide 5, you can see the highlights. Management will recommend to the Board a 15% increase in the quarterly common dividend effective from Q2 2021. Adjusted net income for the quarter is $38 million and the adjusted EPS, $0.31.

In the previous week, we concluded the issuance of the first unsecured bond on the Athens Exchange. The tenure is 5 years and due to the exceptionally high demand, it was priced at the low end of yield range of 2.7%. The bond further diversifies our company's sources at highly competitive pricing levels.

Moving to the next slide. We have been quite active on the S&P market. In total, we have acquired 17 vessels worth north of $760 million. This incremental contracted revenues from the acquisitions amount to approximately $830 million. We have also agreed to sell 3 of our vessels. Sales are expected to be concluded within 2021.

On Slide 7, you can see our new financing arrangement since the beginning of the year. In total, we have concluded financing agreements of about $430 million and new financing commitments amounting $237 million. All vessels acquired in 2021 have either been financed or have binding commitments for their financing. We do maintain a strong balance sheet with liquidity of about $240 million, book levels of 60%, market value-based leverage at around 40% and no meaningful debt maturities until 2025.

On Slide 8, we have chartered in total 12 vessels in 2021 at higher levels than the previously delivered ones. On top of all, these 5 secondhand vessels we'll deliver is expected to occur within 2021 are all long-term charters. As already mentioned, we have a total of 23 ships coming off charter over the next 18 months, which positions us favorably should current market conditions continue.

On the market, the charter market has continued to rise in the back of positive supply and demand fundamentals. Time charter rates further increased in 2021. The idle fleet has remained at levels close to 1%. We have paid our 42nd consecutive quarterly dividend in April. Insiders have been participating in the DRIP, and since inception in 2016, have reinvested north of $100 million.

On the next slide, you can see the first quarter 2021 results. During the first quarter of the year, the company generated revenues of $127 million and adjusted net income of $38 million. The first quarter adjusted EPS, as already mentioned, is $0.31. Our adjusted figures take into consideration the following noncash items: accrued charter revenues, accounting gains or losses from asset disposals, prepaid lease rentals and changes in the fair value of equity securities.

Moving to the next slide. On Slide 11, we are discussing our capital structure. Our leverage is comfortably at around 40%. EBITDA to net interest is at 5.8x, and our covenants have a minimum requirements of 2.5x coverage.

On Slide 12, we are showing the revenue contribution for our fleet. 96% of our contracted cash comes from first-class charterers like Maersk, MSC, Evergreen, Cosco, Yang Ming and Hapag-Lloyd. Today, we have $3 billion in contracted revenues and the remaining time charter duration of about 4.2 years.

On the last slide, we're discussing the market. Charter rates have continued to improve. Since the second half of 2020, rates have increased on average by 300%. Box rates have also a positive trend due to favorable supply and demand dynamics.

On the last slide, Slide 14, the idle fleet is at 1% from a high of 12% in the same period 1 year ago. The order book has risen to circa 18%. It should be noted, however, that it takes close to 2 years to build a new ship and newbuildings now ordered will be delivered from 2023 onwards.

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

(Operator Instructions) Our first question today comes from Chris Wetherbee with Citigroup.

Maybe I could start on the leverage. And I wanted to get a sense of kind of where you are in your comfort zone in terms of whether it's debt-to-EBITDA or however you want to look at sort of your leverage metrics. How much more capacity do you have, do you think to take on some incremental debt to reinvest and potentially grow the fleet?

Yes. The leverage today, based on the financial covenants as agreed with our lenders, and this is leverage based on market values of the vessel is, as mentioned, below 40%. This is also due to the fact that we have long-term contracts and the cash flows from those ships are factored in the leverage calculation. So we take a charter-inclusive valuation, which is, I think, the right thing to do in container shipping. So based on that and based that we are at below 40% leverage today, I think we do have a lot of capacity to grow.

The thing is that asset values are at very high levels. And we normally don't like buying at the peak of the market. Now charter rates and also other values are at historically high levels. So this is something to consider. But from a leverage perspective and from a capacity perspective, whether it is cash on balance sheet, access to commercial bank debt and the ability to lever up, I think we have more than enough capacity.

Okay. Okay. That's helpful. I appreciate that. And then maybe just a question about the general sort of fleet development on the order book. So you have a helpful slide on -- or chart on Slide 14, that shows that the order book has risen as a percent of the total fleet. I know it takes time to get these ships. But when do you start worrying about that number? Is that something that we do need to consider as we go out, if we see a significant amount of incremental ordering? What do you think sort of the right number is? And maybe how long could we see the cycle play out if we sort of maintain a more rational approach to adding capacity into the market and new ships into the order book?

Yes. It's -- first of all, the level -- the order book today at around 18%, although it's come up. I have to remind you that pro-Lehman, the period 2007, 2008, the containership order book, it was at around 60%. So it may be considered that it come up significantly from the 9%, 10%, 11% we had last year. However, we do feel that it's still manageable. Then looking at it from a historical perspective, it's definitely not at the peak levels now.

As you mentioned, it takes 2, like, 3 years to have a vessel delivered, more ships that have been -- or also the substantial number of ships have been ordered, they are on long-term charters. But it remains to be seen what the demand and supply dynamics will be in 3 years' time. We never forecast the market. This is our principle and the company is being ground based on our cash capacity and liquidity. However, I have to say that, historically, an 18% order book, I don't think it is at prohibitive levels, considering what we've seen in the past. And for the next couple of years, we know what the supply will be, the supply that will come to the market. And definitely, the consensus of analysts is that we will have very favorable supply and demand dynamics over the next year or over the next couple of years.

Okay. Okay. Last question really quick. If you put an order into the order book now when are you receiving your vessel how long will it take to get one?

It depends on the vessel and from the shipyard. But I think now, most probably like 2021, the most probable delivery would be 2024. But I mean it's not black and white. It's got to do with the shipyard, it's got to do with the characteristics of the vessel. But I will say generally that the deliveries now would be 2024 going forward.

The next question comes from Ben Nolan with Stifel.

Greg, I have a couple. I wanted to start on the bond. First of all, congratulations on its historic offering, but the rates were fantastic, frankly. And so I wanted to dig in a little bit on that. I was curious how -- if you have any color on how much of it was placed with traditional institutional investors or were they sort of maybe perhaps some more private capital that was investing in? It's something -- really curious if this is something that can be replicated either by you or others or if you think of this as maybe just sort of available just to you maybe just in the sense.

Yes, sure. First of all, the allocation, it was close to 70% retail investors and the rest was institutional investors. The bond was 6.6x oversubscribed. And the initial yield range, it was between 2.7% and 3.1%. And based on the book we had, obviously, we priced at the low end of the range at 2.7%. This is a fully unsecured bond, which -- it's a pretty typical structure for shipping bonds, and it has a 5-year maturity.

We started with a low value. So EUR 100 million, which is $120 million. Because it was the first pure shipping bond issued in the Greek market, people were not that familiar with shipping or more particularly with Costamare or with container shipping, so we were a bit reluctant and cautious. But finally, I think that the result speaks for itself. However, the main point here is apart from the low coupon, which is historically low and I think it is extremely competitive, however, you look at it, is that we have been able to diversify our financing sources. This is definitely something that in the future we can replicate and hopefully at even better terms. Considering that it was fully subscribed within the first 24 hours, and we had a book of north of EUR 650 million within the 3 days of marketing.

Right. That's helpful. If I could shift gears a little bit. As I was going through the filings, and I recall that I was reading that you guys had been given some equity as part of the ZIM restructuring a number of years ago. And then also, they're doing a secondary offering today. I was curious if you guys still have an equity position in that, and I wasn't able to find sort of what that is. But I was curious if that is a meaningful number at all.

You talk about ZIM, sorry, I couldn't hear you clearly.

Yes. I'm sorry. Yes.

I'm sorry. Yes. Yes. I mean we do have 1.2 million shares. And then if you look at our adjustments to the P&L, we have adjusted -- now that ZIM is public, at the end of the first quarter, we had to write a gain, sort of some income in our P&L because of the valuation of those shares. This is something we sort of have adjusted. And the adjustment was slightly below $26 million.

Right. How do you think about that position longer term?

I don't know. I mean this value of $26 million, this reflects the stock price as of the end of the first quarter where the stock was trading at around $20. Now the stock is trading double or more than double, so it's come up. But I mean, we are patient. So we are in no hurry to sell. So we will see what we're going to do with that asset.

But as I said, we're patient, there is -- we don't need more liquidity now. So I mean, generally, we're not sellers. We will take our time and consider when is the optimal time based on our thoughts to see what we're going to do with that asset. However, in the $0.31 of adjusted EBITDA -- sorry, of adjusted EPS, this is stripped out. If [we have to sell], the adjusted EPS would be much higher. But we thought that it is fair because this is a nonoperating item. It is an asset that is on our balance sheet for some years now. We felt that it is fair to have an adjustment that has the $0.31 of EPS based on pure operational performance.

Right. Okay. That's helpful. And then lastly for me, obviously, you guys were buying and selling assets even recently, basically doing both though. And it may -- even with the high asset prices, I think you can look at the time charter rates and see that you're generating substantially more than what you're paying for the assets in less than 3 years in many cases. And so the math works pretty well on that basis. But I'm curious where you stand right now? Like are you a better buyer or seller or both? Or are you getting close to being at a point where you might just be on the sidelines for a little bit? Any color there?

Yes. Look, the acquisitions we did, I mean most of them were like, if not all of them, were concluded during the first months of the year. After that, the asset values and charter rates, they are at sort of extremely high levels. So sort of after that, we stopped, now we are much more cautious. It would be difficult for us to sort of replicate the same acquisitions we did in January, February, March of 2021, where now asset values are.

So now we take our time. In that level of environment in terms of asset values and charter rates, we're going to be much more cautious. So we take our time. We do have a lot of liquidity. We know that we have to invest internally and generate returns. But where now asset values are, even with very high rates, those deals now like before, we are becoming more levered operationally and financially. Also financially because we are at levels, let's say, the 10% of leverage, 60%, 70%, whatever that is, it doesn't matter to a much higher asset value, which we don't like. So now we're going to take our time and consider and think what is the best way in order to invest our liquidity because based on the charter rates you've seen and without any new business, liquidity and the cash balance is going to be climbing up every single quarter going forward. So this is something to think about.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Greg Zikos for any closing remarks.

Thank you very much for being here with us today. We're looking forward to speaking to you again during our next quarterly results. Thank you.

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