Diana Shipping Inc (DSX) 2007 Q2 法說會逐字稿

Ladies and gentlemen thank you for standing by and welcome to the Diana Shipping Second Quarter 2007 Earnings Conference Call. At this time all participants are in a listen-only-mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [OPERATOR INSTRUCTIONS] As a reminder this call is being recorded to today, Thursday, August 2, 2007.

Now I would like to turn the conference over to Mr. Edward Nebb, Investor Relation for Diana Shipping, please go ahead sir.

Thank you very much and greetings everyone. I would like to welcome you to the company's 2007 second quarter conference call. The members of Diana Shipping management who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; 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 today's news release. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements, 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.

And with that let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer, go ahead, sir.

Good morning and thank you for joining us today. It is my pleasure to report that during the second quarter of 2007, Diana Shipping's financial performance was once again very strong. We sincerely hope that our shareholders are satisfied with the results of management's efforts to secure such a positive result from a strong freight market. We have continued our policy of fleet expansion. We have maintained and strengthened our relationships with prominent charterers and managed our fleet so as to take advantage of the current conditions in the dry bulk market.

In a few moments, the members of our senior management team will review our market outlook and the recent financial results. First I would like to point out some of the highlights of the second quarter. Net income for the second quarter of 2007 was US$26 million, an increase of 97% compared with US$13.2 million a year ago, before the non-recurring preferential deemed dividend related to the purchase of our fleet managers. This strong performance reflected the growth in our voyage and time charter revenues due to our fleet expansion strategy as well as market conditions.

We declared a cash dividend of $0.51 per share for the second quarter, consistent with our policy of rewarding shareholders with an attractive dividend. Including this dividend we will have paid out a total of about US$204.9 million to our shareholders since Diana Shipping became a public company.

During the second quarter we took deliver of two Capesize vessels, the Aliki in May and the Semirio in June. We also signed an agreement to acquire an additional capesized vessel to be delivered in November this year. In early July, we completed the sale of an older vessel, Pantelis SP for a price of approximately $81 million.

These transactions have increased the size of revenue generating capacity of our fleet which in November 2007 will consist of 17 vessels. This compares to [13] vessels a year ago.

We have continued to manage the fleet prudently to position the company to benefit from market conditions. 10 of our vessels are hired under long-term charters, but locking attractive rates through 2009 and beyond. The remaining 7 vessels have charters expiring by early April 2008, allowing us to benefit from rates that are expected to remain strong.

We are proud of our accomplishments for the first half of 2007. Looking ahead, we believe that our efforts to continue expanding our fleet, adapting our chartering strategy to freight market trends, and maintaining strong balance sheet will produce solid financial performance for Diana Shipping and will create value for our shareholders.

With that, I will now turn the call over to our President, Stacey Margaronis, who will discuss the outlook for the dry bulk shipping market.

Thank you Simon and many thanks to all who have joined us in this second quarter conference call. We will start by having a brief look at the freight market developments for large dry bulk carriers since the end of the first quarter which indeed justify the investor enthusiasm and interest we are witnessing for the dry bulk sector. At the end of March 2007, the Baltic Dry Index stood at 5,388 while on 31st July it closed at 6,967.

The Baltic Panamax Index started the second quarter at 5,003 and by the end of July closed at 7,384. The Baltic Cape Index moved from 7,810 to 8,930 during the same period. This strength, which we had at least partially foreseen during our last two conference calls, was due mainly to the same factors which have been driving the dry bulk market during the last few quarters. We will briefly summarize these but we'll also devote sometime in looking at the specific type of tonnage which has benefited most during the recent strength of bulk carrier earnings, and tonnage which stands to benefit most going forward.

We start our industry summary by looking at world steel production. According to JSW Steel Limited, global crude steel production grew by 8.4% during the first half of 2007, reaching 652 million tones mainly led by 17.8% increase in Chinese steel output which came in at 237 million tones. With the IMS annual world growth forecast at 5.23% for 2008, demand for steel is expected to remain strong.

Economies and the performance in the United States, is being offset by stronger than anticipated growth in the Eurozone, Asia and most other emerging markets. According to the Reuters Tankan survey in Japan, there are clear signs that manufacturers are now driving economic growth. In May industrial production grew 3.7%. Staying with industrial production, latest figures from China are 19.4% year-on-year increase for June, in India 11.1% for May, and in Russia 10.9% for June.

In the emerging markets, according to J.P. Morgan Research, real gross domestic product growth should come in at 6.4% for 2007, while in the United States the equivalent forecast is for 2.3% growth in real GDP, accelerating somewhat in 2008. Therefore, all in all there is little doubt that the demand from a macro point of view is firmly supported.

How will this translate into volumes of commodity shipped in bulkers and more specifically ton-mile demand is not always easy to calculate, however analyzing general trends is more reliable and we will summarize these below.

With Chinese iron ore import surging by 21.4% during the first five months of this year compared to 2006 and with the trend not expected to be reversed anytime soon, the estimates for total iron ore shipments for 2007 stands at 790 million tons. This CVRD figure represent a 9% increase on last year's volumes and it does not take into account the ton-mile effect in carrying this cargo from the suppliers to the end users.

With coal, the story is equally bullish, here Indonesia, has surpassed Australia as the world's biggest exporter of thermal coal. Clarkson's expecting Indonesian coal exports to reach 175.6 million tons up 9.3% compared to last year. In Japan, strong demands from the country's energy and steel sectors have boosted both coking coal and steam coal imports in January and May. For steam coal, the rise has been nearly 6% year-on-year to 14 million tons, while imports of coking coal increased by 5% to 33.2 million tons.

Due to nuclear power plant shutdowns in Japan, caused by an earthquake on July 16th, demand for thermal coal is expected to increase further as more electricity will have to be produced by coal and oil-fueled power plants. From January to May, coal shipments from China to Japan dropped by 2.4 million tons while imports from Australia, showed a biggest gain rising 3.9 million tons boosting ton-mile demand. However, these volumes were not sufficient and Japan and Korea are increasing their efforts to buy coal from elsewhere and are expected to source more South African coal to avoid critical shortages.

Excluding the ton-mile effect, Clarkson estimates that during 2007 a total of 750 million tons of coal will be shipped, an increase of about 4% compared to 2006.

As regard to grain cargoes, things are fairly stable, with the exception perhaps of corn used for ethanol production. In the United States, this is expected to rise rapidly over the coming years from about 50 million tons in the 2006 to 2007 period to 102 million tons or more in the 2010 to 2011 season. This will have important implications in the international market where the United States' share of global corn trade will drop from about 65% to around 55%. The shortfall should be made up by increased exports from Argentina and Brazil.

According to Howe Robinson, for the 2007 to 2008, crop year overall tonnage increases for grain shipments will be a mere 5.6 million tons. These will be largely in the form of extra soybean shipments with a large element of ton-mile demand built in.

On the supply side, according to Maersk Brokers, at the end of the second quarter the dry bulk carrier fleets stood at 383.3 million tons deadweight. The current order book represents 37% of the existing fleet.

In the Capesize sector, about 44% of the existing fleet is on order, while in the Panamax segment the order book represents only 19% of the existing tonnage. It is interesting to note that over 41% of the existing Handymax/Supramax fleet is also on order. The majority of new building contracts during the first half of the year were for Handymax and Capesize tonnage for delivery from 2010 onwards with some Japanese yards accepting orders as far out as 2013.

The capacity of the dry bulk fleet grew by 6.5% in 2006, and during 2007, a further 7.3% should be added to capacity. Scrapping during the first half of the year has been insignificant with only 11 vessels scrapped with an average age of 30.6 years. 9 of these ships were in the Handysize segment. For 2008, the dry bulk fleet is expected to grow by 7.8% before making any allowance for deletions.

A few words about congestion now. In early July 2007, the Australian Combined Port Congestion Index stood at around 14 days waiting, near its recent high of 17 days. The Coal Port Index stood at 23 days with the Iron Ore Congestion Index at just under six days waiting.

The Hunter Valley Coal Chain Logistics team that represented the body of Australian Port and Rail Operators recently raised its projections for the end-July vessels queues at Newcastle. They expect the queue to shrink from 73 ships at the end of June to 57 at the end of July compared to 42 which was their previous forecast. The latest available reliable figure was 59 vessels waiting as of the 23rd of July.

The reduction in the waiting time has not had any negative effect on the freight markets for Panamax vessels, an indication that demand is increasing at a healthy rate to easily absorb the tonnage released onto the market.

The latest port improvement schemes reported are, firstly a new port being constructed in Barranquilla, Colombia, which is expected to be capable of handling 13 million metric tonnes of coal per year by 2010. And second, the government of Western Australia now plans to expand the port facilities in Port Hedland to handle the increased Chinese demand for iron ore. By the end of 2009 annual capacity should increase by up to 15 million tonnes per annum.

Partly due to the fact that port congestion in Australia is unlikely to improve significantly over the next few months, Maersk Brokers do not anticipate the dry bulk market going through the usual summer slowdown. The forecast by the same shipping analyst is for a solid third quarter followed by an equally strong fourth quarter.

In summary, supply, demand, port congestion and the ton-mile effect are all working towards supporting the freight market of dry bulk carriers at least until 2009 and possibly longer. The vessels which have relatively speaking benefited most, during the last four years or so from the firm dry bulk freight markets have been the Handymax bulk carriers. With a certain degree of hindsight this can be ascribed at least partly to the gross underestimation of the Chinese coastal trade. The Chinese have been utilizing mainly Handysize and Handymax bulkers to ship goods up and down their coast line, and what was a relatively insignificant trade about 15 years ago is fast approaching in volume the 650 million tonne mark per annum.

The shift of Handysize tonnage to this trade has boosted demand for the more modern Handymaxes, which resulted in strong earnings but at the same time record ordering for this type of ship. It remains to be seen how the market will absorb these new buildings during the next few years.

Another interesting development has been happening in the Panamax bulk carrier sector. According to Howe Robinson, in 1999, 15% of the Panamax trade was via the Panama Canal. In 2005, 7.5% of this trade was via the canal. At the same time port development is aimed at accommodating vessels in excess of Panama Canal beam -- 32.2 meters -- with a deadweight capacity of between 80,000 and 100,000 tons.

Some of the reasons why these larger bulkers were not contracted in greater numbers since 2000 were the following. First, they were too expensive, with price per deadweight ton higher than for a standard design Panamax. Second, lack of berth availability and third, concerns by owners about the chartering flexibility of these new larger ships versus the well established Panamaxes.

What according to Howe Robinson has been happening recently, is firstly, changing trade growth patterns and awareness of a potential shortage of post Panamax tonnage. Second, expanding yard capacity in China, capable of building post Panamax tonnage at more attractive prices. Third, Panama Canal expansion plans approved by referendum with beam restriction increasing from 32.2 meters to 49 meters and permissible drops of up to 50 feet to tropical freshwater. And fourthly, most importantly, the trading ports for post Panamax bulkers depending on specific size have increased to around 330 worldwide for ships with full load.

Looking out into the future, the vast majority of new port development is aimed at Capesize and post Panamax bulk carriers.

In view of all the above, while our opinion as a company about the efficiencies and versatility of Panamaxes remains intact, we have been looking at these post Panamax vessels with greater interest and discussing more extensively, future employments opportunities with prospective charters.

These vessels together with capes and very large bulk carriers of over 200,000 tons deadweight, remain the focus of interest for our expansion plans. The very large bulkers provide an opportunity to secure very long-term employment, which is 10 years or more from repeatable charterers representing industrial conglomerates. Therefore this demands appears sufficient to comfortably absorb now the fleet increases over the following few quarters.

What could ruin this very positive scenario? We have mentioned the following in past conference calls. Firstly, increasing economic and social inequalities in China between the prosperous coastal population and the mainly farm related inhabitants of the inland areas.

Secondly, a significant slowdown in the United States and European economies adversely affecting the export trades of the Asian countries.

Third, the potentially catastrophic effect of deficiencies in the present international legal framework for financial regulations, in controlling systemic risks in world financial markets.

Fourthly, the effects of a collapse of the Chinese stock market at a time when a large percentage of Chinese households have invested their savings in stocks. Fortunately the percentage is still low but it is growing very fast.

Fifth, the fast expansion of shipbuilding capacity not only in China, but also South Korea and Vietnam and record new building ordering. The latter risk factor should be followed very closely because it can upset the supply statistics from the end of 2009 onwards.

According to Howe Robinson, known orders for 2010 deliveries exist for about 560 vessels of around 57 million tons, which is well over twice the record amount of dry bulk tonnage which was delivered in 2006 and is due to be delivered in 2007. This new building trend coincides with even a slight reduction in the rate of growth of demand for the transportation of bulk commodities, then the results for the freight market can be quite serious.

We at Diana Shipping follow these risk factors closely and have structured the finances of the company in such a way as to aim to withstand sudden, negative changes in the freight markets. This does not mean that we are not looking for opportunities to expand our operations and presence in the dry bulk market. However these efforts are made within a strong balance sheet framework and sufficient secure employment to maintain value for our shareholders and adequate return on invested equity even in a soft freight market environment.

I will now pass you on to our CFO, Andreas Michalopoulos, who will provide you with our company's financial highlight for the second quarter of 2007.

Thank you Stacey. Good morning ladies and gentlemen. I am pleased to be discussing today with you Diana's operational results for the second quarter of 2007. Net income for the second quarter of 2007 amounted to $26 million and increased by $12.8 million or 97% compared to $13.2 million for the same period in 2006. This increase is attributable to increased average hire rates and also to the enlargement of the company's fleet that went from 13 vessels at the end of the second quarter of 2006 to 17 at the end of the second quarter of 2007.

The earnings per share of Diana Shipping amounted to $0.41. Voyage and time charter revenues increased by $17.9 million or 69% to $44 million in the second quarter of 2007 compared to $26.1 million in 2006. The increase is attributable to increased average hire rates and the increase in the number of vessels in the fleet after the acquisition of the Naias and the Sideris GS in 2006 and Aliki and Semirio in 2007.

Ownership days were 1444 for the second quarter of 2007 compared to 1183 in the same period of 2006 due to enlargement of the fleet mentioned earlier. Fleet utilization was 99.8% in the second quarter of 2007 and 99.9% in the same period of 2006.

The daily time charter equivalent rate for the second quarter of 2007 was $29,081 compared to $21,247 for 2006.

Voyage expenses increased by $0.8 million or 67% to $2 million in 2007 compared to $1.2 million in 2006. This increase in voyage expenses is attributable to the increase in revenues.

Operating expenses increased by $1.6 million or 30% to $6.9 million in 2007 compared to $5.3 million in 2006. The increase in operating expenses is attributable to the 22% increase in ownership base, resulting from the delivery of the new vessels to our fleet and also to increases in crew costs, insurances, annual taxes and others.

Daily operating expenses were $4,784 in 2007, compared to $4,521 in 2006, representing an increase of 6%. Depreciation and amortization of deferred charges increased by $1.4 million or 35% to $5.4 million for the second quarter of 2007, compared to $4 million for the same period in 2006. This increase is attributable to the increase in the number of vessels to our fleet and was partly offset by reduced depreciation expense due to the agreement to sell the motor vessel Pantelis SP.

General and administrative expenses increased by $0.6 million or 35% for the second quarter of 2007 to $2.3 million compared to $1.7 million in 2006. The increase is mainly attributable to increases in salaries and consultancy fees and to the exchange rate of US dollar to EURO.

Interest and finance costs increased by $0.7 million to $1.8 million for the second quarter of 2007 compared to $1.1 million for the same period in 2006. 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 2006 and to interest relating to the financing method of accounting for lease property of the management company.

After the six months ended June 30 2007, compared to six months ended June 30 2006, net income for the six months ended June 30 2007 amounted to $47.5 million and increased by $22.6 million or 91% compared to $24.9 million for the same period in 2006. The increase is attributable to improving trading conditions and the increase of the vessels in the fleet.

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 increased by $32.2 million or 64% to $82.5 million for six months ended June 30, 2007 compared to $50.3 million in 2006. The increase is attributable to increased average hire rates in 2007 compared to the same period of 2006 and the enlargement of the company's fleet.

Ownership days were 2,794 for the six months ended June 30 2007 compared to 2,329 in the same period of 2006. The increase in ownership days resulted from the enlargement of the fleet.

Fleet utilization was 98.9% for the six months ended June 30, 2007 and 99.8% for the same period of 2006. The daily time charter equivalents rate for the six months ended June 30 2007 was $28,212 compared to $20,722 for 2006.

Voyage expenses increased by $0.8 million or 28% to $3.7 million in 2007 compared to $2.9 million in 2006. The increase in voyage expenses is attributable to the increase in revenues and was partly offset by the 2% elimination in commissions charged by the management company after its acquisition on April 1, 2006.

Operating expenses increased by $3.1 million or 30% to $13.4 million in 2007 compared to $10.3 million in 2006. The increase in operating expenses is attributable to the increased ownership days resulting from the addition of new vessels to our fleet and increased crew costs, insurances and repairs. Daily operating expenses were $4,806 in 2007 compared to $4,412 in 2006, representing an increase of 9%.

Depreciation and amortization of deferred charges increased by $2.5 million or 32% to $10.2 million for the six months ended June 30, 2007 compared to $7.7 million for the same period in 2006. This increase is a result of the increase in the number of vessels to our fleet.

Management fees amounted $2.6 million in the six month ended June 30, 2006. It represents management fees charged by the management company during the first quarter of 2006, before its acquisition in April 2007.

General and administrative expenses during the six months ended June 30, 2007 increased by $1.9 million or 76% to $4.4 million compared to $2.5 million in 2006. The increase is attributable to the expenses of the fleet manager relating to the first quarter of 2007, which did not exist in 2006, to increases in salary and consultancy fees and to the exchange rate of US dollars to Euro.

Interest and finance cost during the six months ended June 30th 2007 increased by $2 million or 105% to $3.9 million compared to $1.9 million in 2006. The increase is attributable to interest expenses relating to long-term debt that was outstanding during the first six months of 2007 and did not exist in 2006.

Turning to dividend policy. For the second quarter of 2007 the Board of Directors has decided to declare a dividend of $0.51 per share. Diana declared and paid 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.

Pursuant to our amended dividend policy on September 22, 2006 the second quarter dividend has not been increased with interest expense and is not calculating as if we were financed with equity for the outstanding debt as the qualifying debt on our balance sheet was on or about $150 million.

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

Thank you ladies and gentlemen at this time we will conduct the question and answer session. [OPERATOR INSTRUCTIONS]. And our first question comes from the line of Jonathan Chappell from J.P. Morgan. Please go ahead.

Thank you, good afternoon guys.

Hello.

Hi.

First question is with regard to your Panamaxes that are rolling off contracts over the next several months. Historically I guess you've used one-year contracts to kind of keep some short term optionality to the market, but as longer-term rates look very robust right now, would you explore potentially putting two to three year contracts on the Panamaxes as they roll off?

Well it will depend entirely what rate of money you can get for three year contracts. For example today the three-year contracts for a Panamax is approximately $35,000. The charterers are willing to pay and the owners are at $40,000. Now you have to see whether that amount of money is sufficient, and it compares favorably for example with the $60,000 which was paid for 24 months on the North [springs] about a week ago for a year. So it's a matter of judging when the vessel is open, to whether you should go for three years or for two years or for one year or even spot the vessel. I think the numbers are high and you have to be careful that you take advantage of having seven vessels opened by April 2008.

And to go to the flip side of that you mentioned the spot market. Would you look at the spot market for a shorter term basis and also are you seeing more willingness from charterers to provide profit sharing on the top of some contracts to help the owner keep some optionality to the upside?

I think that our fleet is such that the options for splitting the profit over and above a certain amount of money, I think for our company is irrelevant, because we are not very happy to do that because we have such a strong company and such a young fleet that we can manage to do without splitting our profit and give it to our shareholders as opposed to the charterer.

Okay, another question for you Simeon, I know that lot of your growth is focused now on the Capesize fleet, any comments on the recent shift of converting single-haul VLCCs into VLOCs and what that might do to the competitive nature to the Capesize market over the next couple of years?

I think you will find that the yards will not be all that happy to convert vessels from tankers to dry cargo, because don't forget that the amount of money they make out of building tankers is completely different than out of building dry cargo. So most of the yards have a certain pattern for building ships and they will be very, very difficult to change that pattern of theirs.

There are about 20 projects which we are aware of, the progress of which is being followed very closely by everyone involved to see how these conversions are going to come out of these shipyards, how the ships will perform and until these -- the results of these conversions are tested in the market, both from a chartering point of view and a technical, we doubt that there will be a flood of interest to make such conversions, from the part of the owners. And certainly as Simeon mentioned there will be difficulty for shipyards to accept many conversion projects in their books, which are relatively disruptive to their new building schedules.

Yeah, that's a good point. Last one. A few months ago you paid some high prices for Capesize vessels but you've been proven correctly as prices have continued to run up. What's your opinion as we sit here today on our current asset prices, lets say Capes at 120 million plus and the potential returns that they can earn given the contract environment?

Well, if you really think about it, if you take into consideration the buying capacity of the dollar, coupled with the fact that you can charter a vessel like that which is prompt for $120 million, you will see that it's not a bad idea because today the rates for a vessel like that for five years for a prompt vessel is more than $57,000 daily with a first class shipping charge. So, overall I think it's not a bad deal if you can find it.

Okay. Thank you very much Simeon.

Thank you. And our next question comes from the line of Justin Yagerman with Wachovia. Please go ahead.

Hey, good morning gentlemen. How are you?

Hi Justin.

Just following up I guess on Jon's question there, we've seen a couple of your competitors announce very large acquisitions in the marketplace recently. Maybe if you could comment on the frequency of those deals coming about? And what your thoughts are on taking on that large of an acquisition at once? Is it something that you would entertain or is it something that in this kind of market is either unavailable or is too difficult at this time to do in your opinion?

I think there will be potential interest for a block of deals or for single ships provided you pay the current prices and of course we are always on the lookout for those deals. So, we are constantly in the market and I think that the prices are such that sellers will come and be ready to accept those prices. So, yes there will be deals similar to what has happened recently.

You think it says anything about where we are in the market when large owners like Metrostar are selling whole fleets of Capesize vessels at current asset rates?

Well, you see there are major charterers who are willing to accept those prices by paying the charter rates. So, today if you see B.H.P Billiton or Rio Tinto are paying $57,000 for five year contracts it relates favorably to the prices you are paying.

I think that's very fair. So, I guess tangentional to that, but different and also following up on what you are just talking about, on the time charters that are coming off from now until April, if you had to sign them in this current market what would your thoughts to be on what to do with those Panamaxes?

Well, as I said before we have the [Naias]., which is one of four FPC routes and at the moment it is enjoying $60,000 daily which is a Panamax, and she is enjoying a rate which is more than what we have on the capes. Now, of course we have to be very careful and don't throw overboard a rate of 24 months at let's say $45,000 or even $47,000 daily, because the one is export and the other is covering for 24 months. So you do have to asses the situation when it comes and the first vessel which is going to be opened for us around the end of September will be the Thetis and of course we are looking from now we have proposals for her that but we would like to run here that spot because we have such a cover and such a strong balance with that we can afford to do so.

And have you looked for you to maybe do a mixture, where some of those vessels that come off end up being on one or two year time charters and the rest are probably maybe a few run spot?

Well don't forget that we have a pretty cover so we can run the seven ships which are coming open up to April 2008 at spot.

Now I think that's fair. I noticed...

Justin, to interrupt you and add on your comment about Metrostar's selling talent?

Yeah.

We have to look at the history of this company as regards of the disposal and acquisition of assets. As you see they have been relatively opportunistic, and looking back over their sales record over the last four years one could argue that had they done nothing but keep ordering and keeping ships they would have been better off than their continuous sale and acquisitions, than fresh acquisition program that they have. So we don't take their movements as a signal as to where the markets are heading for as necessarily being correct.

I guess they just don't like the headache of running vessels.

Possibly and they also like locking in a profit and then speculating with their profits from a transaction. It's a theory which has worked for people in various industries and I suspect they are trying to apply it here in shipping. It's been successful up to now but to what extent they will show a better record, than if they had not sold anything during the last four years, will be proven with hindsight in time.

Fair enough, thanks for the comments Stacey. On operating expense, just wanted to touch on that and one more. You guys actually moved down on a per day basis, on per-ship-per-day basis sequentially through the quarter, can you talk about that? Is that mainly the introduction of newer ships and the exist of Pantelis or is that attributable to something else?

No, actually it's not related to the disposal of the Pantelis, it is related, point number one, to the -- and we can say that probably the good management of the ship, because not only the operating expenses have moved in a good way, but also you must take into account that fact that we had two new deliveries, the Aliki and the Semirio during the quarter, and as I have explained in previous conference call, when you have a delivery of a vessel, especially of a Capesize vessel, you tend to have a higher OpEx per day for the particular vessel due to the fact that a lot of expenses for the delivery cannot be capitalized.

So now the other reason in all fairness, is also the fact that when the vessel does not touch the correct port, meaning the right port where it can find spares at good prices, we prefer to postpone these spares to be put on board. These spares will prevent the maintenance obviously that we have in our full program of preventive maintenance instead of going and buying them in a more expensive place in the world.

So, we had a few of these instances during the quarter enabling us to have a good operating OpEx per day during that quarter. That doesn't mean this is going to show in a tremendous way during the next quarter but we might have some adjustment there although we do not foresee that in our budget. And, so I hope that answers your question but this is all the beauty about having a very experienced technical and operations team in-house.

Is this a good run rate going forward Andreas or I mean --

Yes, yes I think it is a good run rate, and actually a revised budget for the next quarter without us having done anything for it because of many, many lines are coming to that Cape to the same number actually. So, of course you might have some fluctuations but it's a good number to keep for next quarter at least.

Okay. And I guess just following up on that on G&A and depreciation, are we around where we would expect to be going forward for the rest of the year, assuming no more acquisitions?

Yes, yes, depreciation for sure G&A is as we said earlier the only line in the P&L that is Euro denominated so there we have some fluctuations. And we have some increases due to that and due to also the entire IT infrastructure that we have changed and upgraded here in the office, meaning that some of the costs of this site infrastructure cannot be capitalized as well so we had some increase during that quarter, but we should remain to the same numbers next quarter for sure.

Okay, and then in the back half of the year are there any drydockings that you guys have scheduled and would like to get going after this?

Yes actually no, all our intermediate surveys or drydocks that were scheduled were done and actually we did as we said for older vessels meaning the Erato, the Calipso, the Protefs and the Thetis. We did an underwater inspection in lieu of drydock and this has been done for the year so, we are done actually and so now the next is the motor vessel Aliki which is due in March 2008.

Great, that's all I have got, thank you so much.

Thanks.

And our next question comes from the line of Scott Burk from Bear Stearns, please go ahead.

Hi guys good morning.

Good morning.

Hey just wanted to go back to the discussion on VLOCs, very large oil carriers. What would you guys consider looking at a conversion project or are you more inclined to wait and actually try to build a very large oil carrier in the yard, from scratch?

Well, anything -- we are looking at anything provided that it proves sufficiently attractive and improves the wealth of our shareholders. So yes we are looking at the numbers and provide that they are accretive, we will do it. We are not afraid for making a conversion. Although, we prefer of course to start from scratch, and know exactly what sort of ship we are going to build at the end because the conversion sometimes is not working 100% to the benefit of the owner but we are looking at everything which is available today.

Okay interesting, then I also wanted to discuss kind of the counterparties and a whole lot of your charters with B.H.P., what you have previously called first class charters, and could you kind of give some color on what would be where kind -- who're kind of the best charters and who're kind of the ones that may be not be as interesting to have as counterparties in terms of maybe more risk?

Well I think that the Capes and the Panamaxes allow you to pick and choose people that are 100% well, almost 100% safe. And if you are -- if you have charterers like BHP Billiton or Rio Tinto, or Constellation for example, or even Hanjin, or Bunge, Bocimar, Cargill, I think that they are charterers that -- you can rely on them. They have proven in the past that they are reliable.

I've heard some talk about back in the 1980s there are some charters that wanted to renegotiate charter levels there is a big pullback in the market. Obviously we are not expecting any kind of pullback like that but in that situation what could be the risk to the longer term charters?

Well, I think that people as we mentioned before, they have their own cargoes, they are not speculators, they have to move their own cargo. So have the use of the vessel. It's not that they are speculating. Of course they have the right to charter the vessel to somebody else, but in the long run they have to move their own cargo, so they will keep the vessel occupied anyway. So we are not afraid and that's the beauty of the dry cargo market that allows you to have people like, those such charterers.

And then I guess one last question from me, as you look around again kind of referring to the couple of large acquisitions we've seen in this sector last few weeks. What -- do you see any large fleets like that there might be coming available, that would be relatively new, that would be something attractive for Diana?

Well, if you pay enough, I think there are going to be a lot of people around. It depends how much you pay.

Anyway for us to have any kind of insight as to when a fleet like that would be coming available?

Bear in mind that we have the means of doing it; we have the resources and we have the structure that we can do it, because we have such a strong balance sheet and we have very, very new ships. And of course we have the cover also with first class charterers. All those ingredients make you capable of being able to do any major deal.

Okay, alright, well thanks Simeon, thanks Ed.

Thank you.

Welcome.

Our next question comes from the line of Doug Mavrinac, from Jefferies & Company. Please go ahead.

Great, thank you. Good afternoon. Its sounds like you guys are definitely entertaining thoughts entering your Panamaxes with time charter expiring over the next several months until the spot market. Would you characterize that as an intentional shift in employment strategies and what goes into your decision making when deciding to enter a vessel into the spot market versus onto a time charter contract? Is it the relative rates in the spot market versus the time charter market or are your time charter coverage or what do you think about whenever you are making that decision?

Well first of all you have to look at the vessel portfolio. We have a number of ships, some of them are charter. I mean, the Boston, which we are going to take delivery in November, if BHP Billiton is going to exercise their option, is going to be charterer until January 2012. And then you have the Semirio, which is a exercise also -- it's again with BHP Billiton -- is the 30 July 2011. So you have a number of vessels which give you a very good cover with first class charterer, Cargill is another one, BHP Billiton is the other one. Again the Sideris GS. The Panamax are with Cargill and so on.

So, by having this cover you can play the vessels which are coming spot. Of course if the rate for two years or three years exceeded the 50,000, I think you have to think twice before you do it because it's a lot of money.

Right. No, I agree. And given kind of the industrial use nature of Capesizes versus maybe Panamaxes, have you guys begun to see any interest in your Capes for a 2010 delivery?

Yes.

Okay.

Yes, there are people who will look at 10,000 -- 2010 delivery and they will pay something in excess of $50,000 a day for five years, which is again a lot of money for 2010 delivery.

Exactly, exactly. So would it make sense even or maybe would it be a would it be a conceivable strategy to kind of lock in maybe some secured revenues for a long period of time with your Capes and use your Panamaxes just kind of as a way to participate in the upside of the current strong fundamentals in the market?

I think the market is pointing north, anyway and I don't think for the next two months here we see any hiccups taking place. So I think you have to look at the market -- on the spot when you have to renew a vessel you have to look at the market very carefully, and see whether it make sense to charter the vessel which is opening two years from now or stay for another two months and wait because coming two months closer to the delivery of the vessel you increase the rate enormously.

Right. Okay, great, thank you. And then one example we have...

I think we have vessel which is scheduled to come from [Wei-Gao-Tao] in the beginning of 2010, but in actual fact, the vessel will be delivered to us in November. By doing so, by bringing the vessel earlier by 4 months you immediately increase the potential charter. So if you can wait another two months then again the rate will be much, much better what it is today.

Yeah, great, thank you. And then one final question you have obviously have been very successful with your expansion plans in terms of timing your acquisitions. How much -- can you shed some color on and provide some insights on to what your thinking on how much weight you place when you are making those acquisition decisions, on what you anticipate to be the capital appreciation of the underlying asset versus any sort of secured return on capital that you can lock in with time charter contracts?

Well provided you have brand new ships the amount of you money you pay for that ship is irrelevant because -- and provided of course you are strong and your not at the mercy of your bankers because you will find a day that you will pay for that ship and that you will get money for a ship which are in excess of what you have paid. And going back in history, anybody who has gone for first class ships, new ships, he has never lost money if he could have sustained the deal. If he had enough money in his pocket, to wait until the market comes back again. So it's almost irrelevant provided the vessel is new.

Yeah good, very interesting points. Thank you very much Simeon.

And our next question comes form the line of Greg Lewis from Credit Suisse, please go ahead.

Yeah, thank you, operator. Good afternoon. I just have real two quick questions. One is the Q2 dividend of $0.51 -- that actually, looks about a penny above the free cash flow and what I mean by that is if you take net income and add back in D&A. What contributed to that?

It is actually not yet -- it's actually [indiscernible]. Basically, the calculation has been done strictly according to the, to our dividend policy. We have taken the cash from operations, meaning the cash revenues, and maybe the difference that you find is due to the fact that in our P&L the vessels that have a deescalating rate -- that is, there is the Sideris, the Semirio and the Aliki, are according to US GAAP accounted for taking the average of the revenues for the full year.

Whereby when we do our dividend calculation since we take cash revenues, we take the in effect higher revenue which is the first three year revenue for those vessels, which is higher than the average revenue for the full year. And that's where may be you have the discrepancy. When you take that revenue and then you take away your voyage expenses, your operating expenses, your G&As, your facility fees and interest expenses, you take away the provisions for the drydocks that we make and you add back interest income, you come up with a dividend number that is strict of 0.5115 actually dollars and the Board of Directors had decided to go for $0.51 dollars.

Okay, great and then just really quick. You mentioned that your vessel OpEx expenses should be relatively flat quarter, looking in next quarter. With currently being roughly 50% to 55% of the daily OpEx, are you simply not seeing the pressure on crewing cost that it seems to be penetrating the market?

Actually the crew indeed is a big portion of our operating expenses, but we do not foresee to crew to go up substantially next quarter. So, no, the answer is we foresee these crew costs to be flat.

Okay, great. Thank you.

And our next question comes from the line of Ben Stapleton from Grey Wolf Capital, please go ahead. [OPERATOR INSTRUCTIONS]. It looks like Mr. Stapleton has stepped away from the phone. There are no further questions at this time. Please continue.

As always, we are grateful for your interest in and support for Diana Shipping. We look forward to sharing our results with you again next quarter. Thank you very much.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation. You may now disconnect.