Diana Shipping Inc (DSX) 2013 Q3 法說會逐字稿

Greetings and welcome to the Diana Shipping third quarter 2013 conference call and webcast. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions).

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ed Nebb, IR advisor for Diana Shipping. Thank you, Mr. Nebb. You may now begin.

Thank you, Jesse, and thanks to all of you for joining us today for the Diana Shipping, Inc. third quarter 2013 conference call. Members of the Company's management team who are with us today conclude Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the safe harbor notice. Certain statements made during this conference call, which are not statements of historical fact, are forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections, intentions, and beliefs as to future events that may or may not prove to be accurate.

For a description of the risks, uncertainties, and other factors that may cause future results to differ from the forward-looking statements, please refer to the Company's filings with the Securities and Exchange Commission. And now, with that, let me turn the call over to Mr. Simeon Palios, Chairman and CEO.

Thank you, Ed. Good morning and thank you for joining us on our 2013 third quarter conference call. During the recent quarter Diana Shipping Inc. continued to pursue the strategic expansion and diversification of our fleet and maintain a formidable balance sheet to support our growth.

Among the recent highlights of our fleet expansion networks, in order -- in October we took delivery of the motor vessel Myrsini at 2010 built Kamsarmax dry bulk vessel of 82,117 deadweight. The Myrsini is time chartered to clear late shipping of Singapore at a gross charter rate of $15,500 per day.

During the third quarter, we also took delivery of Artemis, a 2006 built Panamax that dry bulk carrier of 76,942 tons deadweight. The vessel is time chartered to Rio Tinto's shipping of Australia at a gross charter rate of $9375 daily.

Last month, we agreed to (inaudible) an affiliated third-party, the motor vessel JK Pioneer, a 2013 built Capesize dry bulk vessel of 179,134 tons deadweight for a price of $52 million. The vessel will be renamed P. S. Palios, which is expected to be delivered by the end of this month and is chartered to RWE at a gross charter rate of $18,350 daily.

Including the vessels currently expected for delivery or on order, Diana Shipping's fleet would consist of 40 dry bulk carriers. It is an increasingly diverse fleet including new Kamsarmax, Capesize or Panamax, Kamsarmax high-class Panamax and Panamax vessels.

We continue to manage our fleet in a responsible manner doing business with the world's most respected charterers such as Cargill, Rio Tinto, [Edev] and others. We have structured the fleet to provide the balance of time charter maturities and deliver a predictable revenue stream.

Currently, our [fixed] revenue days are [99%] for 2013. The majority of our vessels are chartered for periods ranging from 2014 through 2015 and beyond.

Diana Shipping continues to maintain one of the strongest balance sheets in our industry. Our cash position at September 30, 2013 was nearly [$316 million]. We continue to operate with a very manageable degree of leverage.

Long-term debt, including current portion, was $450.3 million compared to shareholders' equity of nearly $1.3 billion.

Turning now to a summary of the financial results of Diana Shipping for the third quarter of 2013. Time charter revenues for the recent quarter totaled $41.9 million. The Company reported a net loss for the 2013 third quarter of under $3.2 million.

In summary, Diana Shipping is continuing to pursue strategies that enhance the Company's financial flexibility in a volatile industry environment while investing in the assets that will generate long term growth. We will continue our program of selectively and gradually adding to our fleet as market conditions permit us to acquire vessels at attractive prices.

We will operate our fleet according to balanced and prudent chartering qualities and promote a predictable revenue stream. And we will continue to manage our balance sheet to provide financial flexibility, supply the capacity to support growth and maintain an acceptable degree of leverage.

With that, I will now turn the call over to our President, Stacey Margaronis, for a perspective on industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Thank you, Simeon, and greetings to all. The last quarter has been one of the most exciting quarters for dry bulk shipping since 2009 collapse of the crate market. The Baltic Dry Index started the quarter at 1179, reached 2146 on October 8, and yesterday stood at 1500.

The [Baltic Crate] Index started at 2176 only to explode over a short period to 4329 at September 26, and yesterday closed at 2366. The Baltic Panamax Index started the quarter at 1745, peaked at 2060 on October 18 and closed yesterday at 1382.

According to (inaudible) so far this year, Capesize daily earnings have averaged $14,400 per day, while Panamax bulk rates have averaged $8900 per day. This is not a typical bulk rate market volatility pattern and certainly (inaudible) the power exerted by Chinese traders of iron ore over the entire bulk carrier market.

This is indeed a relatively new phenomenon that everyone involved in dry bulk shipping should start to accept as an inevitable development of the continued growth of China and its effect on crate rates going forward.

Looking at the macroeconomic development now, according to the IMF the global GDP growth is forecast to reach 2.9% this year and 3.6% in 2014. Emerging markets (inaudible) to expectations which is of obvious importance to shipping, with growth markets down according to R.S. Platou by almost [5%] on average.

Chinese GDP growth increased to 7.8% during the third quarter of 2013, up from 7.7% in the second quarter. This was primarily created by targeted infrastructure spending and the promotion of economic reform according to Clarkson.

According to Commodore Research, it is encouraging to note that Chinese electricity production, lending, and consumer spending have all remained robust and continue to show a moderate pace of growth.

IMF predicts growth of 7.3% in China for 2014. As for the United States, the IMF is predicting 1.6% growth this year and 2.6% in 2014. For the Eurozone, the prediction is for an anemic 1% growth in 2014.

According to Commodore Research, production in India and demand for commodities, particularly iron ore and coal, will continue to grow going forward. However, one should not look to India to quickly become the next China. Commodore also predicts that growth in India is likely to remain at only moderate levels due to the restrictive nature of India's democratic and bureaucratic government.

Let's look at private equity investments now. According to the Korean Shipping Messenger, private equity invested in shipping year to date has exceeded $2.7 billion. Furthermore, as reported by the Financial Times on October 27, private equity led the shipping investments has amounted to $11.2 billion since global financial crisis. At the current speed, the private equity industry having invested $3.4 billion of shipping in 2011, is expected to put the largest amount of financing ever seen before in the sector in 2013.

Under this evolving scenario, several well-known private equity global funds have aggressively entered the market on the firm conviction that both newbuilding prices and secondhand vessel prices have already hit bottom. It remains to be seen if this will prove to be the case and how patient these payers will be in waiting for the realization of a double-digit return that they expect to see from their investments in shipping.

Turning to demand now, according to Clarksons, on an overall basis in dry bulk seaborne trade will increase to just under $4.5 billion equity [terms] in 2014, representing an increase of 5% compared to the estimates for this year, [drilling which trade] is again predicted to increase by 5%.

Starting with steel prices now, these have been falling steadily over the past few months. According to Commodore Research, it is encouraging to note that they appear to be stabilizing at [above] $600 per ton. Steel stockpiles have also continued their downward trend, which is encouraging if it continues.

Stockpiles of steel products in China are approximately 14 million tons. These have seen their second week in decline according to Commodore Research, since over a month ago during which they had been increasing steadily.

Gross steel production, according to the World Steel Association, is 1.186 billion tons, an increase so far this year of 2.7% compared to the same period in 2012. Total Chinese steel production is projected by the China Iron and Steel Association to increase by 9% this year compared to 2012 and reach 781 million metric tons.

This has led Commodore Research to the conclusion that steel output in China still exceeds demand.

Talking about demand, let's look at iron ore now. Clarksons predicts that for the whole of 2013, seaborne iron ore trade will increase by 7% compared to 2012, while in 2014 a further 7% increase is being predicted. This, if realized, would bring the total volume of world imports to 1.274 billion metric tons.

Chinese iron ore imports have predicted according to Clarksons to reach 510.2 million metric tons this year, an increase of 9% compared to 2012. Australian exports are predicted to increase by 11% in 2014 year on year, while Brazilian exports by 4%. This is not particularly good news for ton-mile demand growth.

R.S. Platou has developed an interesting formula converting GDP growth in China under certain assumptions to an increase in the demand for the Capesize bulk carriers. Most particularly, they estimate that with the 7% GDP growth in China, demand for an additional 50 Capes would be created to carry iron ore.

The assumptions made are that 60% of new iron ore demand would come from Australia, 20% from Brazil, and 20% from other producers. Another assumption is domestically produced iron ore would be around 20 million metric tons per annum.

Let's turn to the iron ore core stockpile now. According to Commodore Research, iron ore stockpiles have been rising. Approximately 82.2 million tons of iron ore are now stockpiled at China's ports, which is the most since November 2012.

Iron ore stockpiles are poised to continue to rise due to the very large amounts of iron ore fixtures that have come to the market from July through September of this year.

As for coking coal, Clarkson's estimates that even through and during 2013, volumes shipped increased by as much as 11.9% to 263 million metric tons. During 2014 they should reach 275 million metric tons, which is an increase of 5%. During 2013, disruption to Mongolia's land-borne exports to China have contributed to firm growth in seaborne imports.

However, with plans to expand Mongolian production further over the next few years, China's land-borne imports may also increase. As for thermal coal, the prediction for thermal coal seaborne trade is at 34% for this year and next, reaching a total of 897 million metric tons by the end of 2014.

Low international thermal coal prices have contributed to a 7% increase in Chinese imports so far this year, together with coal's restocking by power plants for the coming winter season. At this trend, China is expected by Clarksons to increase its imports by 9% year on year in 2013.

Grain shipments now. Clarksons predicts that after dropping by 3% to 261 million metric tons during 2012/2013, seaborne grain imports should increase by 4% to 271 million metric tons in the 2013/2014 season. Grain imports to Asia are projected to rise 8% in the 2013/2014 grain season and reach 85.9 million metric tons.

According to Commodore Research, a particularly large increase in global wheat exports is anticipated for this coming grain season, mainly due to the anticipated increase of exports of wheat from the former Soviet Union. Thermal coal stockpiles, now kept at major power plants, have increased approximately 81 million [metric tons]. Even though this is up 11% since the beginning of October, power plant stockpiles are still 14% lower than they were during the same period of last year.

As regards electricity production in China, the September figure of 431 billion kilowatt hours was 10% more than was produced in September 2010.

Turning to supply and looking at the order book, (inaudible) [production of the Cape] newbuilding order book numbers [285] vessels with a combined cargo carrying capacity of [8754] -- I beg your pardon, [0.7 million] deadweight tons, representing 18.7% of the existing fleet. Their delivery schedule is spread out as follows: $7.2 million for the rest of this year, $21 million in 2014, and $26.5 million in 2015 and beyond.

The corresponding figures of Panamaxes are 436 vessels or 35 million deadweight tons on order, which represents 19.1% of the existing fleet. From the Panamax order book, a total of 19.8 million deadweight tons are scheduled for delivery in 2014 and only 7.7 million deadweight tons are on order so far for delivery in 2015.

Things are even worse, though, in the Handymax sector where 574 vessels are on order, representing 21.3% of the existing fleet. In the Panamax sector, according to Clarksons, the fleet is expected to grow by 9% this year and by 8% in 2014.

Demand is not expected to increase by more than 6% in 2014. So with demand growth projected to be lower than fleet growth over the next 18 months or so, Clarksons predicts the supply side sectors will continue to affect the Panamax market.

Scrapping. According to figures provided by (inaudible) during the first eight months of 2013 about [255 bulk were] scrapped for a total of 15.3 million deadweight tons. It should not be forgotten, though, that only 6% of the Capesize fleet is over 21 years old and 10% for Panamaxes and Kamsarmaxes falls in the same age bracket.

As for projections, according to Commodore Research, during the week starting November 4, approximately 160 vessels are anchored outside major Australian coal and iron ore ports. Approximately 30 vessels are anchored outside major Brazilian iron ore ports.

Of the 190 vessels congested at major Australian and Brazilian coal and iron ore ports, about 120 of them are Capesize vessels. Even when we look at congestion numbers from earlier this year, congestion appears to be reasonably steady for the time being.

On the outlook side, as regards the likelihood and trends of Capesize vessel earnings, we agree with the new abstract by Gibson, which is its latest monthly report. Gibson states that even though time charter rates of between $6000 and $10,000 per day are probably behind us, it is by no means certain that the supplier (inaudible) is evening out.

The reason here is as follows. Firstly, while the number of new deliveries is indeed dwindling, the supplier demolition candidate is also shrinking nearly as fast due to the age profile of these vessels, which we refer to above. Secondly, there is a steady expansion of the 200,000 deadweight plus fleet and four carrier conversions of steel trading from Brazil to China, up to close to 25 years. Now, most of these are operating under contracts of affreightment and are not facing open market trends.

Thirdly, the low new building prices and the recent market strengths have encouraged another spate of new building ordering, which will mean more deliveries again from 2015 onward. Just as a reminder, during the first eight months of this year, [about] 99 Capes and VLOCs have been ordered plus 54 Panamaxes and no less than 166 Kamsarmaxes.

[The different] scenario according to Gibson's research, is that with the newbuilding deliveries easing during 2014 and the more recent rates remaining firm, rates will improve. As an example in hand, we sized the outlook of R.S. Platou according to whom with Capesize fleet growth estimated at around 4% and assumed demand growth of around 6.5% per annum.

Trade market (inaudible) fundamentals are expected to improve over the next 12 to 18 months. These trends could have a positive impact (inaudible) for earnings across the size ranges compared to earnings in 2013. However, the growth in the 200,000 plus fleet continues and the (inaudible) 400,000 deadweight vessels have (inaudible) capacity. There are also some doubts as to whether new buildings and demolition will be balanced in the future.

According to Gibson, there are only 87 bulk carriers or [four] carriers that are 21 years old alone. If 20% of those are engaged in permanent storage for coastal trading the list of the demolition candidates is (inaudible) especially when the average age for demolition in this sector is over 22 years.

So, as mentioned in our previous quarterly conference call, the environment in which we have Diana Shipping, Inc. has to execute the Company's investment strategy remains volatile and full of surprises. We do not find it troubling as it confirms and reinforces our investment thesis, which is that the expansion organization of the Diana fleet should be implemented developing specific criteria in mind as to the precise timing of the (inaudible) of the dry bulk shipping (inaudible).

All we know is that we are now moving through that lower part of cycle and it is for this reason that all acquisitions are financed by cash, and conservative debt is also coming from one of the several tanks still willing to selectively advance loans to the shipping industry. We remain as confident as ever that the Company's conservative balance sheet and investment strategy will create even stronger corporate entity when dry bulk shipping moves to the upper parts of the shipping cycle, which will find us with the goal of reinstating dividend payments to our shareholders and speeding up the fleet (inaudible) program through the disposal of the older units in the fleet.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the third quarter and the first nine months of this year. Thank you.

Thank you, Stacey, and good morning. I am pleased to be discussing today with you Diana's operational results for the third quarter and nine months ended September 30, 2013.

For the third quarter of 2013, net loss amounted to $3.2 million and the loss per share was (technical difficulty). Time charter revenue (technical difficulty) [decreased to] $41.9 million compared to $56.2 million in 2012, a decrease from the (inaudible) time charter rate that we achieved through our vessels during the quarter compared with the same quarter of 2012.

The decrease was partially offset by revenue derived from the vessels (inaudible) delivered in August 2012 (inaudible) in November 2012 and (inaudible) delivered in January 2013, (inaudible) delivered in (inaudible), [Baltimore] delivered in June 2013, and Artemis delivered in August 2013.

Ownership days were 3072 for the third quarter, 2013 compared to 2624 in the same period of 2012.

Fleet utilization was 99.7% compared with 99.3% in the same quarter of 2012 and the daily time charter equivalent rate was $12,990 compared to $21,335 in the same quarter of 2012. Voyage expenses were $2 million for the quarter.

Vessel operating expenses amounted to $19.7 million compared to $17 million in 2012, an increased by 16%. The increase was attributable to the 17% increase in ownership days resulting from the enlargement of the fleet.

The increase was also due to increased taxes and other operating expenses and was partly offset by [decreased insurances] of (inaudible) and repairs and maintenance costs. Daily operating expenses were $6424 for the quarter of 2013, the third quarter, compared to $6460 in 2012, representing a decrease of 1%.

Depreciation and amortization of deferred charges amounted to $16.4 million. General and administrative expenses decreased to $5.4 million compared to $6.2 million for the same quarter of 2012. The decrease was mainly attributable to [decreased] expenses for bonus and compensation costs under restricted stock awards, legal fees, and (inaudible) expenses.

Interest and finance costs were $2.1 million for the quarter compared to $2.2 million in 2012. This decrease was attributable to (technical difficulty). Average debt in the third quarter 2013 compared to the same quarter of last year, offset by increased average interest rate from 1.71% during the last year's quarter to 1.80% in this year's quarter.

Long-term investment in Diana continues (inaudible) amount to $2.1 million compared to a loss of $2.5 million in the third quarter of 2012. Moving to the nine months ended September 30, 2013 now, net loss for Diana Shipping, Inc. amounted to $11.6 million and the loss per share was $0.14. This includes $4 million loss or $0.05 cents loss per share for Diana Container Shipping.

Time charter revenues in 2013 decreased to $124.5 million compared to (technical difficulty) (inaudible) for the same period of 2012. The decrease was attributable to decreased average hire rates during 2013 compared to 2012 and was partly offset by revenue derived from the enlargement of the fleet in 2012 (inaudible).

Ownership days were 8808 compared to 7409 for the nine months ended September 30, 2012. Fleet utilization was 99.2% compared to 99.5% for the same period of 2012 and the daily time charter equivalent rate was $13,422 compared to $22,561 in 2012.

Other revenues amounted to $0.4 million and derived from the management agreements with Diana Containerships Inc. terminated on March 1, 2013.

Voyage expenses were $6.3 million in 2013. Vessel operating expenses amounted to $57.3 million compared to $47 million for the same period in 2012, an increase by 22%. Increase was attributable to 19% in ownership days resulting from the enlargement of the fleet. And this was also due to increased crew costs, insurances, taxes, and other operating expenses and was partially offset by decreased [stores and pairs], and repairs and maintenance costs. Daily operating expenses were $6501 for the nine months ended September 30, 2013 compared to $6341 for the same period of 2012, representing a 3% increase.

Depreciation and amortization of deferred charges amounted to [$47.9 million] in 2013. General and administrative (technical difficulty) expenses amounted to $16.3 million compared to $18.9 million in 2012. The decrease was mainly attributable to decreased expenses for bonuses, compensation cost on restricted stock awards, legal fees, and Company promotions.

Interest and finance costs increased to $6.1 million compared to $5.6 million in 2012. This increase was mainly attributable to increased average interest rate and increased average debt during the nine months ended September 30, 2013 compared to the same period of 2012.

Loss from investment in Diana Containerships Inc. amounted to $4 million. This compared to a loss of $1.8 million for the same period of 2012.

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

(Operator Instructions). Michael Webber, Wells Fargo.

Just a question on chartering and a couple around the market. The Kamsarmax charter [event] 4 to 6 months, a bit shorter than you all usually go. Is that by design? Or can you maybe talk about the conditions in the market that led you to find something a bit shorter and a bit higher dollar?

It's certainly, not necessarily a negative at all. I'm just curious as to what led you to that shorter charter.

The governing (inaudible) for the time we are chartering the ships is simply when we have a (inaudible) slot for an opening and is not matter of how the market, we believe, is going to react. We have to have an opening and that opening we are filling up. So we are hedging on the charter side, too.

Mike, if you look at the -- this is Ioannis by the way -- if you look at the table that we have on our website, the table -- the graph -- the bar chart that we have, it is clearly the same bar chart that we are looking at two years ago, three years ago, with our (inaudible) vessel to fix. And that is it. We have said that many times.

Okay. That's fair. Stacey, you mentioned in your prepared remarks when you quoted some nominal amount of private equity investment in the space, and we have certainly seen a ramp of new build orders and that is of course secondhand values and new build values higher.

I am just curious. You mentioned that we are kind of still in the middle of the trough. Do you think that new round of investment has pushed out a sustainable recovery? And how do you view that new investment in the space in terms of the timeframe for the way you guys are playing the cycle?

Yes. I mean, that is always going to be a question answered with hindsight more accurately than now. But we have to take -- have an opinion. And our opinion, which is not necessarily the correct one, is that, yes, this new phenomenon here is going to attract newbuilding orders because acquiring secondhand tonnage is (inaudible) difficult or not as attractive for these private equity funds as ordering newbuildings.

And a lot of the ships that we saw during the first nine months came from that table; in other words, the money that was put in the industry by private equity funds. And we have to keep in mind, of course, that this money is going to be leveraged to increase the return on equity. By how much, depends on the investment criteria or which private equity funds.

So in short, we believe that it's not a good development as regards the recovery of the market. The recovery, when it comes, it is going to be later than weaker than it would otherwise be without this infusion of capital.

It is not a particularly smart observation to make, because anybody can see this. But, what is a pity is that we would not have seen this kind of money coming from anywhere else, had it not been the private equity funds that were injecting the money. But there is always someone putting money in the industry, as you know.

It used to be in the 1980s, the nationalized [team] in the containership plays in the 1990s we saw the tax teams from Germany and [formal TKG] structures. Now we are seeing private equity funds. So it is, unfortunately, the kind of industry that every cycle you get somebody investing capital and usually delaying a recovery or bringing forward the weakening of the market.

If investment happens towards the peak, [should at least] it happen near the trough of the market so the chances of these investments of being profitable are far higher than others have been made, especially in the containership industry at the peak of the market. And we saw what happened there.

Sure. I guess within that context and with that the values -- I don't want to say they are officially pushed higher, but there is certainly a degree of speculation baked into that, the values now. How does that impact your purchasing patterns? Do you slow your purchases to wait for asset values to kind of come back to more normalized levels, or how does that impact the way you spend money?

We will keep on buying, of course, time because that is our policy. In respect where the prices are high or low, the prices indeed are higher today than what they were about four months ago. And unless the appetite of these private investors and private funds is fulfilled, we are not going to see the recovery. It is going to take much longer, as Stacey said. So we have to see that first and then we will expect the recovery to come.

Okay. That's helpful. Just one more for me, and I will turn it over. Your loan to DCIX is -- I believe it is fully drawn now, $50 million. You are sitting on a significant amount of cash on your balance sheet. Is there a thought of potentially extending more capital to DCIX to source additional containership growth? Or is that going to be (inaudible) [exposure]?

No. That is the level that is good for the Company, so for the moment there is no such thought of extending further cash.

Great. That's helpful. Thank you, Andreas. That is all I've got.

Justin Yagerman, Deutsche Bank.

This is [Taylor Mohan] on for Justin. So I wanted to ask about, you mentioned you have a goal of reinstating the dividend at some point. And I just wanted to get some more thoughts about any timing that you are considering around that goal or any benchmarks that you need to reach to get there.

Our strategy states the following, that from the moment we are at the lower part of the cycle, we continue to grow the growth phase of the Company. And when we -- at the moment we will release the upper part of the cycle where we see the growth of the companies should decrease, that's the point where our dividend is going to be reinstated.

In other words, we still feel that we have better use of the money ourselves by buying vessels the way we do. And we are going to create a greater and very nice value for our shareholders with the appreciation that we are going to see in the vessel values when we release the upper part. At that time, dividend is going to be reinstated.

Got it. We talked a lot this morning about the longer-term view of the market and where we think things are headed there. I was curious to get your insight into where you think the market, just in the dry bulk market in general is headed in the next, let's say, 3 to 6 months. What factors do you see that could affect rates in that short a time period?

We asked our President, Mr. Margaronis said, unfortunately the recent optimists in the market created a further problem which is going to prolong the agony and the problem of the market not picking up. So we are of the opinion that the market is not going to slow any time, soft recovery for the next 3 to 6 months and maybe we will see markets deteriorating further.

Unfortunately, for another time we were correct. We tried to explain to shareholders and everyone that the recent upside that we saw it was a seasonal issued that had nothing to do with the fundamentals. Unfortunately, the optimism, as I said earlier, that was created made people order more vessels not -- they didn't scrap any vessels. And, therefore, we are afraid that this is going to create a problem in the short-term to medium for our market.

Okay. One more just before I turn it over: I noticed G&A expense, not just this quarter, but has been turning more on a year-over-year basis. You guys gave the reasoning for that.

But I was curious looking ahead, is 2013 sort of a new run rate that we should use for 2014 and beyond? Or is there something going on this year that you don't expect to continue into the future?

No. We feel the run rate for G&A should be used for 2014, the 2013 one. You must note that we have said from the beginning that, as we grow, that the G&A are going to have some possibilities for economies of scale and this is what we are seeing there now. So we feel that more or less where it stands today will remain for 2014.

Fotis Giannakoulis, Morgan Stanley.

Yes. Good morning. Stacey, you gave us a very detailed analysis of the market. I would like to ask you if you could please clarify what is your view about the both asset values and rate recovery.

I understand that you sound a little bit cautious on the recovery given the number of private equities and the number of new buildings. Do you think that there is a risk for 2016 of a new downturn when these newbuilding deliveries arrive? And also, what is the reason that you are buying assets right now? Because it seems like the asset prices, they still have room to grow.

Let's start with the first set of questions. You know very well by now that we avoid making predictions, short, medium, or long-term, about asset prices and earnings, because if we were content that our predictions were clear and certain to come to pass, then we would be in another business probably or not in business at all, because of the fortunes we would [cover map].

But in most cases now, the numbers here speak for themselves. And we tried to present these numbers to allow our listeners to draw their own conclusions, and we also prevent plenty of analyst predictions.

So in simple form, and I know that you can handle much more complicated statistics than these, the portion of the Panamax ships in 2014 looks more promising than that of -- I beg your pardon. The Capesize vessels during 2013 look more promising than that of the Panamax or the Handymax for that matter. And there, the numbers are quite plain. We have very strong fleet growth.

And, given the growth and demand, which is very likely to come as forecast by several analysts and the IMF, the Panamaxes are going to be under pressure during the entire year. And the Capes will be under less pressure. The problem with the Capes, as we said, is the age profile of the fleet and the fact that we cannot hope that for every newbuilding there is going to be -- or every second newbuilding for that matter has a ship going for scrap, because we don't have so many scrap candidates.

So all in all, we could very easily see rather a neutral situation for Capes and pressure on the Panamaxes. Now, for 2015, things get very complex. And we cannot really make any predictions there due to this recent spate of newbuilding orders.

In 2015 we have a sharp slowdown of Panamax deliveries. So in theory, other things being equal, the earnings of these ships should be underpinned by this slowdown in the increase in supply.

On the Cape side, again, we have the trends of 2014 continuing. The problem is that, by the end of the year, we are going to start having the deliveries of the ships that have been ordered at the beginning of this year, or some of them at least, not most. So they will start coming in and nobody knows exactly what the effect will be, because we can't predict accurately what the rate of increase in demand is going to be. So in this scenario, in this environment, to make a prediction on asset values is really impossible, because we saw an increase in asset values as Mr. Palios mentioned earlier, which we had not predicted. It might be short-lived. It might not.

But when we were buying ships, we were not buying them on the basis that their prices were going to go up and, therefore, we were going to capitalize on it. Firstly, we are not in the market to sell these units. And, more importantly, we are building up a fleet and the only intention as regards sales are going to be to sell ships at the peak of the market, which are beginning to look rather old for the age profile of the Diana Shipping fleet.

So prices, as you see, are becoming secondary in the investment decision process here and we have mentioned this again and again. We don't know where asset values are going to go. They might go up; they might go down, depending on the supply/demand balance.

But we have to keep buying ships, renewing the fleet and chartering them the way we have explained in this staggered charter portfolio where we have ships coming up for renewal to take advantage of the short and medium-term trends of the freight market.

We are not afraid, as we have said in the past, to buy today a vessel 20% more than the next one, which is going to be after a month from today. We are not afraid to do that. From the moment we are convinced as we are of the lower part of the market, we average down and that's it.

No. Thank you for this detailed answer. But I understand it clearer that you are buying the ships to trade them rather than to sell them.

I just want to ask, given your forecast and your return expectations, what is the return that you are expecting that you will be making on your investments in shipping? There is clearly some at beginning of acquisitions during the last 12 months that was not there before. Do you see that this benchmark of this return can be met over there, given the rate expectations over the next couple of years?

The returns are going to be made for our shareholders with the increased value of our shares based on the performance of the stock, together with the increased values of the vessels that we have in our fleet.

Unfortunately, we are not in a position to tell you how much a shareholder can make by buying shares today and selling them when the market is going to pick up. But we strongly feel that the way our Company is structured and the vessels that we have in our fleet, value is going to be created from the revenue capacity, from the increased values of the vessels and the ability of the Company to take advantage of the market moving upward.

We have discussed many times that returns in shipping can be critical (inaudible) if you buy at the right time and you sell at the right time as well. Or if you keep your investment throughout the cycles, you're going to make something like 8% to 9%. This is our position.

And having run a company for the longest term, we are going to realize that the returns that I expressed, I said the latest. But shareholders can make much, much more money than this.

When we are buying a vessel, we can make any assumptions that we feel logical at that time. But this becomes irrelevant from the moment you are not going to be there too much to get [the absolute] return by selling your shares or the vessel at that time.

Thank you, Ioannis. That was very clear. One last question: I just want to follow up on the previous question about your dividend. In the past, before the 2008 financial crisis, you had a full payout strategy. But at the same time, you had zero leverage or zero debt.

If the market goes to levels that you consider that it is time to reinstate the dividend, how would you calculate this dividend? What would be the policy, given the fact that there will be some debt on your balance sheet right now?

The only thing we can say at the moment is that the [process is to state] that debt level is going to be decreasing when we are at the upper part of the crisis add dividend is going to be increasing on [a sale] basis. That is it.

Chris Combe, JPMorgan.

This is actually Nish Mani on for Chris. Thanks so much for the color. I just wanted to ask a few follow-up questions, particularly on the debt, just a follow up with both of those points.

But I don't think we have seen any announcement for incremental debt. I think we mentioned the latest two acquisitions and I just kind of wanted to get a sense of if you guys are in the market, that you can get high end on those two vessels.

We will get debt financed for every new acquisition of about 50% of the debt. We tried to group a bit the acquisitions, not to have one loan for every vessel. That saves a bit of legal fees et cetera. And we are going to announce soon some new deals on that yet.

Okay. Great. That's very helpful. And I just want to turn to your ice class vessels. And I know there is less transparency in the charter market for ice class vessels. And I wanted to get a sense of what kind of premium or rate upside you can expect for an ice class vessel relative to its standard counterpart or eco-counterpart.

Well, I think it depends when you are chartering the ice class vessel. Now, if you are talking investment at the beginning of the year, the ice class situation is there and you can get a better price. If it's later on, it is the same or even a little bit worse because you are dealing with a carrier vessel and it has a little bit more consumption.

But overall I would say, with the rule of time, nothing else, that it will be about 10% to 15% more than the usual vessel (multiple speakers).

Got it. And I mean obviously we are having vessels come online later this quarter and early next year, so you expect to get some upside in the wintertime, right?

Yes.

(Operator Instructions) Greg Lewis, Credit Suisse.

Stacey, you talked about the recent two-month [round drive] and you think it contributed partially, it sounds like, mainly to seasonality. I guess I would ask, if it is seasonal, that means it is going to be here every year. And when we think about that, the fact it was due to such a volatile move up in rate, is it possible that the market is tighter than you may be thinking it is?

Well, there is always the possibility of us making mistakes in our sort of conclusions by watching events. The thing is, that seasonality here was responsible, I would suspect, for a small part of what we saw in rates because we have to remember that the pictures of iron ore that the Chinese were making on a weekly basis, in the latter part of July through to September, were unprecedented. They were taking advantage of the low price of iron ore, or relatively low price of iron ore, or what they think was what they thought was a very good price with the commodity to build up their stocks, which have dropped to around 70 million tons and now they are in excess of 82 million and increasing.

We foresee these going up to nearly 90 million until -- by the time the iron ore that had been bought during the last three or 2-1/2 months arrives on their shores. So what we have here is a speculative purchase, we feel, of the commodity by people who can afford to speculate on commodity trading. And it was bought in quantities that affected the market, and what would have affected any market, whether it's the Cape or the Panamax or the Handymax market because of the ferocity with which it's appeared, because very few people or groups of traders in the history of shipping ever had the financial muscle to execute the purchases that the Chinese did during the period that I mentioned earlier, end of July through end of September.

And because they still have the financial muscle, they might do it again. It doesn't mean that the market -- the bulk carrier markets is more balanced or less balanced than it was in the past. It is an effect on the market for Capes and much less so Panamaxes, of a spike in the demand for shipping the commodity, not because the commodity was going to be used.

The commodity as we see is going to be stockpiled. It is going to form a part of -- let's call it the ammunition that the Chinese will have to use that commodity in the event that prices go up. So that is what we are witnessing.

And on top of that, of course we had the seasonality, which, I would say, is more important for the Panamax sector that the Handymaxes, than for the Cape in this respect. So we shouldn't (inaudible) of that (multiple speakers)

I mentioned before the seasonality because more -- rather than -- I was trying to say that it was something like that happened because of synchronized events that would happen at a particular season or period, and nothing to do with fundamentals as regards demand and supply. It was rather a synchronization of certain events that happened during a short period that created this. This is what I meant by saying a seasonal issue.

Okay. Great. And then, just one --

I think the right word is not synchronized, it is resonate. It has resonate -- so a few forces which were giving the result came in line and they grew substantially.

Okay. Perfect. Thank you Mr. Palios. And then, just real -- one quick one for me: I think a theory that has been kicked around. If we think about the last shipping peak cycle when we go back to 2007, 2008, it seemed like a lot of Chinese ship owners were buying vessels for their domestic cabotage trade. And my understanding is that a lot of those vessels now are very old at this point.

Is it possible, over the next couple years, a release valve for the overall drive off fleet is sort of a renewal of the Chinese cabotage trade? I mean, is that something you are thinking about? Is it something that you are -- is there any anecdotal evidence you are hearing on that? Or is that probably just some hope by other ship owners?

Greg, first of all, the vessels that you have mentioned that are included in the total number of existing vessels. That is one.

Secondly, this is what we are trying to explain to people, is the fact that from the moment there is such an optimism, what you are suggesting is going to happen or may happen is not going to happen if people believe that they are going to be earning money soon. This renewal of the fleet will never happen, or it will happen with a delay, if there is an optimism in the market. And this is what we are afraid is happening at the moment.

Secondly, we have a specific age profile in the fleet, including the Chinese vessels that you mentioned. Stacey said earlier, that this number has decreased. The other is average age of the existing fleet and this is on the detriment of the market that recovering sooner.

It is kind of a circular assumption for someone to make about the scrapping of (technical difficulty) vessel is going to create a better market. You also keep in mind that the vast majority of these ships are smaller than Panamaxes. So we are really talking now about the Handymax handysize, and we are at a certain advantage of course in Panamax ship sizes, and a slightly smaller also in Cape. So the brunt of the affect of this phenomenon if it happens as we described, is going to be felt in the smaller category of ships.

We have reached the end of our question and answer session. I will now turn the floor back to management for any concluding comments.

Thank you again for your interest in and support of Diana Shipping. We look forward to speaking with you in the months ahead. Thank you.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.