Diana Shipping Inc (DSX) 2006 Q2 法說會逐字稿

[OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host, Edward Nebb. Sir, you may begin your conference.

Thank you, Nia. Good morning all and this is Ed Nebb, Investor Relations Advisor for Diana Shipping Inc., and I want to welcome you to the company's 2006 second quarter conference call. The members of the Diana Shipping management team who are with us today are Mr. Simeon Palios, Chairman and CEO; Mr. Anastassis Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in its entirety in the news release that we issued yesterday. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is expressed or forecast in the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission including the prospectus under the heading "Risk Factors."

Now with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Good morning. I would like to thank you for joining us today to discuss the financial results of Diana Shipping Inc. for the second quarter of 2006. During the recent period our vision and strategies produced another quarter of [indiscernible] financial performance, strengthened our balance sheet and enabled us to enhance the dividend compared with the previous quarter.

As well, during the second half of the year we believe our company is well positioned to benefit from the positive trends we see in the dry bulk shipping market.

Now let me highlight some of the key accomplishments of the quarter, following which the members of our senior management team will share with you our market outlook and financial review. Net income for the second quarter was $15.2 million, or $0.28 per share prior to a nonrecurring preferential dividend related to the acquisition of our Fleet Manager in April. The Fleet Manager acquisition is one of several strategic steps that we have taken during the quarter to position Diana Shipping for the long term. The in-house ship management company aligns the interests of managers and shareholders and will certainly add value to the company, going forward.

Based on the company's results of operations, we have declared a cash dividend of $0.355 per share for the second quarter, an increase over the first quarter of this year. This is a result of our chartering strategy designed to take advantage of market improvements. Including this dividend, we will have paid out a total of $95.8 million to our shareholders since Diana Shipping became a public company.

Also during the quarter we completed a follow-on offering of 8.05 million shares from Diana Shipping common stock. The proceeds of the offering were used, among other things, to repay indebtedness. As a result, we have entered the second half of 2006 with zero long-term debt and have the capacity to pursue attractive opportunities that may arise now in our market. To highlight our commercial purchase in more detail, we expect delivery of the Yasmine Venture tomorrow expanding the size of our fleet to 14 ships. We are extremely pleased to be adding to our fleet at a time of strong prospects for our market. The vessel, which will be renamed Naias, is a Panamax newbuilding consistent with our focus on building a fleet of young, highly efficient vessels. As previously reported, upon delivery the new vessel has been chartered to Bocimar Belgium NV for 11 to 13 months at $21,000 daily net.

Looking ahead, we believe that our strategy with respect to time charter contracts has given the company great flexibility to benefit from the favorable trends in the trade market. Four of our vessels are chartered under terms that are just the earnings based on the daily average rates on four key routes. The contracts of three to four other vessels will expire during the fourth quarter of 2006. The remainder, including the new vessel we will be adding soon, are on their longer-term charters expiring in 2007 and 2008. As we look forward the balance of this year and beyond, we believe that Diana Shipping is in an excellent position to take advantage of the opportunities now in our market.

We have a modern fleet, disciplined operations, and a strong balance sheet, and we are committed to building on these resources to benefit our shareholders through our dividend position. With that, I will now turn the call over to Anastassis Margaronis, thank you.

Thank you, Simeon. In order to provide you with a broad overview of the latest developments in the dry bulk carrier freight market, we can look at the three main Baltic dry indices and how they behaved since the beginning of the year.

On the first trading day of January 2006, the Baltic dry index stood at 2,438, and yesterday closed at 3,678, which represents an increase of about 51%. The Baltic Panamax index was at 2,403, and yesterday closed at 3,304, an increase of 37.5%, while the Baltic Cape index started the year at 3,105 and yesterday closed at 5,260, higher by 69.4%. We will try and explain the reasons for this strength in the dry bulk market, which started during the second quarter of this year. The following event took place more or less simultaneously.

First, we got strong growth in outward East Coast South America soybean shipments; second, increasing coal shipments from the Pacific to the Atlantic coupled with intra-Asian demand; third, seasonal growth in Panamax and Handymax iron ore shipments from India; fourth, continuing high levels of cement and clinker exports from China to the United States and Southern Europe; five, rapid acceleration in Chinese steel exports, particularly to the United States; and, six, a general acceleration in trade growth, which has also been seen in container trade.

At the end of the second quarter, Capesize vessels started benefiting as well from factors we will mention below, and what has happened is a scenario in which Panamax and Handymax vessels, which assisted the Cape early on in the second quarter are now benefiting themselves through the strength and the Capesize market.

Let us first look at some interesting macroeconomic indicators and see if they're sufficient to justify the positive view on the medium and long-term trends of the bulk carrier freight market shared by several shipping analysts. In the United States, industrial production in the second quarter increased by 6.6% year-on-year, the fastest since the final three months of 1997. This is a sign that corporate investment is sustaining growth as consumer spending slows.

The Bank of Japan raised interest rates by 25 basis points on July 14th, the first increase in almost six years. The country's industrial production rose 4.2% in May and continued surprising analysts with its strength. There is now no doubt economic expansion in Japan is well underway supported by corporate investment and increased consumer spending.

As regards China, gross domestic product increased 11.3% during the second quarter while the country's industrial production rose a staggering 17.9% year-on-year in May. Looking forward, Goldman Sachs are forecasting an increase in the middle class population of China from about 100 million in 2005 to 600 million in 2015. The social, political and economic effects of this cannot be even contemplated because nothing like this has ever happened since proper economic records and statistics have been kept.

Looking at China and India, we ought to point out that in spite of their differences, they have some important similarities. First, there are long-term compelling macro factors in their favor; second, their fundamental cultures are entrepreneurial; third, they are both keen in forging global bilateral links; fourth, they are patiently liberalizing their economies rather than trying to change everything overnight as, for example, happened in Russia a few years ago; and, five, they have a large talent pool abroad, that are beginning to return home. All the above make us confident enough to regard the most recent OECV estimate the world merchandise trade growth for 2006 of 9.2% as conservative. The recorded level for the first quarter of 2006 was an increase of 10.4% year-on-year.

Looking at the main commodities shifting bulk starting, as usual, with iron ore, trade is expected to increase by 7% in 2006 amounting to 710 million tons. Iron ore supplies and Chinese steel mill finally concluded this year's contract iron ore price negotiations with a rise of 19%. China is now expected to import more than 200 million tons of contracted iron ore this year.

According to Clarkson Research, as far as iron ore experts are concerned, Australia's exports are expected to increase from 241 million tons in 2005 to 270 million tons in 2006. Brazil is from 225 million tons to 249; while India's exports should fall from 82.9 million to 78 million tons. There is no doubt that if these forecasts materialize, there will be a positive ton-mile effect on demand for Capesize bulkers because most of this extra iron ore will be heading for China and Japan.

To further illustrate this rather important point, while Chinese iron ore imports from the Big Three exporters, Australia, Brazil, and India, are up 16% on the second quarter of last year, trade calculated in [summarized] terms is up 26%. In June, while physical volumes were up 32% from those exporters, ton-mile trade increased 49% on last year.

With the new mining capacity entering service over the next few months in Brazil, to which you will refer below, there is further potential for increased long haul volumes. According to shipping analysts, Maersk Broker, China will import approximately 340 million tons of iron ore during 2006, having already imported 161.4 million tons during the first six months of the year.

To partly meet China's future iron ore demand, CVRD will start production at the new iron ore mine with a capacity of 30 million tons per annum. During the first year of operation, 2006 to 2007, this mine, in the mina gerai state, is scheduled to produce 7 million tons per annum, most of which will be destined for China.

Turning to Japan, the five main steel producers, including Kobe Steel and Nisshin Steel, expect to produce 88.4 million tons of steel up 7.2% in the financial year of 2005-2006. Unlike China, any steel production growth in Japan must be met solely by imported iron ore and coal.

As far as coal is concerned, India is expected to import 41.8 million tons of coking coal in the 2006-2007 financial year, up from 36.9 million tons the year before. Chinese coal exports have continued to decline, down 12% on last year while imports have grown sharply, up 60% so far this year. In overall terms, the trends identified by most commentators or modest drivers in coking coal trade running in the region of +5 to 10 million tons per annum in the next 12 to 18 months seem realistic. But recent experience suggests that even modest shifts in China's export/import policy can influence volumes dramatically.

The ton-mile effect referred to earlier in connection with iron ore shipment should be present here as well because about half of the above-mentioned increase in coking coal shipments is projected by Clarkson Research to come from Canada as opposed to China and Australia.

The thermal coal trade supported by high energy prices are also widely expected to grow at rates of between 10 to 25 million tons annually. Indonesia looks set to provide the bulk of this incremental cargo for the Asian market, but in anticipated recovery in Colombian production and South African shipments, should rebalance trade during the second half of 2006 thus once again increasing the ton-mile effect and boosting demand mainly for Panamax but also Capesize bulkers even further.

Turning to grain shipments, the industrial uses of grains are now the fastest-growing part of global grain demand. The International Grain Council estimates 2006-2007 demand to reach 186 million tons, up about 14% year-on-year. Growth in other sectors of grain demand is expected to be only 1%. The soybean and meal trade will once again be the key grain trade influence, though. The USDA is now suggesting that in 2006-2007 crop year, overall soybean trade is likely to grow from 65 million tons to over 70 million tons on the back of increasing Chinese imports. For the first time in many years, all this increase is projected to come from United States exports.

To conclude our overview of the demand side of dry bulk shipping, we also point out that besides the continuing dominance of China, secondary factors have influenced overall demand. Some of these are the strong import demands from the United States for long-haul steel and cement from Asia; the increase in Indian coal and wheat import; and the general increase in coal ton-miles to Asia.

On the supply side now, in the coming 12 months, about 50 new Capesize bulkers and about 100 new Panamaxes will be added to the existing fleet. Shipyard capacity is at record highs and rising. However, available berths for dry bulk carrier newbuildings are restrained by high ordering for other types of vessels. For example, during the first half of 2006, about 15.4 million tons deadweight of bulk carriers have been ordered compared to 42.2 million tons deadweight of tankers. According to shipping analysts, Simpson Spence & Young, the net change in the Panamax fleet will be about 7.5 million tons deadweight for 2006 and about 4.9 million tons deadweight in 2007.

To 1 July 2006, about 56 Panamax vessels have been delivered, while nine have been removed from the fleet. The total order book stands at 233 vessels, or 18.7 million tons deadweight, about 19% of the existing fleet. For the Capesize bulkers, the net increase of the fleet for 2006 is estimated at 9.3 million tons and for 2007 at 6.3 million tons deadweight. For the year to 1 July 2006, about 30 Capesize bulkers were delivered and only two scrap, a total of about 27.5 million tons deadweight out on order representing 24% of the existing fleet.

Shipping analysts Howe Robinson are anticipating a fall in Capesize deliveries from 31 in the first half of 2006 to 20 in the second half of the year. The pace of deliveries quickens once again in the first half of 2007 and falls off somewhat from the end of 2008 onward.

It is significant to note that compared to this time last year, the order book for Panamax vessels is down by about 17% and for Capesize bulkers by about 8%. As of June 2006, the Panamax fleet has grown by 8% year-on-year, and the Cape fleet by 9%.

A strong freight market seems to indicate that scrapping will remain subdued during the rest of the year, but deletions on grounds of natural attrition will grow with the age of the fleet.

Looking at the demand/supply balance is anticipated, according to JE Hyde, that South America and Australia will have to satisfy the extra demand for iron ore by China anticipated between now and the end of 2007. This should absorb about 90 Capesize bulkers and can be set against the anticipated deliveries of about 75 Capesize vessels between now and the end of 2007.

On the Panamax front, assuming scrapping remains modestly higher for the reasons referred to above, demand should easily absorb the next additions to the Panamax fleet at least over the next 18 months.

Port congestion in the Australian iron ore and coal loading ports as well as iron ore discharging ports in China increased significantly during the first half of 2006. Since then, port congestion has eased except for the coal-loading ports of Australia. All in all, the straight volumes continue to increase as anticipated, port congestion is bound to play an important role in artificially reducing the supply of available tonnage over the next 12 to 18 months.

What are the risks in what apparently looks like a very optimistic scenario for the future of dry bulk carriers? With shipbuilding capacity committed until the end of 2009, and pleasant surprises can only come from the demand side, we list below the risks as we see them and leave the most important one for last.

First, the Chinese government may seek to cool the pace of investment growth with the steel industry a potential target; secondly, a new anti-corruption drive in China could dramatically affect investment decisions. According to analysts, such a campaign could be five times more effective in cooling down the rate of economic growth than just a few interest rate hikes. It would have the added advantage of politically benefiting the government, and important factor, as we will mention below. Pressure to curb steel exports from both the Chinese government through reduced export tax rebate and the United States industry who fear that an import surge will damage the domestic market. Four, we have softening U.S. leading indicators could threaten steel and cement import demand and, five, a widening of the Middle East crisis could have an effect on currency stability and possibly disrupt the flow of oil from the area with potential serious consequences for seaborne international trade.

However, the single most important risk factor was expressed many years ago by the famous American economist, John Kenneth Galbraith, who recently passed away, in connection with the U.S. economy. He started his famous book, "The Affluent Society," with the following passage -- "Well, it's not without its advantages, and the case to the contrary, although it has often been made, has never proved widely persuasive."

Contrary to popular belief, Galbraith's point was never that wealth was bad but that poverty in a country of enormous wealth and resources should trouble us. As mentioned above, even though when this book was written, these thoughts were centered around the American economy, we feel the concept is extremely appropriate for China. Unless the Chinese government managed to distribute their newly created wealth in a more equitable way than it presently is, economic progress could come to an abrupt halt due to popular opposition to corruption and social and economic inequality.

We hope that none of the above events will materialize and that China's growth will continue on a relatively stable path well into the future. However, we ought to be and are prepared, as a company, to deal with a period of possible trade market weakness and to take advantage of lower asset values, which would then inevitably follow. On this note, I will turn the call over to our CFO, Andreas Michalopoulos, to comment on our financial results for the second quarter and first six months of 2006. Thank you -- Andreas.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the second quarter and six months ended June 30, 2006. Second quarter of 2006 results compared to second quarter 2005. Net income for the second quarter of 2006, prior to the preferential deemed dividend, amounted to $13.2 million and decreased by $6.9 million, or 34% compared to $20.1 million for the same period in 2005. This decrease is attributable to declining trading conditions. Net income reported for the second quarter of 2006 has been reduced by $8 million reflecting the noncash amortization of the prepaid time charter revenue of the vessel Thetis to apply for the entire duration of the time charter contract.

The EPS of Diana shipping prior to the preferential deemed dividend amounted to $0.28 compared to $0.26 for the first quarter of 2006. On April 1, 2006, the company acquired 100% of the issued and outstanding shares of DSS, the management company, for a cash consideration of $20 million. The purchase price was financed with funds drawn under the revolving credit facility with Royal Bank of Scotland. The company reported the acquisition at historical costs under a method similar to a pooling of interests. Due to the fact that in February 2005, the date the agreement to acquire DSS was originally signed, DSS and the company were under common control. A purchase price in excess the historical book value at the date of acquisition of $20.3 million is considered a preferential deemed dividend, which reduces net income available to common stockholders for the period to net loss of $7.1 million.

Voyage and time charter revenues decreased by $3.3 million, or 11% to $26.1 million in the second quarter of 2006 compared to $29.4 million in 2005. The decrease is attributable to declining higher rates in 2006 compared to the same period of 2005, and the amortization of the prepaid time charter revenue of the Thetis. This decrease was offset by an increase in the number of vessels in the company fleet.

Ownership days were 1,183 for the second quarter of 2006 compared to 872 in the same period of 2005. The increase in ownership days resulted from the enlargement of the fleet after the delivery of the Clio in May 2005, the acquisition of the Erato and the Thetis in November 2005, and the delivery of the Coronis in January 2006.

Fleet utilization was 99.9% in the second quarter of 2006 and 2005, and the daily time charter equivalent rate for the second quarter of 2006 was $21,247 compared to $31,407 for 2005. Voyage expenses decreased by $0.8 million or 40%, to $1.2 million in 2006 compared to $2 million in 2005. The decrease in voyage expenses in attributable to the decrease in commissions due to the reduced revenues and also due to the elimination of the 2% commissions charged by the management company.

Operating expenses increased by $1.9 million, or 56% to $5.3 million in 2006 compared to $3.4 million in 2005. The increase in operating expenses is attributable to the increased ownership days resulting from the delivery of the new vessels to our fleet as mentioned earlier, and increased stores, repairs, and maintenance costs. Daily operating expenses were $4,121 in 2006 compared to $3,954 in 2005 representing an increase of 14%.

Depreciation and amortization of deferred charges increased by $1.5 million, or 60%, to $4 million for the second quarter of 2006 compared to $2.5 million for the same period in 2005. This increase is primarily the result of the increase in the number of the vessels to our fleet.

Management fees amounting to $0.4 million in the second quarter of '05 have been eliminated from our consolidated financial statement in the second quarter of '06 due to the acquisition of our fleet manager. However, the acquisition of our fleet manager has caused an increase in general and administrative expenses, which, for the second quarter of 2006, amounted to $1.7 million compared to $0.9 million in 2005 representing an increase of $0.8 million, or 89%.

Interest and finance costs increased by $0.9 million to $1.1 million for the second quarter of 2006 compared to $0.2 million for the same period in 2005. The increase is attributable to interest costs relating to long-term debt outstanding during the period, which did not exist in the same period of 2005.

For the six months ended June 30, 2006, now compared to six months ended June 30, 2005 -- net income for the six months ended June 30, 2006, before the preferential deemed dividend, amounted to $24.9 million and decreased by $9.8 million, or 28% compared to $34.7 million for the same period in 2005. The decrease is attributable to declining trading conditions and a reduction by the noncash amortization of the prepaid time charter revenue of the vessel Thetis, which amounted to $1.6 million, and which applies for the entire duration of the time charter contract.

The acquisition of the fleet manager on April 1, 2006, reduced net income available to common stockholders for the six months ended June 30, 2006, to $4.6 million. Voyage and time charter revenues decreased by $3 million, or 6%, to $50.3 million in the six months ended June 30, 2006, compared to $53.3 million in 2005. The decrease is attributable to declining higher rates in 2006 compared to the same period of 2005 and the amortization of the prepaid time charter revenue of the Thetis and was partly offset by an increase in the number of vessels in the company fleet.

Ownership days were 2,329 for the six months ended June 30, 2006, compared to 1,595 in the same period of 2005. The increasing ownership days resulted from the enlargement of the fleet.

Fleet utilization was 99.8% for the six months ended June 30, 2006, and 99.6% for the same period of 2005. The daily time charter equivalent rate for the six months ended June 30, 2006, was $20,722 compared to $31,134 for 2005.

Voyage expenses decreased by $0.7 million, or 19%, to $2.9 million in 2006 compared to $3.6 million in 2005. The decrease in voyage expenses is attributable to the decrease in commissions in 2006 compared to the same period of 2005 due to the declining revenues and due to the elimination of commissions charged by the management company.

Operating expenses increased by $3.7 million, or 56% to $10.3 million in 2006 compared to $6.6 million in 2005. The increase in operating expenses is attributable to the increased ownership days resulting from the addition of new vessels to our fleet and increased [stores, spares], and maintenance costs.

Daily operating expenses were $4,412 in 2006 compared to $4,153 in 2005, representing an increase of 6%. Depreciation and amortization of deferred charges increased by $3.4 million, or 79% to $7.7 million for the six months ended June 30, 2006, compared to $4.3 million for the same period in 2005. This increase is the result of the increase in the number of vessels to our fleet.

Management fees decreased by $0.2 million, or 25%, to $0.6 million in the six months ended June 30, 2006, compared to $0.8 million in the same period of 2005. The decrease is due to the elimination of management fees after the acquisition of the fleet manager. However, due to this acquisition, general and administrative expenses during the six months ended June 30, 2006, increased by $1.2 million, or 92% to $2.5 million compared to $1.3 million in 2005.

Interest and finance costs during the six months ended June 30, 2006, was in the same level compared to 2005 and amounted to $1.9 million.

Turning now to the dividend policy for the second quarter of 2006, the board of directors has decided to declare a dividend of $0.355 per share. Diana declares and pays quarterly dividends that are substantially equal to available cash from operations during the prior quarter. In calculating the cash dividend, we take into account expenses, drydocking reserves, contingent liabilities, and capital needed to support the company's operations. In times we have debt outstanding, we calculate dividends per share as if we were financed entirely with equity.

Thank you for your attention. We will be pleased to respond to your questions, and I will turn the call to the operator, who will instruct as to the procedure for asking questions.

[OPERATOR INSTRUCTIONS] Doug Mavrinac, Jefferies & Company.

I just have a handful of questions for you. First, are you seeing, with the recent increases in both spot rates and in time charter rates, an increased interest on the part of charter to secure tonnage with time charters and, if so, about how far in advance are you able to secure time charters at present?

Well, if you have a vessel, which is open, let's say, in November, you expect to have a reduction on the rate as opposed to a vessel, which is in August. There is a number of operators, which are there to charter your vessel, but they are not operators which have contracts in their hands. I think most of the people who are there to charter the vessels are of the opinion that the market will go higher, and they are trying to speculate.

Okay, but you would still say that you would see discounts if you're trying to charter a ship two or three months in advance?

Yes, a slight discount, yes.

Okay, and then a second question that's somewhat related to that -- I mean, you have a number of vessels coming up for renewal -- would you say that you would prefer -- and those are vessels that are currently on fixed-rate contracts -- to reenter those ships onto fixed rate contracts or would you say that maybe having some floating type of contract structure in place given the anticipation for strengthening rates would be preferable?

Well, the first vessel which is going to come open, is the Triton and the late date is September to November. The second is the Dione, which is October to December, and the third is the Erato, which will be open between October and December again. And, of course, we have three vessels, which are on the four time charter routes, which can also be fixed. So we have six vessels, which could be chartered from today, let's say. As regards to whether we are going to charter them long term, we are going to see every day what is happening, and we will judge accordingly.

Okay, great. And then shifting over to asset values and given the recent surge that we've seen in asset values, does that affect your thinking as it relates to expansion plans or how does it affect your thinking as it relates to expansion plans?

I think that we have been long enough in the market to understand that there are times when the market is very, very hot and times that the market is good but is not as hot -- and psychologically is not so hot. So at this particular moment, we are at the stage that the market is excellently hot, and psychologically I think it may be the wrong time to buy ships.

Right, right, okay, and then, finally, what are you guys hearing specifically in terms of ships being circulated for scrappings maybe in recent days and recent weeks in the market given the current strength in rates? Have you seen or have heard of a slowdown in ships being marketed or what are you hearing there?

Well, I think the rate today for dry cargo is approximately close to $400 per ton. And maybe some people with very old tonnage in their hands, they have to rethink before passing special surveys or annual surveys that there are and keep the vessel longer. But the scrapping is not as fast as one should have thought.

Scott Burk, Bear Stearns.

Maybe you could go over what your drydocking schedule is going to be for the next several quarters.

Okay, thank you. Hi, Scott. Well, actually, we just at the beginning of the quarter completed the drydock of the Oceanis at the beginning of the second quarter, and the next drydock that is foreseen is now on the second quarter of 2007 with the Pantelis SP, our Capesize vessel that we are going to drydock then. So until the second quarter of '07, we have nothing that is foreseen to go for drydock.

Greg Lewis, Fortis.

I just have two brief questions for you. One is has Diana officially announced the purchase of two Capesize vessels that I've read about and seen on order books?

No, because there hasn't been any contract signed, therefore there has been no purchase.

Okay, and then my other follow-up question is regarding the four vessels on -- that are tied to the benchmark routes, I was trying to back into that -- back into the rates that they have earned based on the estimated $21,000 TCE rate, and it looks like those vessels earned about $16,000 per day, and if you look at the index over the second quarter, it was closer to $18,000 per day. So is it safe to say that those vessels are going to earn about 10 to 15% less than the four TCE rate average?

Well, let me put you into the picture. The French vessel, which we have chartered, is the Protefs, and we have chartered that vessel back on January 2006 and before time charter routes at that time stood at 3,463, and today, before time charter routes, Diana has had 26,783. The Calypso was the second vessel, and when we fixed the four-time charter routes back in January 2006 it stood at 17,002, and today is at 26,783. And the second vessel was -- the third vessel was the Clio, which was fixed again in January 2006, and the rate at that time was 14,249, and today is 26,783. The fourth vessel is the Nirefs, which was chartered in April 2006, the rate only for our routes stood at that time at 17,471, less 4.5% over and above that, 18,257, and today it stands at 27,998. So I supposed it was an excellent job in fixing the four vessels on the TCE average rates.

So I guess what I would say is how is the rate determined? Is it every two weeks? Is it once a month? Is it the average over the period?

It's Ioannis on the phone. What we have to make clear to people is the fact that the rate that we are getting is adjusted daily. What is happening is that we are getting paid every 15 days, but the rate is adjusted daily. So every day, if there is an increase in the rate, in the four times [other routes] rate, we are getting it. We are getting paid on a daily basis every 15 days. So you understand that we got all the benefit that the market improved.

[OPERATOR INSTRUCTIONS] Jon Dawson, Dawson Herman Capital.

Two questions on the expense side -- first, should we look at the SG&A expenses given the management company has been the second quarter as sort of an ongoing level, that's question number one. And question number two, just comments on the operating expenses on a per-day being up about 14%.

First of all, concerning the general and administrative expenses, we will see this type of expenses, going forward, since we have acquired the manager. We do not have the 2% commissions anymore, and the management fees that we pay is that were paid to the manager which were $15,000 per ships, per vessel, and the effect is that we have higher general and administrative expenses. That on point number one. Bearing in mind that on those expenses we will have a [URA] effect as well that this should be considered. So that's where you might see some changes in that level.

Now, concerning the operating expenses, we indeed have a slight increase in the operating expenses that is due to stores, spares, and maintenance costs. As you know, as a company, we are conducting, first of all, a very extensive preventing maintenance in order to ensure that we do not have very big capital expenditures during our drydocks or scheduled reviews, I mean surveys, that's point number one. And we also had during this quarter to supply the vessels with safety spare parts for the vessels Erato, Thetis, and Coronis that were required during late '05 and the first quarter '06. These spare parts were supplied during this quarter because we leave the ship to run in order to ensure that we get the best prices for the spare parts and also to make sure that we get what we need.

[OPERATOR INSTRUCTIONS] There appear to be no further questions, I would now like to turn the call over to Mr. Palios for any closing remarks.

Let me thank you again for joining us on today's conference call. We are confident in the future prospects for our industry and our company, and we appreciate your interest and support for Diana Shipping. Thank you.

Thank you, this concludes today's Diana Shipping second quarter earnings conference call. You may now disconnect.