Diana Shipping Inc (DSX) 2013 Q4 法說會逐字稿

Greetings and welcome to the Diana Shipping fourth-quarter 2013 conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you, sir. You may begin.

Thank you, Melissa, and greetings to all. Thanks for joining us for the Diana Shipping Inc. 2013 fourth-quarter and year-end conference call.

The members of the Diana Shipping management team who are with us today include 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 under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections, 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 from 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 of Diana Shipping.

Thank you, Ed. Good morning and thank you for joining us.

In 2013, Diana Shipping continued to pursue the strategy designed to position the Company for future opportunities and an eventual upturn in the dry bulk shipping cycle. In particular, we significantly expanded and diversified our fleet during the year. Recently, we also strengthened our balance sheet with a preferred share offering, giving us further capital which supports long-term growth. And we continue our balanced and prudent approach to chartering, maintaining a relationship with well-established, high-quality charterers.

As a result of our fleet expansion activities, we ended 2013 with a fleet of 36 vessels, with five more under construction for delivery in the next two years. This compares with a fleet of 30 vessels and two under construction a year ago.

During 2013, we took delivery of two Capesize vessels, two Kamsarmax vessels, and one Panamax. At this time, vessels under construction include two newbuilding-size class Panamax vessels expected to be delivered to the Company during the first and the second quarters of 2014, as well as two newbuilding new Kamsarmax vessels and one Kamsarmax newbuilding expected to be delivered during the second quarter of 2016.

We continue to manage the fleet in a prudent manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed-revenue days are 66% for 2014 and 20% for 2015.

Earlier this month, we launched a public offering of 2.4 million shares of 8.875% Series D cumulative redeemable perpetual preferred stock in an underwritten public offering at $25 per share. The gross profits from the offering were $60 million, before the underwriting discount and further operating expenses payable by the Company.

Even before the preferred offering, our balance sheet was one of the strongest in our industry. The Company's cash position at December 31, 2013, was nearly $241 million.

We operate with a very manageable degree of leverage. Long-term debt, including current portion and net of deferred financial cost, was $451.6 million, compared to stockholders' equity of over $1.25 billion.

Now, let me review our financial results for the fourth-quarter and full-year 2013. Time charter revenues totaled $39.5 million for the fourth quarter of 2013 and $164 million for the full year. Net loss to Diana Shipping Inc. was $9.6 million for the fourth quarter of 2013 and $21.2 million for the full year.

In summary, Diana Shipping is continuing to pursue the strategy that has maintained our stability and 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, as to our [prior residence] at attractive prices. We will operate our fleet according to balanced and prudent chartering policies that promote a predictable revenue stream and enable us to sustain profitable operations. And we will continue to manage our balance sheet to provide financial flexibility, provide 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 of 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 welcome to the participants of yet another quarterly conference call for Diana Shipping Inc.

The last quarter of 2013 and subsequent development in the dry bulk market since the beginning of 2014 has certainly made headlines and are noteworthy in spite of their predictable seasonality. Fluctuations in earnings across the size ranges have been very sharp and sudden.

For example, the Baltic Dry Index started the fourth quarter of last year at 1,994, reached a high of 2,337 in December, and yesterday closed at 1,130. The Baltic [Cape] Panamax Index stood at 1,786 on October 1, reached a high of 2,096 during December, and closed yesterday at 1,308. The Baltic Cape Index moved from 3,816 to a high of 4,291 on 12 December 2013, only to close at 1,625 yesterday.

On 17 February, yesterday, the average spot time charter rate for Capes stood at $8,849 per day. For Panamaxes, the rate was $10,485 a day.

Let's turn to macroeconomics developed. The IMF revised its forecast for global growth in 2014 as growth in the United States and the United Kingdom accelerated. The global economy is projected to grow 3.7% in 2014, compared to an estimate of 3.6% given in October 2013. The US economy is expected to expand 2.8% this year. The UK economy is expected to grow by 2.4% this year, but there is a latest estimate, which sets the amount predicting growth at over 3% for 2014.

China is expected to grow by 7.5% in 2014. Chinese DBT this quarter grew by 7.7% year on year in the fourth quarter of 2013. This was marginally slower than the 7.8% year-on-year rate of growth registered in the third quarter of last year. In a time that domestic demand in some sectors is still very strong, sales of new homes in China grew by 21% year on year to $1.1 trillion last year, of course despite the government's efforts to cool down the hot property market.

The euro area is expected to grow by 1% this year and 1.4% in 2015, which indicates that finally recovery will materialize in the [back of] the eurozone. In January, economic activity in the euro area, according to Maersk Broker, expanded at the fastest pace in 30 months, as the manufacturing index increased to 53.9 from 52.7 in the prior month. The JPMorgan Global Manufacturing PMI, which measures global activity within the manufacturing sector, was 52.9 in January, slightly down from 53 in December. This means that activity is expanding, but at a slightly slower rate.

Certain analysts now believe that the main risks to growth will not come from instability in countries such as Argentina and Turkey, but from deep systemic problems, similar to what we are witnessing today in China. These analysts are particularly concerned by the size of the unofficial [lightning] sector in China, which appears to be responsible for just under $3 trillion in loans and debt obligations of various kinds and which accounted for 30% of all cash debt obligations at the end of 2013.

The problems that could develop from a breakdown in the [overall] operation of this informal banking sector are unthinkable. More so as the percentage of world GDP coming from developing nations is now nearly 40%, which is 18% higher than it was two decades ago.

A similar theme has been commented on in a recent article, which appeared in Time Magazine in mid-January. To summarize, the author of the article points out that China has been [suffering] economic imbalances for some years and, in his view, they are not sustainable for much longer and need to be addressed by the authorities pretty soon.

The basic problem, in his view, is that for almost a decade, China's economic growth has been fueled by cheap credit and government spending, a classic developing-nation problem. As a result of this, China's growth rate has averaged more than 9% per annum in the past few years. However, the price has been high. According to Morgan Stanley, China's social private and public debt is now 215% of GDP, an unprecedented level for any developing nation.

The argument runs that without serious changes that gradually shift large patches of the economy off cheap credit relatively soon, this is a bubble that is going to burst as it is part of a model that cannot keep performing forever. Particularly worrying is the fact that local government debt, which stood at a massive $1.7 trillion in 2010, moved to $3.3 trillion at the end of 2012. It is probably even higher than that today.

All the above factors dictate that it is an imperative that China's present leadership manage to transform the economic environment in which growth is, to a large degree, dependent on cheap credit to one in which growth is based on a more sustainable and realistic business model. If they succeed, then China will emerge stronger and more stable and definitely become the largest economy in the world. If they fail, then at best China will face a slump, one that will look a lot like those of other high-flying developing nations, such as South Korea and Taiwan, portended a period of rapid growth and settled into a more normal growth path.

In many of those cases, though, slow growth coincided with large-spread protests and the opening up of the political system. The consequences of such dramatic social, political, and economic changes in China will be profound across all industries.

As for shipping, the effects on growth in the transportation of bulk commodities could be quite serious, and most growth models predicting a favorable supply/demand balance will look unrealistic for a number of years. This will lead to a trade rate slump until supply adjusts to the new demand growth figures. The worst-case scenario for failure to address these imbalances is something that nobody wishes to seriously contemplate as, in fact, world economic growth and the financial system as a whole will be devastated.

Now turning to more positive matters, you can look at steel. According to Howe Robinson, world steel production reached 1.6 billion tons in 2013, up by 3.5% compared to 2012. Growth came mainly from Asia and the Middle East, while crude steel production in all other regions decreased slightly compared to 2012.

Annual production in Asia increased by 6%, while Chinese production reached 779 million tons, up 7.5% from 2012. China's share of world production increased from 46.7% to 48.5%.

The European Union recorded a decrease of 1.8% compared to 2012.

Stockpiles of flat and construction steel product in China have, according to Commodore Research, increased for seven consecutive weeks and stand at 16.4 million tons. They are moderately above last year's level.

Higher more now, according to Clarksons, world seaborne [ink] will survive a more increase by 7% in 2013 from the year before and are forecast to increase by a further 7% to 1.27 billion metric tons this year. China's imports are predicted to increase by 9% to 895 million metric tons this year. Brazilian exports are projected to expand by 3% this year to 336.6 million metric tons, after registering a 1% increase in 2013.

As for Australian exports, these are projected to increase by 11% this year and reach 643.8 million metric tons. We would have preferred to predict a percentage increase, it would be the other way around as regards the effects on ton-mile demand, but here we are.

Chinese iron ore core stockpiles have been rising for 18 consecutive weeks, and earlier this month have reached 96.9 million tons. Commodore Research points out that at this time last year, iron ore stockpiles stood at only 67.5 million tons.

According to Commodore Research, in the long term most new iron ore coming to the import market from new mine development will place pressure on iron ore prices and simply cause China to consume a greater proportion of imported iron ore, rather than domestically-produced iron ore. If newbuilding orders do not flood the market with vessels, this will certainly be a positive factor for Capesize earnings going forward.

Coking coal now, Clarksons predicts that in 2014, world seaborne imports of coking coal will increase by 5% compared to last year and reach 280 million metric tons. In 2013, China overtook Japan to become the largest importer in the world of coking coal by importing 59.3 million metric tons of this commodity. In 2014, their imports are estimated by Clarksons to increase by a third, or 12%, and reach 56.3 million metric tons. This quantity compares with a mere 3.7 million metric tons China imported in 2007.

As for thermal coal, Clarksons are forecasting an increase of 4% in the quantity of steam coal that will be imported on a worldwide basis in 2014. From this total, China is predicted to import 167.4 million metric tons, which, if they do, would be 5% more than they imported in 2013.

As a general comment, it is worthwhile noting that the low-quality Indonesian coal has a negative impact on pollution levels. When pollution limits are enforced, then China may become increasingly reliant on Australian thermal coal in coming years, which would be good news for large bulkers. However, some concern is caused by the reported coal stockpile in Qinhuangdao, China's largest coal port, which has now risen to an 11-month high and stands at 8.2 million tons, very close to the fourth maximum storage capacity of just over 9 million tons.

Furthermore, coal stockpiles at power plants stood at approximately 82.5 million tons at the end of last month. Commodore Research reports that Chinese demand for imported thermal coal cargoes has recently come under pressure, due to the high stockpiles mentioned above.

Turning to grain products now. It is estimated by Clarksons that world imports of grain products will increase by 6% during the 2013-2014 season, compared to the previous season, during which they probably shrunk by 3%.

According to the United States Department of Agriculture, maybe as many as 341.7 million tons of grain will be exported worldwide during the 2013-2014 grain season.

Howe Robinson predicts that global wheat production in 2013-2014 will come in at a record level, with Canada expected to produce and export record volumes of this crop. If this materializes, it should be good news for Panamax and Supramax vessels. Chinese imports are expected to grow by 111% to 19.2 million metric tons.

Let's turn to supply now and developments to the fleet. According to Clarksons, at the beginning of this month the overall dry bulk carrier order book stood at 149.7 million tons deadweight, which is 21% of the existing fleet. The most overbuilt sector are the Handymaxes with 24% of the existing fleet on order.

Howe Robinson estimates that the bulk carrier fleet grew by 6% in 2013. About [813] vessels were delivered, totaling 62.3 million tons, and 437 ships of 22.8 million tons deadweight were scrapped. This year, they predict that both delivery and scrapping rates will slow down.

Analysts for the Korean shipping messenger agree at least with the scrapping predictions and warn that unless demolition activity picks up significantly from the low levels seen thus far this year, whole estimates for a healthier market going forward could be at risk, in spite of the slowing down of newbuilding deliveries.

Clarksons are estimating that the Panamax fleet may grow by 9% this year and reach 195.7 million deadweight tons. On February 1, the newbuilding order book for these ships stood at 35.4 million metric tons, which represents 18.9% of the existing fleet.

As for Capes, the Clarksons prediction is that by the end of 2014, the fleet will have grown by 5% and reached 304.5 million deadweight tons, while the order book as of February 1 stood at 64.5 million tons deadweight, representing 21.8% of the world fleet.

And [sera poster] point out that last year, the late rally made owners overoptimistic, and about 900 bulkers were ordered, three times as many as in 2012. From this total, 150 were Capesizes and over 370 were Supramaxes. The risk, therefore, is that of slippage. According to Maersk Broker, slippage in newbuilding deliveries during 2013 was just under 30%. Most analysts expect that slippage might be similar this year.

As for vessel prices, the three-month trend of prices of modern Capes is up around 10% and for Panamaxes, about 8%. Clarksons predicts if their supply/demand forecast materialized in accordance with their high case scenario, asset values could appreciate up to 50% by the end of 2015 from where they are today. We find that prediction pointless in view of the large number of unpredictable factors that affect asset prices, particularly psychology, future expectations, and shipyard newbuilding capacity.

As for the age profile, according to [panjera] cost direct, some 8% of the existing Capesize fleet have been built before 1994. In the Panamax sector, about 11% of the grading fleet is over 20 years old. This is not particularly encouraging, as it drives the potential candidate for scrapping going forward.

Talking about scrapping, during 2013 about 22.2 million deadweight tons were scrapped, from which 8.2 million deadweight tons were Capes and [some] 4.5 million deadweight tons were Panamaxes. So far this year, Clarksons reports a significant drop in scrapping across the size ranges. We hope that this trend will not continue for the rest of the year.

Conception now. Since our last report, there have been no significant changes in conception at the main coal and iron ore loading ports around the world. The only noteworthy exception is the sudden jump, according to Howe Robinson, in conjunction with Brazilian rainfall. They calculated at the end of last month there were around 114 vessels waiting to load only soybean. Howe Robinson attributed these delays partly to annual maintenance and dredging, coinciding with new crops starting to arrive at the loading ports, putting plenty of pressure on port infrastructure.

Howe Robinson adds that at this time last year, there were hardly any holdups for delivery in key ports.

Finally, we turn to the outlook in the shipping market on a sector-by-sector basis. According to [distant and] Shipping Energy, this year has the potential to be a better year for Capes than 2013, even if China continues to grow at a slightly slower pace. Nevertheless, they predict that the Capesize trade market will continue to show considerable volatility because Western chartering will depend not only on the price of iron ore and the levels of stockpiles, but also, and maybe more importantly, on the availability of credit to Chinese at feed mills and for the importation of this commodity.

In the Capesize sector, 67 vessels are scheduled for delivery this year, as well as 66 ships in the 200,000 deadweight ton plus size range. Even though some of these ships will not be delivered in time, the low average age of the Capesize fleet raises concerns about the number of suitable scrap candidates over the next two years or so. [This can] conclude that even though Capesize full-time charter rates will be better this year compared to 2013, it is unlikely that they will top the $20,000 per day mark.

However, they also point out much higher rates per day cannot be ruled out during the other short-lived cycles in the price market.

In Panamaxes, [houstons] are much less upbeat. There is about 250 vessels scheduled for delivery this year. They conclude that unless there is significant increase in world seaborne trade, these newbuildings will probably struggle and any long-term improvement in Panamax trade rates is unlikely.

Commodore Research agreed with this forecast, and add that in the near term, Chinese demand for imported thermal coal will come under pressure and that this will in turn put further pressure on the dry bulk market in general and the Panamax market in particular. In the medium term and long term, we will remain cautious, due to the fact that the Panamax fleet growth is set to remain the largest out of all four dry bulk carriers as of this year, and it might take a while for these ships to be absorbed by the market.

Finally, we can close by restating that the quality of Diana Shipping Inc. has not changed, and the steady acquisition of ships will continue, on the basis that we cannot and will not even try to predict the point in time when the market will turn in a sustainable manner and ship values will move up steadily with earnings.

As demonstrated by our recent corporate activity in the equity capital markets, we will continue to take the necessary steps to protect the strength and integrity of our balance sheet to put the Company in the best position to be able to finance future acquisitions until the market turns and dry bulk shipping starts moving towards its next peak.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the fourth quarter of 2013 and the whole of our last financial year. Thanks.

Thank you, Stacey, and good morning. I am pleased to be discussing today with you Diana's operational results for the fourth quarter and year ended December 31, 2013.

For the fourth quarter of 2013, net loss amounted to $9.6 million and the loss per share was $0.12. Time charter revenues decreased to $39.5 million, compared to $49.4 million in 2012. The decrease was attributable to decreased average time charter rates that we achieved for our vessels during the quarter, compared with the same quarter of 2012, and the accelerated amortization of pre-pay charter revenue amounting to $3 million, due to the earlier redelivery of motor vessel Houston.

This decrease was partly offset by revenues derived from the vessel Polymnia, delivered in November 2012; Myrto, delivered in January 2013; Maia, delivered in February 2013; Baltimore, delivered in June 2013; Artemis, delivered in August 2013; Myrsini, delivered in October 2013; and P.S. Palios, delivered in December 2013.

Ownership days were 3,241 for the fourth quarter of 2013, compared to 2,710 for the same period of 2012. Fleet utilization was 99.5%, compared with 96.3% in the same quarter of 2012, and the daily time charter equivalent rate was $11,694, compared to $17,681 in the same quarter of 2012.

Voyage expenses were $1.8 million for the quarter. Vessel operating expenses amounted to $19.9 million, compared to $19.3 million in the fourth quarter of 2012, and increased by 3%. This increase was attributable to the 20% increase in ownership days resulting from the enlargement of the fleet. The increase was also due to increased crew costs and insurances and was offset by decreases in all other operating expense categories.

Daily operating expenses were $6,155 for the fourth quarter of 2013, compared to $7,128 in the same quarter of 2012, representing a decrease of 14%.

Depreciation and amortization of deferred charges amounted to $16.9 million. General and administrative expenses increased to $7.4 million, compared to $6 million for the same quarter of 2012. The increase was mainly attributable to increased salaries and bonuses, legal fees, and employees' retirement obligation.

Interest and finance costs were $2 million for the quarter, compared to $2.1 million for the same quarter in 2012. This decrease was attributable to decreased average debt in the fourth quarter of 2013, compared to the same quarter of last year, offset by increased average interest rate from 1.68% during the last year's quarter to 1.79% in this year's quarter.

Interest and other income amounted to $0.9 million, compared to $0.2 million in the same quarter of 2012. The increase was due to the interest and finance fees deriving from our loan agreement with Diana Containerships Inc.

Loss from investments in Diana Containerships Inc. amounted to $2.1 million, representing our share of the Company's results during the quarter deriving from our 9.5% ownership of its share capital as at December 31, 2013. This compares to a gain of $45,000 in the same quarter of 2012, representing our ownership of 10.4% of the Company's share capital gain.

For the year ended December 31, 2013, now, net loss for Diana Shipping Inc. amounted to $21.2 million and a loss per share of $0.26. This includes a $6.1 million loss, or $0.07 loss per share, from Diana Containerships Inc.

Time charter revenues decreased to $164 million from $220.8 million for 2012. The decrease was attributable to decreased average hire rates during 2013, compared to 2012, and the $5.3 million amortization of pre-pay charter revenue, compared to $3 million last year, and was partly offset by revenue derived from the enlargement of the fleet in 2013.

Ownership days were 12,049, compared to 10,119 for 2012. Fleet utilization was 99.3%, compared to 98.7% for 2012, and the daily time charter equivalent rate was $12,959, compared to $21,255 for 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 $8.1 million for 2013. Vessel operating expenses amounted to $77.2 million, compared to $66.3 million for 2012, and increased by 16%. The increase was attributable to the 19% increase in ownership days resulting from the enlargement of the fleet.

The increase was also due to increased crew costs, insurance, taxes, and other operating expenses, and was partly offset by decreased stores, spares, repairs, and maintenance costs. Daily operating expenses were $6,408 for 2013, compared to $6,551 for 2012, representing a 2% decrease.

Depreciation and amortization of deferred charges amounted to $64.7 million for 2013. General and administrative expenses amounted to $23.7 million, compared to $24.9 million in 2012. The decrease was mainly attributable to decreased expenses for bonuses, compensation costs, unrestricted stock awards, and Company promotion.

Interest and finance costs increased to $8.1 million, compared to $7.6 million in 2012. The increase was attributable to increased average interest rates and increased average debt during 2013, compared to 2012. Interest and other income amounted to $1.8 million, compared to $1.4 million in 2012, and the increase was due to the interest and finance fees deriving from our loan agreement with Diana Containerships Inc., offset by decreased interest income due to the reduction of our average cash [back].

Loss from investments in Diana Containerships Inc. amounted to $6.1 million, and this compared to a loss of $1.8 million in 2012.

(technical difficulty) attention, we would be pleased now to respond to your questions, and I would turn the call to the operator to instruct you as to the procedures for asking questions. Operator.

(Operator Instructions). Gregory Lewis, Credit Suisse.

So clearly, Diana's balance sheet is right where you guys want it to be. You have plenty of cash. The preferred -- you have the preferred in your back pocket.

When we think about Diana building on its fleet and taking advantage of where we are in the cycle over the next -- I don't know -- I guess what I would wonder is, could you quantify over how many years do you think you will have opportunities to be buying assets at these levels? And just -- we heard some conversations about limited shipyard availability. Could you talk about placing an order today, a newbuild order at a quality yard, when that delivery would come through, and then, also, what types of opportunities you're seeing in the secondhand market for tonnage?

If you are placing a new order today, most likely the delivery will take place at the end of 2016.

But don't forget that meanwhile, maybe there will be some opportunities for resales, so the resales will be much earlier than that. So it depends entirely to how the freight market is going to develop. So we think that maybe there will be opportunities as we're going along to pick up six from now until the end of 2015, which could have given earlier deliveries, and still be newbuilding from the others.

So you have two avenues to grow. One is in newbuilding, but also the resale.

Okay, and then, just what about the availability of existing vessels on the water that are secondhand? Is that something -- clearly, you have shown the ability to do that in the past. Is that market just being overbid where there is just too much demand and not enough supply, and that's making (multiple speakers)

I [will try]. [It is] some ways variability. Maybe the prices will be 5% or 10% more, as Stacey said, but the availability will be there, provided you are willing to pay the extra cost.

And I think that now that the China -- what is called the Chinese New Year is finished, I think that ships will become maybe a prior (inaudible), but they will build [avail], yes. And we are looking. Every day, we are on the lookout to buy something.

Okay, great. And then, just -- Stacey, thank you for the detail in your outlook. Could you touch on what is going on in Colombia with the German coal facility and what your outlook is for that, and maybe anything that you have been hearing about what that potential is when that comes back online, and how maybe the market is trying to position itself for that?

I haven't received any news for the last three or four weeks about that, so what I will say is dated. What we have heard is that they are trying to bring this back online, and potentially it will be positive because of the geographic position of that port, but unfortunately, I don't have the latest information on that to give you. Sorry.

That's quite all right. And then, just one final one from me, guys. When I think about operating expenses on a daily vessel basis, clearly you are doing a good job lowering costs. It seemed like on a daily vessel OpEx basis, that came down nicely. Is that a run rate that we think the fleet can go -- can continue at? I don't think it's been this low in a couple of years. Is that a fair number, or were there certain events in this quarter that maybe kept daily vessel OpEx a little bit lower?

Yes, I think -- yes, I think if you take the yearly number of $6,408 per day per vessel, it is a better figure than the quarterly number of $6,155. So if you take between $6,400 and $6,500 going forward as a run rate, you will be more in line with what we believe is going to happen in 2014.

Okay, perfect, guys. Thank you very much for the time.

Michael Webber, Wells Fargo.

For the first time in a long time, I have got some capital markets-related questions for you guys around the pref. And I'm just curious. Maybe you can walk us through your thought process around the idea behind raising new money, especially when you've got $840 million sitting on your balance sheet earning 1% or something like that, to come out and raise 9% paper?

Can you just walk us through the thought process there, how quickly you think you can put it to work? Whether there is -- it doesn't seem like there's anything in the pipeline that would require an immediate need of that capital, so maybe just walk us through that thought process.

Hi, Mike, this is Ioannis. The same way you have seen us the last year and a half buying assets with equity together with new debt, you should consider this preferred, for that debt was as being similar to debt, and we always said that we want to add some leverage to our investments, so basically what we have done with the preferred is we have increased our dry powder on the one side, and at the same time, we still have the leverage that we want to have on our investments.

As regards the timing, you know very well that the timing of such issuances does not depend -- it is not a matter of the Company choosing when to do it, but also the availability of such instruments in the market. So basically, we took -- we were already waiting for that to happen, and from the moment we saw an open window as regards the ability of companies like ours to issue preferred equity through perpetual preferred equity, we were there and we did it very quickly.

Right, I guess this is where I am coming from is that if you were to finance an asset, the availability of bank debt would more or less be there on demand, or it seems like it would be for someone (technical difficulty) balance sheet. So if you don't put that capital to work for a while, that's a pretty high carry cost if (technical difficulty) the window that's open.

You have to compare apples with apples here, Mike, and you know very well that bank debt is not the same as the preferred equity. You have different covenants. You have covenants, you have mortgages, you have amortization of debt. You have the loss. You have something which is not perpetual. You don't have an option, as the Company does, to redeemed it after year five or not.

So basically comparing the two, the 9% with the 3% or 2.5% of the bank loans is not the same. We have -- we want to remind everyone what has happened at the upper part of the slide. Again, we have been criticized for accepting equity which was at that time rather -- it seemed to be to most of the people rather expensive at 11% or 12%, and we were asked why don't you take debt at 1% cost or even less. And we were saying at that time that the difference between the two is justified, and clearly you are going to see that the other part of the cycle.

So basically, we are having a similar situation here where people -- they only see the 8 point something percent and they try to compare it with bank debt, which is not the same.

No, I think that's fair. I think the key difference is you didn't have $250 million of cash on your balance sheet the last go-round, but we can go through it later, and there certainly seem like there are merits to at least tapping into that market, I guess, to a degree.

When you think about the relationship -- and I know, again, these are not apples to apples, but does the fact that you now have a yield-oriented security within your capital structure, does that change any way, shape, or form your thought process around potentially reinstituting a common dividend down the line?

No. As we have said, paying dividend or decreasing our equity basically is going to happen when we are at the part of the cycle where we consider that the use of proceeds is not proper to be -- the use is not proper to be on buying more and more assets, but doing something else. And therefore, we did not consider introducing a common stock if we don't end up at this part of the cycle.

Right. No, that's what I figured. I just wanted to make sure. All right, great, that's all I've got. Thanks for the time, guys.

Fotis Giannakoulis, Morgan Stanley.

I also want to ask about your acquisition strategy. I think that Stacey mentioned earlier that you will continue with the same pace, acquiring assets. Just want to clarify, is therefore that you will see -- that you see right now that the prices might not be attractive? We've seen over the last few months secondhand assets prices, they have gone up around 15%. Would that be -- at what point do you think that prices are expensive and you are not going to invest further?

We will consider whether the prices are expensive or not, but this will not be got by -- only by itself. We have to consider where we stand on the cycle as regards to time charter rates, boat rates, market psychology, and certainly fundamentals like supply and demand. The fact that there has been an increase on the price, which is based on an anticipation that we don't know whether it's going to materialize or not, is not going to make us believe that we have suddenly ended up at the upper part of the cycle.

So, we have to have concrete evidence that we have moved to the upper part of the cycle before we stop buying assets. Of course, buying at the steady pace that we have set, there will be a point where we will have no more money to spend without having less [on my] side, but this is our strategy, and we have to believe that within the next year and a half or two years that we will be buying assets that will be sufficient for the Company to be invested at the right time in the cycle before it starts being [less see].

Thank you, Ioannis. Would you mind sharing with us some of the signs that you might see in the future that will make you feel more confident that we are at the upper part of the cycle, and I am asking both in respect to additional acquisitions, but also in respect to the dividend that you mentioned earlier?

The signs include stuff like sustainable increasing demand and sustainable less increasing supply. We do not base our thesis on incremental changes, but we want to see big changes in fundamentals, like a lot of scrapping, no ordering of new vessels. We have to see clearly demand being stronger than the existing supply of vessels and a good macroeconomic situation.

At the same time, we have to make sure that the yards do not have available slots and capacity to change that very quickly by overproducing vessels. And there are a lot of other secrets parts that, based on experience, will make us think that we have ended up at the upper part of the cycle.

Of course, we do not claim that we can predict when this is going to happen, but we have proven in the past that we know very well where we stand at the cycle at any moment. And that's the most important thing.

Thank you, Ioanni. I think over the last year, you have bought around 10 to 12 vessels. Is this pace of acquisition going to stay stable going forward for 2014?

And also, if I remember well, about a year ago you were buying assets because they were extremely underpriced compared to historical, but these assets were not generating sufficient returns. Do you feel that right now any further acquisitions, they generate returns? And I am asking also in relation to this new preferred issuance that they have nearly 9% cost. Do you think at the current rate they can pay down this additional cost, and do you foresee that you might need additional preferred equity in order to fund your future growth?

First of all, the pace should not change. 10 to 15 vessels is something that we would certainly like to achieve during 2014, but you know that logistics always are not easy for that to happen, but we will have to target the same pace.

Now, you said -- at the beginning, you said that we were buying assets that because we consider them to be very lowly price, which may be correct, but that was not the reason why we were buying the assets. It was because we were at that part of the cycle, and we still are at the low part of the cycle and that's why we will continue buying.

Now, as regards to this 8 point -- 8 and 7/8 cost, we are discussing the part that the shipping industry [set] that makes the opportunity -- gives the opportunity to a good ship-owner and a shareholder of a good company to make much, much higher returns than this 9%, almost 9% cost that you referred to.

So, certainly, we do not have something in mind imminently as a purchase, but this goes together with our total portfolio of existing vessels and the new ones that are going to come into the Company, and the 8-7/8 cost is a cost of an instrument that in shipping if you do it the right way, it gives you the leverage that you want in order to produce very good returns for your shareholders.

Thank you, Ioanni. One last question, regarding your operations. You have expanded considerably the last year and it seems that there is more to grow. How ready are your operations in order to accept additional vessels and what would be the maximum amount of vessels that you can accommodate, based on the current setup? And if you are going to need additional people, how would that affect your G&A expenses?

As you can see, we have -- Fotis, this is Andreas -- we have increased -- we have actually increased our operations to be able to accommodate more vessels, and we have also increased our infrastructure in terms of the software we use and various tools that we use in the office. So we feel very comfortable that, with the current setup, we can manage a fleet that is expanding as it is.

Having said that, we also increased the headcount, as we have already said, according to -- with the plan we had according to the vessels we acquired.

In terms of real numbers, you have seen also that our G&A and our specialty per vessel G&A are constantly going down. We feel those will stabilize as we go along and as we increase the headcount to be able to service all our vessels. So, we feel very comfortable that for the next two years and with our expansion plan, we can accommodate the vessels with a steady G&A per vessel.

Thank you very much, Andreas.

Justin Yagerman, Deutsche Bank.

A few questions here. One, in general so far in 2014, market lows are higher than what we saw in 2013. Obviously, we are still early on in the year. You guys have said in the past that you were, I think, somewhat confident that we would test OpEx again from the standpoint of where rates are going to go and that you'd have a shot at potentially lower asset values. How are you guys thinking about that now? Do you still think that you could potentially buy ships lower than where we are today, or do you think that the market has turned to a point where you are probably buying ships from here at or above where current vessels are being quoted?

We may feel that opportunities like this may arise and we may see vessels at even lower prices in 2014. However, start talking about potential problems in demand or start making assumptions about how many vessels are going to get delivered finally or not is something that is going to end up as a circular discussion, something that we don't want to have.

But the bottom line of what we have said is that we do not share the same view with most of the others. We are not so enthusiastic about the prospects of 2014, and therefore, we should not exclude the probability of buying vessels cheaper than the prices of today. But of course, if you see -- for example, there is a very big discrepancy today with the spot rate, compared to the year time charter or two-year time charter. The spot rates are at the bottom. There, we are talking about $8,000 per day for a Cape, and you can still charter a vessel for a year at $22,000 or $23,000 per day or even for two years, something like this.

So basically, that also uses the psychology, so that everyone thinks that -- things in 2014 are going to be better. But if you look back, we have seen that things do not go the way everyone wants to go, and there is plenty of wishful thinking in that way of thinking. So we should not exclude the probability of asset prices being lower than what you see today at the middle of 2014.

Fair enough. Along the lines of the question Fotis just asked, Andreas, this $7.5 million G&A in the fourth quarter, with a Company that is now managing more ships and you have newbuilds that you are dealing with and you also have comp involved, how should we think about a good run rate for G&A going forward as we look at 2014?

I think if you go forward into 2014, you should take -- and this is the same answer I'm going to give out for operating expenses here -- you should take the full-year G&A, and that is $23.7 million as a full year, and if you put around $25 million max for the year 2014, you will be in the good ballpark.

The fluctuations you see within the quarters are normal fluctuations for us and depend on various events that happen from annual meetings to what have you that happened during the quarters and that showed us those fluctuations. The year-end number is more appropriate.

Okay. And finally, just an update. I'm assuming that the issues in the quarter with the Houston were some of what caused some of the revenue shortfall. Maybe an update on where you are in that process. Do you have litigation against the charterer? Do you have any expectation of how things are going to go from that case, [outside] with Shagang, on recovering any of that lost charter hire?

Yes, Justin, we are going through the process, which has been preagreed on the charter parties for resolving disputes, which involve mediation, arbitration, and we are confident that at the end of this process, which should not last too long, we will be in a position to recover the tons that are due to the Company as a result of the earlier delivery of the ship to her owners. So all this is happening in Hong Kong now.

Okay, great. I appreciate the time, guys. Thanks so much.

Chris Combe, JPMorgan.

This is Nish Mani on for Chris. Just wanted to follow up on one quick question regarding your preferences, the Capesize segment versus Panamax. You noted earlier that both you and [calling some shares] might be more bullish optimistic outlook for Capes versus Panamax. I wanted to get some more color on that and see if your acquisition strategy in the future would be geared to more Capesize. Thanks.

As we have said that we -- most of the analysts, the shipping analysts, they expect the Capesize to be in a better position than the Panamaxes, but if you read between the lines, you would see that this is something that may happen for the short term.

And we know very well, being in the industry for many years, that in the medium to long term, oversized vessels are following the trend. So basically, we should not show a preference to Capes or Panamaxes or bigger vessels or Kamsarmaxes.

And don't forget, also, that whatever you are buying, market prevails as regards to the price that you are paying. And there is a reason why Panamaxes seem to be cheaper today than Capes, and this is why someone may consider to buy a Panamax compared to Cape -- to a Capesize vessel.

So the answer is no. We will not show a preference as regards a type of vessel. But of course, we stay put in our strategy to buy everything above -- anything above Panamax, including the Panamaxes.

Have you guys noticed a noticeable volume or a higher volume among one class versus the other in the secondary market? Are more sellers interested in getting rid of Panamax tonnage versus Capesize, or do you guys see it as being generally in line and the same?

There is no particular difference here. By definition, the numbers of ships that exist are greater in the sub-Cape sectors, and the Panamaxes, Kamsarmaxes, and Post-Panamaxes combined, of course, are lots more in number than Capes. But at this point in time, there is generally a lack of sale candidates, at least of the second [fill] specifications and qualities that we are looking for.

So, no, we are not seeing any difference, but we are seeing very few sale candidates, so the sample is so small that you can't draw any conclusions.

That would have been the case if there was a fixed price. Now that the price, as we said earlier, changes in the assets that are available for sale for Cape, you do not see more or less being offered because this has been taken care of by the price decrease or increase of each of the time. If you had a fixed price, yes, you could have noticed something like this.

That makes sense. And then, finally, just turning to the balance sheet, just a quick question on leverage and targeted leverage going forward. As we -- as you guys noted, we are towards -- closer to the bottom of the cycle than we are towards at least the mid or top, so do you guys see this as a time to lever up on incremental transactions, or are you going to continue to maintain just a 50% to 60% incremental leverage for each additional vessel?

We will continue to maintain around the 50% leverage that we have had as a strategy. Steadily as we acquire vessels, we will increase our leverage as well -- at this part of the cycle.

Okay, that's very clear. Thank you so much for your time, guys. I appreciate it.

Rune Sand, Nordea Markets.

Rune Sand, Nordea Markets here. Most of my questions have already been answered, actually. I am only left with one question, perhaps, if you could give some more color on why the TCE rates declined by as much as 10% in the quarter, despite you adding 5% operating days during the quarter. Is it just as simple as the lower rates on the new charter contract or were there any other changes in the quarter that we need to take into consideration?

You see, it all depends on how many vessels we had available for rechartering during that quarter. As you know very well, we're trying to have an equal distribution of the vessels as they are opening in every quarter in order to be very close to the average.

However, sometimes it happens that we are not there. For example, the previous quarter, we didn't have Capes to recharter and it was the Capesize market that moved up, and basically the distribution of the Capes that they were coming for new charters was not evenly spread through the period, and this is what happens.

But constantly, this is a very flexible way of doing it, and we are looking into this constantly and we are trying our best to be diversified as regards to types of vessels that they are opening within the cycle and within the quarter. In this quarter, we didn't manage very well there, not having Capes for recharter.

Yes, okay, thank you. That makes good sense. That was actually it for me. Thank you.

There are no further questions at this time. I would like to turn the floor back over to management for closing 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. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.