Costamare Inc (CMRE) 2020 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the Third Quarter 2020 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, Wednesday, October 28, 2020.

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 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 third quarter, the company continued its profitability. As part of our fleet renewal program, we sold for demolition 2 vessels with an average age of 23 years, and we agreed to acquire 3 larger secondhand ships, on average 11 years younger. The new acquisitions will be initially funded with equity. Meanwhile, our newbuilding program is progressing on schedule, and we have now accepted delivery of 3 out of 5 13,000 TEU vessels, which have commenced the 10-year charters.

On the market, the inactive containership fleet continues to shrink to levels below 2%, on the back of healthy demand for container shipping. Charter rates have been rising, and we have chartered, in total, 13 ships during the quarter. We have 14 ships coming off charter over the next 6 months, which positions us favorably should the market momentum continue.

With liquidity of above $200 million, no meaningful debt maturities over the next 3 years and minimal CapEx commitments, we are well positioned for acquisition opportunities, increasing shareholder value and returns.

Moving now to the slide presentation. On Slide 3, we are presenting a company snapshot. More than 45 years in the shipping industry, uninterrupted dividend payments since going public, strong sponsor support, never had to restructure our debt, smooth debt repayment profile, fully aligned interests, no related party acquisitions, steady management and ownership and high-growth potential with no legacy debt restrictions.

Moving to the next slide. Here, you can see the resilience of our business model, steady volumes and income in a highly volatile shipping environment.

On Slide 5, you can see the highlights. Adjusted net income for the quarter is $27 million, and the adjusted EPS is $0.22. Our adjusted net income for the first 9 months of this year is $91 million, and the EPS is $0.76. We do maintain a strong balance sheet with liquidity of about $210 million, leverage of approximately 42% and no meaningful debt maturities until 2024.

Moving to the next slide. As part of our fleet renewal program, we continue the sale of older tonnage. Over the past quarter, we sold 2 containerships with an average age of 23 years and replaced them with 3 younger vessels with an average age of 12 years. The 3 new vessels will be initially funded with equity. We have accepted delivery of 2 13,000 TEU containerships out of a series of 5 sister vessels. The ships have commenced their 10-year charters with Yang Ming Lines.

Slide 7, we have chartered, in total, 13 vessels during the quarter. The charter market has been rising on the back of positive supply and demand fundamentals. The idle fleet has dropped to 1.8%, and the order book is at 8%, and it is expected to remain low. We have 14 vessels coming off charter over the next 6 months, which positions us favorably should the market momentum continue. Finally, we will pay our 40th consecutive quarterly dividend in November. Insiders have been participating in the DRIP, and since inception has, in total, invested $92 million.

In the next slide, you can see the third quarter 2020 results. During this quarter, the company generated revenues of $108 million and adjusted net income of $27 million. The third quarter adjusted EPS is $0.22. Our adjusted figures take into consideration the following noncash items: the accrued charter revenues, accounting gains or losses from asset disposals, prepaid lease rentals and other noncash charges.

On Slide 9, we are discussing our capital structure. Our leverage is comfortably below 45%. Net debt to 12-month trailing EBITDA is 3.3x and EBITDA over net interest is at 0.5 -- so it's at 5x when our covenants have a minimum requirement of 2.5x coverage.

On Slide 10, we are showing the revenue contribution for our fleet. Almost 100% of our contracted cash comes from first-class charters like Maersk, MSC, Evergreen, Cosco, Yang Ming and Hapag-Lloyd. We have $2.1 billion contracted revenues at a remaining time charter duration of about 3.5 years.

Slide 11 shows the contracted revenue by vessel size. As you can see, more than 90% of our contracted revenues comes from vessels, which are above 7,000 TEUs.

On the last 2 slides, we're discussing the market. As shown on Slide 12, charter rates have significantly improved since Q2 2020 across all vessel sizes, but especially for the larger vessels. Box rates have increased by more than 70% on a yearly basis.

Slide 13. The idle fleet has been reduced to 1.8% from 7.9% almost 3 months ago. The order book has fallen to 8% and is expected to remain at low levels. Today, the order book is very thin from 2022 onwards. Our main priority is to cover our downside risk, while at the same time, looking for opportunities in a favorable market environment.

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

(Operator Instructions) Our first question will come from Chris Wetherbee of Citi.

James on for Chris. I wanted to first touch on some of the -- so I guess, the incremental here. Revenue declined sequentially, but OpEx was actually up sequentially, which given the chartering environment, is a little bit surprising. So recognizing that there probably was some voyage expense in the OpEx side, I just want to know if there is any sort of captive OpEx in there that might have been deferred from 2Q and that you actually incurred in 3Q.

And then also, on the revenue side, just kind of wanted to get an understanding of what you were thinking about maybe going into the fourth quarter from third quarter. Should we expect revenue to increase sequentially from here? Just vessel count was relatively flat, but yet the TCE rate was down. So just trying to understand the puts and takes there.

Yes. First of all, regarding the OpEx, you are right, they are slightly higher this quarter. On average, for the whole fleet, it's close to $5,500 per day. In the previous quarter, it was close to $5,000 per day or slightly below that. The reason, as you mentioned, has to do with some sort of incremental crew expenses that had to do with repatriation of [crew count] of our ships. This is something we expected. And I think that going forward, over the next quarters, this is something that will be normalized. So for this quarter, you can treat it as probably a one-off type of item.

Now moving forward for the next quarter, and regarding the revenues, this was the second part of the question. As we mentioned, we have ships coming off charter over the next 6 months, close to 14 vessels. And the market for those vessels today, especially for the larger ships, it is higher compared to like the charters they are receiving today. So generally, in a rising chartering environment and if we assume that the situation will remain the same for Q4 and for the first quarter of 2020 (sic) [2021], we would normally expect revenues coming from those vessels to generally increase. If you look at our latest fixtures, we chartered, for instance say, 2,000, 6,500 TEU vessel for close to -- for 17 to 19 months, so like $21,000 per day. We chartered a 9,500 2006-built vessels for about $30,000 per day. And these rates are much higher from the latest fixtures. So should this trend continue, I think there's generally upside.

Now regarding the revenues of this quarter. In this quarter, you see revenues of some ships that have been chartered during the first and second quarter of this year in a market environment where charter rates did not pick up. Charter rates started picking up after June, July of this year, so fixtures concluded into the first quarter or like April, May of this year at levels lower compared to the pre-COVID levels.

Got it. And so just one quick follow-up on the expense side. How much was the incremental crew expense? I don't think I caught that. Just so we can quantify...

Generally, our ships, on average, if you look at the previous quarter and the quarter before, our ships are having around, on average, for the whole fleet, close to $5,000 per day. This quarter, we were close to $5,400 per day or so.

So I would expect that this is something that will be normalized over the next couple of quarters. So we should be in the region of $5,000, $5,100 per day on average [for the core 3 ships].

Got it. And then just looking ahead into the fourth quarter and the first quarter, it seems like you have some ships coming due -- or vessels coming due that's for rechartering. Is there -- like the market -- how would you think about the current rate relative to those and what you're likely to get in terms of a premium? And then I'll hand it over.

Yes. Look, we have a -- I will give you a specific example. We have 2 9,500 TEU ships opening over the next 6 months, the Cosco vessels. Today, they are now getting a rate of like below $20,000 as sister ships have been recently chartered in this quarter at around $31,000 per day. So I mean, you can see the difference.

I cannot predict where the market will be next quarter or in 2 quarters' time. But I can tell you that today, the market for those vessels, it's much higher compared to the latest fixtures. Also, the Panamax vessels we have, the traditional Panamax vessels today, they are adding for, I don't know, 9 to 12 months, we have seen rates up to like $17,000, $18,000 per day for a standard 4,250 TEU vessel. We have Panamax vessels chartered during the first quarter of this year and are now getting slightly below $8,000 per day. And those vessels are going to be opening over the next 6 to 9 months.

So I mean, you can see the difference in the charter rate, assuming that we don't go back to the COVID level type of market where the Panamax vessels were getting in the below $8,000 per day. I think the difference in the upside should still continue. It's quite important.

Got it. And do you think you would be able to recharter those Panamax vessels in Q4 or Q1? Or is it probably closer to the expiration date?

Look, today, those vessels, today, I can tell you that the ships above 3,500 TEUs, most of them are being sold out, and there are -- and all the ships opening are like there's a lot of demand for tonnage from line companies. I cannot predict the market. I will not do that. And I cannot tell you where the market will be in 2 quarters' time. However, assuming the same dynamics, we are in a much better -- I have to remind you that during the first quarter of this year, there were predictions that the container trades would go down by 10% to 12% based on the latest brokers and analyst estimates.

These are not our estimates, but these are analyst estimates, container trade is going to decrease by close to 4% for the whole year on a TEU basis, which is much smaller contraction compared to the one initially anticipated. So in container shipping, we have seen up to now a much better market, both with regards to box rates and to charter rates, compared to the market people thought at the beginning of the year. And there's a dynamic in the supply and demand fundamentals. They seem to be quite positive.

Our next question will come from Ben Nolan with Stifel.

I want to dig in a little bit on sort of what you're seeing in the market. Obviously, we've all seen the rates a lot higher, and it seems like they're pressing higher every day, and the utilization is lower, and that's not really a mystery to anybody. The one thing that I think would be a little bit more telling is if you were starting to see contract tenors lengthen. In your discussions with -- which obviously would mean that the liners are increasingly confident in the outlook for continued strength in demand, are you beginning to see that at all? Are contract tenors stretching out from 12 months to 24 months or 36 months or anything of that sort?

Yes. Yes, Ben, you're right. Yes, we've seen that. And you can also see that in our latest fixtures, for instance, the York vessel, the one I referred to earlier. It was getting $11,500 per day. And now this is a 6,500 TEU ship 2000 build, so this is a 20-year-old vessel. And this now was fixed at $21,250 per day for a period of 17 to 19 months for a 2000 old vessel. The previous fixture was for a shorter period. So there is a trend. This is just an example. There is a trend.

So also, I can tell you that the Cosco vessels that we chartered, they have been chartered for longer than a year. And we have seen, for instance, the traditional Panamax vessels getting between $7,000 to $8,000 for periods of 6 to 9 months. Now we have seen tenors of 12 months or like north of that.

And one last example I will give is that we have an 11,000 TEU vessel which like we have extended the charter for 2 years. Initially, we have the charter period up until 2023. And during the quarter, we have extended for 2 more years up until 2025. This is the Cape Artemisio, and the rate for the 5-year period is $36,650.

So generally, I would say, yes, that there is a tendency for longer periods and also a tendency for shorter extension options awarded to the charterers. So from that respect, I would say that the market is tightening. And it's common to see longer periods with shorter extension options when the charter rates have been moving up.

Sure. Yes. Although, again, if there was an anticipation of the liners that maybe this is just seasonal or something that maybe they would be a little bit less apt to go low on tonnage.

The -- changing topics a little bit. As you had mentioned, there hasn't been much, the order book is low. There's been virtually no ordering of size all year. There's been some rumors, including some of which that you guys have been involved in that maybe that's picking up a little bit.

First of all, are you in the market if the terms are right to be ordering ships? But secondly, has there been any change in the return profile? I know publicly, one of your biggest competitors has said they're not really looking for newbuildings at the moment. But has that had any impact or the availability of capital or whatever had any impact on sort of the types of returns or the rate of return that you might be able to get on newbuild?

Yes. On the newbuildings, a couple of things. First of all, yes, there have been some multiples about some potential newbuilding projects, which are all the projects were generally were put on the side because of the COVID situation. But these are just discussions. But I would say that generally, we have all seen that the liner companies and shipowners have shown a lot of discipline and in newbuilding ordering over the last quarters, which is something positive for the whole sector.

Now as far as we are concerned, we have been traditionally doing both secondhand deals and newbuilding transactions. We have 2 more newbuildings to be delivered to us within the next couple of quarters, and this is part of our business. In any case, as far as we are concerned, our strategy, it is the same. First of all, we do try to cover our downside risk to make sure that the fundamentals of the dealers are solid, that the residual value risk assumed by us, it is something that it is within our risk tolerance levels.

And of course, in the end, there needs to be some upside and some sort of return on our equity. This has not changed as far as we are concerned. The fact that has changed is that there is a lot of discipline, that we have a very low order book, for which today, especially it is very thin for like 2022, and it takes almost 2 years to build a containership vessel. And however, our strategy of looking both at secondhand ships and the newbuildings with the same risk profile like in the past, it has not changed, it is exactly the same.

Okay. And just to follow-up quickly with that. Almost everything that you've done in the last few years has been on a stand-alone basis, not part of your York joint venture. To the extent that we're looking forward, is that what we should expect that effectively, you're sort of incrementally adding solely on the part of Costamare?

Look, the last newbuilding transaction we did, you're right, the 5,000 to 10,000 TEU ships with Yang Ming, yes, they were on a stand-alone basis. However, we do have an excellent relationship with York, which still continues. And this is a matter and the subject of discussion. So York has been our partner. We've done a lot of this together with York.

For instance, we did with York, in the past, the 5 14,000 TEU vessels. We have done 2 3,800 TEU ship newbuildings chartered to Maersk. So it depends on the circumstances. This is something that could be done with York. However, if York does not want to participate, of course, we do have the means to do it on a Costamare stand-alone basis. I think this is an additional option that is in the table, but it doesn't mean that we may not do the deal 100% at the Costamare level like we did in the past.

Okay. And then last, just for my modeling purposes. Can you maybe walk through what the remaining CapEx is on for the fourth quarter and then the first half of 2022 for the newbuilding?

Yes. Yes, for the -- we still have to accept delivery of 2 13,000 TEU newbuildings, which will be delivered the latest within the second quarter of next year. The remaining equity CapEx commitment, because those ships are fully funded from a debt perspective, the remaining equity CapEx committed for Costamare, is close to $12 million. So this is a very low figure and this is why we mentioned that like we have minimal CapEx commitments. So we said 2, we said -- sorry?

What is it all in though? Sorry, including debt, just [debt and deck].

Look, we have not disclosed the acquisition price for those vessels. And this is the reason you seem a bit skeptical. So it's why I'm mainly discussing our sort of equity CapEx commitments of $12 million in aggregate for the 2 remaining newbuildings. So it's like $6 million per vessel, which is nothing for the size of the company and for our cash balance today.

(Operator Instructions) At this time, I'm showing no further questions, so this will conclude our Q&A session. I would like to hand the conference over to Mr. Zikos for closing remarks.

Thank you very much for dialing in today and for your interest in Costamare. We are looking forward to speaking with you again during the fourth quarter 2020 results call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.