Navios Maritime Partners LP (NMM) 2012 Q1 法說會逐字稿

Thank you for joining us for this morning's first-quarter 2012 earnings conference call for Navios Maritime Partners.

With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; EVP of Business Development, Mr. George Achniotis; and Chief Financial Officer, Mr. Efstratios Desypris. The conference call is also being webcast. To access the webcast, please go to the Investor section of the Navios Partners' website at www.navios-mlp.com, and you'll see the webcasting link.

I'd now like to read the Safe Harbor statement. This conference call can contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management, and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements.

Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. Thank you.

At this time, I'd like to review the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will provide an overview of Navios Partners' first-quarter 2012 financial results. Then Mr. Achniotis will give an operational update and an overview of market fundamentals. Finally, Ms. Frangou will then offer concluding remarks and we'll open the call to take your questions.

I'd now like to turn the call over to Angeliki Frangou, Chairman and CEO of Navios Maritime Partners. Angeliki?

Thank you, Laurie, and good morning to all of you joining us on today's call. I'm pleased with the results for the first quarter of 2012. For the quarter, the ratings share class increased by about 12% and net income by about 2%. We recently declared a distribution of $0.44 per unit for the quarter, representing an annual distribution of $1.76 and a total yield of 11.2%.

As you can see from slide 2, Navios Holdings, our sponsor, owns about 27% of the equity of Navios Partners. Navios Partners has a fleet of 18 vessels and market capitalization of about $840 million and an [annual] price evaluation of about $1 billion. Our consistent performance has enabled us to continue access in the capital markets, and who have thus enjoyed their ability to grow our fleet and for stability.

Overall, the market has been difficult the past few years. We have been able to increase distributions, having increased them by approximately 5% since January 2010. We believe we will be able to continue increasing distribution in the future, as Navios has a number of ways for growing its fleet.

In the past, we have exercised purchase options on existing vessels, such as when we acquired the Navios Fantastiks in 2008 and Navios Sagittarius in 2010. Today, we hold purchase options on Navios Prosperity and Navios Aldebaran. In addition, since we went public, we acquired 10 vessels from our sponsor, Navios Holdings, and there continue to be appropriate vessels at these portions available for dropdown. We have always needed to be monitoring the market as we review opportunities in the dry bulk and ascension purchase market.

While rates have fallen significantly over the past number of years, asset values only recently have begun to internalize. What in this market action gives us reason to believe that there may be opportunities for Navios Partners in the current sales and purchase market.

At this point, I would like to turn the call to Mr. Efstratios Desypris, Navios Partners' CFO, who will take us over the results of the first quarter. Efstratios?

Thank you, Angeliki, and good morning, all. I will briefly review our noted financial results for the first quarter ended March 31, 2012. The financial information was included in the press release, and is summarized in the slide presentation on the Company's website.

In the first quarter of 2012, the improvement of our operating metrics continues. Our strong cash flow enabled us to maintain healthy distributions, and we declared a dividend of $0.44 per common unit.

As shown in slide 4, revenue increased by 12.1% to $48 million, mainly due to the 169 more available days for the first quarter of 2012, compared to the same quarter of 2011. EBITDA increased by $4.4 million, or 13.6%, to $36.8 million for the first quarter of 2012 as compared to $32.4 million for the same quarter of 2011.

Net income increased by $0.3 million to $16.9 million. The increase in net income is mostly attributable to the increase in the number of vessels and available days, and was adversely affected by a $3.2 million increase in depreciation and amortization expense, of which $2.3 million relates to the amortization of favorable leases attached to the acquired vessels. This favorable lease component is amortized over the remaining duration of the chartered-out contract, as opposed to the longer remaining useful life of the vessel.

Operating surplus for the quarter ended March 31, 2012 was $29.6 million, 11.7% higher than the corresponding quarter in 2011. Our fleet has performed well in the quarter. Vessel utilization was 99.9%.

Turning to slide 5, I will briefly discuss some key balance sheet data for March 31, 2012. Cash and cash equivalents, including restricted cash, was $34.5 million. Total assets amounted to $868 million. Long-term debt, including current portion, decreased by $35 million, reflecting the debt repayments made during the quarter. Of this $35 million, $27.1 million is being paid in respect of the quarterly installments due for the remaining of 2012. $15.4 million was already included in the restricted cash.

Accordingly, the capital repayments for the remaining of 2012 will be only $1.9 million. Through this payment, we have reduced the future cash flow needs for 2012, minimizing vessel value volatility on loan to value covenant, and saving approximately $400,000 on annual interest expense. Net debt to asset value, on an adjusted basis, remained at 35.5% at the end of the quarter, despite a decrease in vessel values in the market generally. As of March 31, 2012, Navios Partners was in compliance with the financial covenants of its credit facilities.

As shown in slide 6, our quarterly distribution is $0.44 per common unit. Distribution run rate on an annual basis is $1.76 per common unit, and provides an effective annual yield of 11.2%, based on yesterday's closing price. The record date for the first quarter of 2012 distribution is May 10 and the payment date is May 14, 2012. Total distributions amount to $24.8 million. We maintain capital distribution covenants of 1.19 times, in line with our targets.

For US tax purpose, a portion of our distribution is stated as a return of capital. For 2011, the percentage of our annual distribution that was considered as a return of capital was approximately 42.3%. Also, for US tax purpose, Navios Partners reports the cumulative annual distribution to common unitholders on Form 1099.

On slide 7, you can see that Navios Partners has consistently paid quarterly dividend distributions since its inception in November 2007, uninterrupted by market conditions. Furthermore, we have increased our quarterly dividend distributions eight times since 2008.

Slide 8 demonstrates our strong relationship with key participants in our industry. We have [recorded its outfits] with an [evidence] remaining period of approximately 3.6 years. These outfits are spread among a diverse group of counterparties. In addition, we have ensured outsider complex for credit default with a AA rating European Union insurance company.

As shown in slide 9, our fleet consists of 18 vessels -- six Capesizes, 11 Panamaxes and one Ultra-Handymax vessel. Our fleet has an average age of 5.9 years, as compared to the industry average of 11.3 years. We have currently contracted 96.6% of our available days on a sat-around basis for 2012, and 79.3% for 2013. The expiration dates are staggered and [its out-of-durations] extend to 2022 the latest.

I now pass the call to George Achniotis, our Executive Senior -- our Executive Vice President of Business Development, to discuss the Investor's section. George?

Thank you, Efstratios. Please turn to slide 10. World GDP continues to be driven by developing economies. These economies now contribute a high percentage of total world growth than the developed economies, and represent over half of the global consumption of most commodities. The IMF expects these trends to continue for the foreseeable future. The IMF recently raised its forecast for 2012 world growth to 3.5%, with the emerging economies projected to grow at 5.7% in 2012 and 6% in 2013.

The primary engines of trade growth continued to be China, India and Brazil, with other emerging countries having strong growth. Dry bulk trade has expanded by an average of 4.9% per year in the last decade, since China joined the WTO. Consensus forecast for 2012 and for global dry bulk trade to grow approximately 5%, with [10 mile] growth of about 7%.

China's economy grew by 8.9% in Q4 2011. For 2012, the IMF expects the Chinese economy to grow at 8.2%. India's economic growth is expected to reach 6.9%.

Please turn to slide 11. In order to continue their urbanization and industrialization, China and India continue to invest heavily in infrastructure throughout Latin America, Africa and the Middle East. Both countries are securing supply lines of natural resources with these infrastructure investments to ensure continued growth. As a larger portion of world trade is occurring between emerging and developing economies, trade patterns are shifting eastward and southward.

Turn to slide 12. In the last 20 years, the American global middle class has increased by 700 million people, with each accounting for about one-quarter of today's middle class. The global middle class is expected to increase by over 3 billion in the next 20 years. By 2020, more than half of the world's middle class could be in the Asia-Pacific region. The shift in the global economy towards Asia should support world trade and increasing movements of raw materials, as shipping parties adjust to the new global model.

Moving to slide 13. The development and urbanization in the western and central parts of China will continue to significantly to see conception in 2012 and onwards. Infrastructure, housing construction, and consumer spending growth will underpin development in 2012 and beyond. Coal steel production in China in Q1 2012 totaled 174 million tons. Steel production in March set a record at 61.6 million tons, up 3% over March last year.

Even with supply disruptions in Brazil and Australia, China imported [187.2 million] tons of iron ore in Q1, about 6% more than Q1 2011. Compensating for the decline in India in iron ore exports and reducing its lands from Australia and Brazil, China imported 21 million tons from minor exporters in the first two months of 2012, up 14% over the same period last year.

Going forward, the growth in worldwide iron ore imports will be constrained, continuing raw mines and expansion projects become operational. Over the medium to long-term, miners are investing heavy in additional production. The chart on the upper right depicts potential new iron ore mining capacity of over 500 million tons per annum on a cumulative basis through 2014. These expansions will increase the [ton's credit in ton mines].

Turning to slide 14. India has taken initial steps to industrialized and urbanized. As you can see on the lower right-hand chart, India is expected to increase their urban population to 590 million people by 2030. That means India will have to build about 1.5 New York Cities per year during that time. To keep pace with expanding steel and electricity production, Indian coal imports, shown on the left-hand chart, have increased dramatically at a 24% compound annual growth rate since 2006.

According to the Central Electricity Authority of India, substantial demand will continue, as 65% of current planned new power generators will be coal-fired. India currently generates 77% of its power using coal. India now imports more coal per year than the UK, Italy, France and Germany combined. Indian companies are buying coal assets globally to ensure future supplies to meet projected growth. The government recently announced that state-owned enterprises are to invest in infrastructure and overseas energy purchases to promote energy security.

Turning now to slide 15. Low freight rates, expensive fuel, and high ship scrap prices led to a surge in scrapping of the vessels in 2011. At 22.2 million dead weight tons of scrap last year, represents the largest amount in tons, and several [launches] on percentage terms dating back to the '70s. Scrapping rates for older, less fuel-efficient vessels have accelerated this year. Through April 20, about 10.2 million dead weight tons were scrapped, and this represents an annual scrapping rate of about 34 million tons, or over 5% of the fleet.

The current rate environment should keep scrapping levels high, as about 10% of the fleet is 25 years of age or older, and 16.5% of the fleet is over 20 years old, providing about 104 million tons of scrapping potential. Demolition prices appear to depend on other steel prices, and not only supply of vessels.

Moving to slide 16. The order book for 2012 increased by 16% from about 120 million tons in December to 159 million tons in January. (inaudible) classified 2011 non-deliveries to 2012 deliveries. However, Q1 non-deliveries reached 50% as new building deliveries went 26.1 million tons against unexpected 52 million tons, according to preliminary data. Fleet additions this year are expected to be about the same as 2011, but net dead weight ton growth should be lower after scrapping is taken into account. The order book declines dramatically in 2015 and beyond.

Please now turn to slide 17. 2012 opened with negative overtones as the BDI lost more than 20% in the first week alone. By the end of January, the BDI hit 680, less than half of where it stood at the end of 2011. At age 67, the BDI recorded its lowest quarterly average since 1998. For the second year in a row, Q1 was adversely affected by severe weather in Australia and Brazil, which reduced iron ore and coal exports by some 52 million or 11%, as compared to Q4 2011.

Local Brazil to Pacific iron ore exports declined by 27% Q-on-Q. On a positive note, the [former] iron ore and coal exports was attributable to production problems caused by extreme weather as opposed to weaker demand. Subsequent to Q1, the BDI has increased 209 points, or about 23%, in the past 15 days, driven by Panamax and Handymaxes, following an increase in coal and grain shipments out of the Americas. However, negative seasonal and CPL demand, together with rising tonnage supply, provide you the confidence in any substantial improvement in rates in the near-term.

Should historic patterns repeat, lower rates will induce more scrapping, enforcing the self-correction of the dry bulk market, while demand for and the supply of commodities available for seaborne movement increase over the longer-term. Navios Partners continues to operate its vessels or long-term time charters to create [water] counterparties. It has legally rechartered and the rates continue in 2014.

This concludes my presentation. I would know like to turn the call back to Angeliki for her final comment comments. Angeliki?

Thank you, George, and this concludes our formal presentation. We open the call to questions.

(Operator Instructions). Joshua Katzeff, Deutsche Bank.

Thanks for taking my questions. Just wanted to start off with regard to some of your fleet growth. I know you have the purchase option of the Prosperity coming up, but I guess you don't necessarily have to declare it. Can you maybe go into how you think about that option, and then the Aldebaran that comes up next year?

I think what is it -- a very -- I think that Navios Partners has a very simple model. It has to be accretive and to increase the distribution. So I think, of course, we have the purchase option, which we can decide at any point, but in today's market environment, we have seen opportunities that it makes sense even to buy in today's market, today's rate of vessels for the year, let's say. We'll do a shorter duration on a time charter, because we may need to capture their trade, but you can also acquire assets at relatively attractive prices.

I guess with prices so low, we've seen very few long-term charters done. So I guess how does that play within your ability to acquire third-party vessels? Are you willing to take shorter duration time charters?

Yes. You will not go for the usual five years, four or five years average, Eurasian. But you can easily do it -- you will also not like to penalize the company at that level. So most probably what you will do is -- and this is a hypothetical scenario, always has to be -- but you can easily do, let's say, a vessel in today's market into a two-year rate. Which will bring you to a much better environment to reach that rate, and you have an upside on the rechartering, which you can take then at a longer duration.

Got it, got it. But we wouldn't likely see any six month or one-year time charters? You'd still probably go two years?

I think you can easily do [a two-year], and six months if you really go into the spot market. So you will play on that on one year or two year market.

Got it. I wanted to switch over to maybe the debt repayment. I guess that wasn't in our model. Can you talk about maybe some of the drivers for that? Was there anything related to covenants going on with that payment?

No, the reason we did it is, debt as you know, is a revolving facility. So we can repay it. And any way, the cash you have for the repayment during the year you'll never use this for acquisition. I mean, it wouldn't have been a prudent decision.

So -- and also about -- so from the $55 million, [$5.5 million] was a Q1 payment, which was an (inaudible), and about $15 million was restricted cash, so it makes absolute sense for us. We made better use, we saved on the -- it saved about $400,000 on interest, and was counted in any way -- I know you wouldn't have done something else with that.

Got it. And then just one more question before I turn it over. There is the Korea Line exposure and there's a little bit of Sanko exposure in the chart. I know you guys have the insurance on the contracts, but we should be expecting any kind of small one-time costs related to any sort of defaults coming up?

This is a very early stage of a process that I think is moving in today, tomorrow they are paying. They are paying the market rates, as you know, and is an early stage of a process they are going through. We feel very comfortable on our cash flows, that's why we didn't -- we also issued the dividend.

Okay, thank you for your time.

Ken Hoexter, Bank of America Merrill Lynch.

It's Wilson sitting in for Ken. To start off, I mean, I guess looking in terms of the two vessels that are coming up for recharter this year, the one in July and the one in November, I mean, going along the lines of your strategy, if you were to go into the asset market instead of exercising the options, would it be reasonable to consider shorter-term charters on those as well, before waiting for a rebound to capture better rates for a longer-term project?

That's a very good assumption and this is not a market where you'd go on long-term. We will be looking on the one, two-year market as we have done also, previously.

Sure. If I think about -- just as I think more broadly looking at your fleet, I mean, I have -- I think if I look at three of your vessels -- the Gemini, the Libra and the Felicity, those are getting to be a little bit more advanced in age. I mean, how do you guys think about that in the context of maintaining a relatively young fleet compared to the industry? I mean, would you be open to scrapping them or selling them on the secondhand market and using the proceeds for newer tonnage? Or how do you guys think about that?

I think there is an active process of asset replacement. As you know, we have a thinking front on this Company, so that you have a capital replacements or this is something that we definitely be looking on an inappropriate moment. We are definitely buyers on this market in this environment. And of course we will always rationalize our fleet in that aspect.

Okay. Those were my questions. Thank you.

(Operator Instructions). Ben Nolan, Knight Capital.

Thank you, guys, for taking my call. I have two acquisition, I guess, related questions. The first, it sounds like, Angeliki, that you guys are -- feel like that there are opportunities that create positive rates of return that meet your hurdle rates, given where asset values are in the current market -- which is great.

I guess my question is -- and also that you're willing to take on shorter duration contracts to allow the market to get a little bit better. My question is, first of all, is there -- is the market -- what you're seeing, is a driven by distressed sellers? And are there opportunities to do maybe like sale and lease back transactions, where you take someone that maybe needs to cash out of something but still wants to operate the vessel, and taking on a longer duration time charter. And you know -- so you're able to not only get a good price but also lock in a longer rate of return and also take on some credit risk.

That's a good question, Ben, but in essence, this is not a market to do this. Because in essence, you will be getting a credit risk of the counterparty. And most probably will be a counterparty that is stressed. And we saw this happening a little bit earlier.

We were one of the companies that were offered a note of vessels from different Chinese entities, and very big ones. It looked to us that it was a cash flow problem, so we view very carefully the credit risk aspect of it. So that's why you avoid this kind of a situation. I think this is a -- we have reached now the point of [claim-value] acquisition, with a -- putting a nice short duration, one-year, two-year charter. This is something that I feel very comfortable, and I know that I will select this acquisition if it can increase our distributions.

Okay, yes, that makes sense. So you're not really willing to take on credit risk, is that fair? I mean, anything that you do is going to be with stronger counterparties, correct?

Yes, yes.

Okay, okay. And any asset value -- or any asset acquisitions that you would do would just be outright acquisitions, be it from the parent or any open market? And then you'd go out and find a counterparty if there wasn't already -- or a charter for it if there already wasn't one attached, correct?

Yes. Definitely the logical that we're seeing and this market justifies -- the numbers in this market justifies these kind of transactions.

Okay. Okay, good. And I'm right in assuming that the rates of return that you're seeing sort of meet your hurdles? And actually that sort of gets to my second question. In your analysis and getting to the rates of return and the hurdles that you're getting, what type of leverage do you typically assume on asset acquisitions that you're looking at, and what type of financing is really available? Obviously, you guys would be a preferred credit for a bank, but --?

They're reacting in a being not in the case of -- in the case of Navios Partners, it's not the credit level that is available, because actually we have always been very disciplined in Navios Partners and we kept the levels low. We have about 30% at the 5% level.

We -- this is not driven by our ability to actually borrow, but purely because we do not want exposure. When you have distributions, you have to be careful about your leverage. In that we have great discipline. So if you're talking in general for another shipping company, I can tell you that Navios can easily achieve a 50%, 60% leverage.

In the case of Navios Partners, we will never see something more than 35% -- 35% to around the level we announced, 35%, 40%, purely because we do not want to leverage up. We view our dividend distribution as part of our debt strategy, so we need to make sure that this is part of our -- it's like a debt to us. So we need to make sure that they're irrelevant to the market conditions.

And that, I think is absolutely the right way to think of it and I thank you. You guys do a good job of that. So when you are looking at an acquisition normally with respect to how you're calculating your returns, you're baking in something like a 30%, 35% debt financing. Is that the right way to think of it?

Yes, yes. Exactly. Exactly right.

Okay, all right, good. No, that's very helpful and it's good to hear that there are now opportunities on the horizon that sort of get to where you need to be, so.

Yes, one thing that you have to see that we have the patience to wait, when it maybe to be, in order to find attractive opportunities for the Company to expand.

Perfect. Thanks.

Your final question comes from the line of [Nish Moni] of JPMorgan.

Thank you so much, the presentation. Just a couple of quick questions in regards to dry dock special surveys coming up for the rest of the year. Can you give us some color on the number of vessels and the days out that we have scheduled for 2012 and 2013, if that's available?

Good morning, Nish. Actually, for 2012, we are expecting more vessels that will undergo a dry dock on the basis of age. Just to give you on a quarterly basis, we expect one on the second quarter, two on the third quarter of 2012, and one vessel in the fourth quarter. And in 2013, we're expecting around six or seven vessels, and these are evenly -- almost evenly spread around in the quarters. In terms of your modeling, you should expect around 12 days or higher for a dry dock, and it's going to be a little higher than that when you have a special survey.

Okay. And just kind of rule of thumb, can we get an approximate cost for each on both the dry dock and special surveys, just so we know on the reserve side how much to put aside?

As you know, from the management agreement that we have with the dry dock cost and the special survey cost is included in the daily cost that we paid to the manager. So it's irrelevant for us, the cost is irrelevant for us and it's also already included in the cost.

Okay. I guess in terms of just finance cost and looking at a fully loaded average cost of finance going forward, do we see any material changes in the rest of this year, or are we looking at about a flat interest rate?

I wouldn't say that we expect a significant increase, I mean our facility has a very favorable margin. So if we pay significantly less, but I don't expect that we'll see any significant increase in rates for the next couple of months.

I don't think rates going any way up, guys.

All right. That sounds good. Thank you so much. Those are the questions I have. Appreciate it.

Thank you. I will now return the call to Angeliki Frangou for closing remarks.

Thank you, all. This concluded our first-quarter results for 2012. Thank you.

Thank you for participating in today's conference call. You may now disconnect.