Navios Maritime Partners LP (NMM) 2013 Q1 法說會逐字稿

Thank you for joining us for this morning's Navios Maritime Partners' first-quarter 2013 earnings conference call. 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.

As a reminder, this conference call is also being webcast. To access the webcast, please go to the Investors section of Navios Maritime Partners' website, www.Navios-MLP.com. You'll see the webcast link in the middle of the page. A copy of the presentation referenced in today's earnings conference call also be found there.

I would now like to review the Safe Harbor statement. This conference call could 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 fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and is subject to risks and uncertainties which could cause the actual results to differ from the forward-looking statement.

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.

The agenda for today's conference call is as follows. First, Ms. Frangou will offer opening remarks. Then Mr. Desypris will review Navios Partners' financial results. Next, Mr. Achniotis will provide an operational update and an industry overview. Lastly, we will open the call to take your questions.

I would now like to turn the call over to Navios Partners' Chairman and CEO, Ms. Angeliki Frangou.

Thank you, Laura, and good morning to all of you joining us on today's call.

We performed well during the first quarter of 2013. The shipping and the commodity markets continued to be presented with challenges, yet we found the Navios name and brand is a distinguishing factor in difficult markets. Counter-parties willingly engage for the long term because of the certainty we provide.

As a result, we produced healthy results and recently announced a quarterly distribution of $0.4425 per unit our annual distribution of $1.77 provides a current yield of about 12%. This yield is extremely attractive compared to the Alerian MLP index, which reflects an industry average yield of about [5.25]%.

We are committed to our current distribution for 2013 and believe we will benefit from our investors' renewed enthusiasm for shipping. As you can see from slide two, Navios Holdings owns about 23% of the equity of Navios Partners.

With the assistance of our sponsor, Navios Partners has become a key player in the dry bulk industry. Today, Navios Partners has a market capitalization of about $950 million and an enterprise value of about $1.1 billion. Navios Partners has a conservative balance sheet with net debt representing only 34.3% of the charter-adjusted vessel value.

Consistent performance has enabled Navios Partners continued access to the capital markets and provided Navios Partners the ability to grow in fleet and cash flow. In fact, since Navios Partners went public in November of 2007, we have increased our fleet more than four times. Today we control 25 vessels. The average duration of our fleet is about three years.

The macro environment reflects growing overall demand for transportation services. For example, China continues with record-breaking steel production. Furthermore, ton miles will increase because of the dwindling Chinese iron ore inventories plus an emphasis on imported iron ore.

Although vessel supply was heavy on the short-term outlook, scrapping of older vessels continues to add balance to the market. 2012 proved to be a record year for scrapping at almost 34 million deadweight tons, and we are on pace to equal or surpass that amount in 2013. Also, the book is much healthier, reflecting drastic reduction in vessel deliveries for 2014 with significant slippage likely for 2013.

With a shipping recovery on the horizon, Navios Partners is, along with some of its peers, uniquely positioned to take advantage of this market recovery. On slide three, we set forth recent developments within our company. We raised $73.2 million of gross proceeds from an equity offering in February 2013. We've put much of this profit to good use.

A word on our process. As we have announced in the past, we've been actively seeking appropriate vessels in the open market for Navios Partners. As a result of the recent devaluation of the Japanese yen, we understood that some of our Japanese commercial partners were able to transact for the first time in a few years.

So we traveled to Asia and we met with them. As a result of this conversation, we were able to acquire four vessels from leading Japanese shipyards with an average age of 3.75 years.

I have a couple of observations about these transactions. First, as you can see, the total consideration was $108 million for two newbuilding vessels, one Cape and one Supramax, and two relatively young vessels with which is an attractive entry point. On an inflation-adjusted basis, vessels today are as cheap as they have been in the last 30 years.

Also, when you compare our price for these high-quality Japanese vessels to more recent purchases from Chinese shipyards, you will come to understand that we were able to achieve real value for our investors.

Second, we secured this block of vessels for about 10% deposit and agreed to take delivery of these vessels in the fourth quarter of this year. We expect healthier charter rates then, and for that reason, we have not secured yet any employment for these vessels. This flexibility should allow us to opportunistically employ the vessels at a more favorable rate and attractive entry point, and expected financing allow us to establish a Navios cash breakeven rate of $8,973 per day per vessel.

This breakeven provides significant potential accretion. Every $1,000 increase in charter rate above the cash breakeven rate will result to $0.02 accretion to our unitholders. Thus, assuming the current average market rate for these vessels of around 12,000 hours per day, we will earn more than $0.06 per unit of additional cash flow for all our unitholders.

I am sure many of you saw the press release regarding the process of [dispersal of] assets by affiliates of Navios Partners from HSH Nordbank. This is a novel transaction that allows HSH to take vessels from the hands of distressed ship owners and put them in a more stable and capable hand.

At this stage, Navios Partners did not participate in this transaction because of the nature of the mixed fleet. However, we will continue to be part of this conversation and participate in transactions within local MLP investors, appropriate returns for appropriate assets.

During the quarter we also prepaid $50 million on our DVB/Commerzbank facility, thereby resulting in a reduction in cash flow breakeven of $1,960 per day per vessel in 2013 and $3,492 per day per vessel in 2014.

Slide 4 shows the multiple ways we have been able to grow our fleet and distributions. Since our IPO in November of 2007, we have grown distribution by 26.5% and our fleet capacity by 325%. We have done so with the assistance of our sponsor through various drop downs. We have also exercised purchase options that we had in our chartering vessels. More recently, we have been active in the S&P market and we will continue to use this market to improve our fleet as opportunities arise.

At this point, I would like to turn the call over to Mr. Efstratios Desypris, Navios Partners' CFO, who will take you over the results of the first quarter of 2013.

Thank you, Angeliki, and good morning, all. I will briefly review our unaudited financial results for the first quarter ended March 31, 2013. The financial information is included in the press release and is summarized in the slide presentation on the Company's website.

We had another quarter with a strong operational and financial performance. As a result of the continued growth in our operating metrics and the measures taken to lower our cash breakeven, we remain committed to a minimum annual distribution of $1.77 per common unit for 2013.

As shown on slide five, revenue increased by 4.8% to $50.3 million, mainly due to the 314 more available days for the first quarter of 2013 compared to the same quarter of 2012. EBITDA increased by $0.3 million to $37.1 million.

Net income decreased by $0.7 million to $16.2 million. The decrease in net income is mostly attributable to the increase in depreciation amortization expense by $1.2 million due to the increased fleet.

Operating surplus for the quarter ended March 31, 2013, was $31.2 million, 5.4% higher on the corresponding quarter in 2012. Our fleet continues to perform well. Vessel utilization for the first quarter was 99.8%.

Turning to slide six, I will briefly discuss some key balance sheet data for March 31, 2013. Cash and cash equivalents, including restricted cash, was $75.2 million. Long-term debt, including current portion, decreased by $55.9 million.

This was mainly due to the $50 million debt prepayment made during the quarter. This prepayment had an effect of lowering our cash breakeven for 2013 by $1,960 per day, per vessel and $3,492 per day, per vessel for 2014. Following the above prepayment, the capital repayments for the remainder of 2013 amounted [to $0.8] million.

Additionally, due to the prepayment we expect that we will have savings of approximately $2 million in the next years due to the lower interest expense. Net debt to asset value on a charter-adjusted basis decreased to 24.3% at the end of the quarter. As at March 31, 2013, we are in compliance with the financial covenants of our credit facilities.

As shown in slide seven, we declared distribution for the first quarter of $0.4425 per common unit. This represents a 26.4% increase over our minimum quarterly distribution. The record date for the distribution is May 10 and the payment date is May 14, 2013.

Total distributions for the quarter amounted to $29.9 million. Our common unit coverage for the quarter was 1.08 times. Our consistent strong financial performance enabled us to remain committed to a minimum annualized distribution of $1.77 per common unit for 2013.

I have to remind you that for US tax purpose a portion of our distribution is treated as a return of capital. Also, we report the cumulative annual distributions to common unitholders on Form 1099.

On slide 8 you can see the consistent, significant growth in all our operating metrics since our inception. This strong growth has enabled us to pay dividend distributions uninterrupted by market conditions. Furthermore, we have increased our quarterly dividend distributions nine times since 2008. Our current annual distribution of $1.77 provides for an effective yield of 11.9% based on yesterday's closing price.

Slide nine demonstrates our strong relationship with key participants in our industry. We have quality charters with an average remaining period of almost three years. These charters are spread among a diverse group of counterparties. In addition, we have insured several of our long-term charter-out contracts for credit default with either an AA-rated insurance company in the EU or our sponsor, Navios Maritime Holdings.

In slide 10, you can see the list of our fleet with the contracted rates and the expected expiration dates by vessel. Our fleet consists of 25 vessels, eight Capesizes, 14 Panamaxes, and three Ultra-Handymax vessels. We have a relatively young fleet with an average age of 6.5 years as compared to the industry average of 9.7 years.

We have currently contracted 84.8% of our available days for 2013 and 40.5% for 2014. We feel that we have positioned the Company well in order to take advantage of an expected market recovery. The expiration dates are staggered and the charter durations extend to 2022 at latest.

I now pass the call to George Achniotis, our Executive Vice President of Business Development, to discuss the industry section.

Thank you and good morning, all. Please turn to slide 11. World GDP continues to be driven by developing economies which now contribute a higher percentage of total world growth than the developed economies, representing over half of the global consumption of most commodities.

Recently, the IMF slightly lowered its forecast for world growth to 3.3% for 2013 and 4% for 2014. Emerging economies are projected to grow at 5.3% in 2013 and 5.7% in 2014. The Chinese economic growth is unchanged at 8% in 2013 and 8.2% in 2014.

Turning to slide 12, the primary engines of trade growth continue to be China, India, and Brazil with other emerging countries adding strong growth. Dry bulk freight has expanded by an average of 5.5% per year in the last decade since China joined the WTO.

Consensus forecasts for 2013 are for global dry bulk trade to grow approximately 5% and ton mile growth about 7%. A similar growth rate is estimated for net fleet growth, leading to balanced supply/demand dynamics.

Please turn to slide 13. 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. According to new figures from the World Bank, the value of exports from developing countries to other developing countries, the South-South trade, now exceeds exports from poor countries to rich ones and South-North trades.

Moving to slide 14, the continued development and urbanization of China will contribute significantly to steel consumption in 2013 and beyond. Infrastructure, housing construction, and consumer spending growth will end up in future development. Underlying this trend is the continued expansion of Yangtze River cargo traffic, which reached another record of 1.8 billion tons carried in 2012.

Crude steel production in China in Q1 was about 10% more than the same period last year. China imported 186 million tons of iron ore, about equal to the amount reported in Q1 2012, but the imported stockpiles have been drawn down steadily from 98 million tons at the end of August 2012 to about 67 million tons at the end of last week, the lowest level since Q2 2009.

Domestic iron ore production increased 12% year-on-year, but decreased 22% between Q4 2012 and Q1 2013. Going forward, the substitution of low-quality domestic iron ore with imported ore is expected to grow and will increase the tons carried and ton miles.

The chart on the upper right shows estimated new iron ore mining capacity from Australia and Brazil graphed against the expected decline of domestic Chinese iron ore mining. Most of the projected 2013 increase in iron ore export capacity from Australia and Brazil will occur in the second half of 2013.

Turning to slide 15, India has taken initial steps to industrialize and urbanize. As you can see on the lower right-hand chart, India is expected increase its 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 at a 24% compound annual growth rate between 2006 and 2011. According to the Central Electricity Authority of India, substantial demand will continue as 65% of new current plant new power generators will be coal-fired. India currently generates 78% of its power using coal.

Turning to slide 16, low freight rates, expensive fuel and high scrap prices led to record scrapping of 33 million tons in 2012. Scrapping rates for older, less fuel-efficient vessels have continued at very high rates this year. Through April 18 about 8.7 million deadweight tons were scrapped. If this trend continues, scrapping could once again exceed 30 million deadweight tons in 2013.

The current rate environment should keep scrapping levels high as about 12% of the fleet is over 20 years old, providing over 81 million deadweight tons of scrapping potential. Of note is that the current 2013 scrapping totals already include 12 ships that were less than 20 years old, four that were less than 15 years of age, including one that was 10 years old.

As demolition prices appear to depend on overall steel prices and not on the supply of vessels, they are expected to remain high, thus making it economically logical to scrap older, less efficient vessels.

Moving to slide 17, 2012 non-deliveries amounted to 30%, resulting in net fleet growth of 10.3%, the lowest level in the last four years. Net fleet additions this year are expected to be lower than last year. Q1 non-deliveries amounted to 48%. This, combined with high scrapping, means that net fleet growth should balance with the expected increase in demand during 2013.

Over 60% of the order book is expected in the first half of 2013 and then declines dramatically through 2014 and beyond. And is expected to remain that way as banks continue severe restrictions on newbuilding loans.

Moving to the next slide, slide 18 provides a retrospective on the rate environment and considers the impact of supply/demand equilibrium on rate recovery for 2013. As we all know, for any rate recovery to be meaningful and lasting fleet growth rates need to fall below trade growth rates. As said earlier, global GDP is projected to increase in 2013 and 2014 at 3.3% and 4%, respectively, from the more subdued rates of 2011 and 2012.

To date the improvement has been moderate; however, the rate of change suggests the demand for dry bulk will increase in 2013 as newbuilding deliveries continue to decelerate and scrapping remains at record levels.

In sum, we note that for the first time in four years there is an expectation that net demand will exceed supply. Consequently, rate levels could pick up during the course of 2013. We note this as these conditions were not evident over the past few year.

Please now turn to slide 19. Q1 saw the BDI fall to its lowest quarterly average since 1986 to 796, with very uneven earnings between the vessel sizes. Cape size earnings slumped to a six-month low in March to $4,210 per day on the back of over 30% reductions in both Brazilian iron ore and Colombian coal exports due to weather and strike issues.

In contrast, both Handymaxes and Panamaxes benefited from seasonal strength from South American grain exports and Pacific Basin coal movements. Handymaxes reached a seven-month high of over $10,000 while Panamaxes improved from a low of just over $5,000 per day at the beginning of February to about $9,700 per day at the end of March.

Brazilian iron ore exports were reduced due to seasonal weather and one-time permitting issues. Vale recently stated its commitment to achieve the same level of iron ore exports as 2012, which implies significantly increased Brazilian ore shipments through the rest of 2013. Combined with higher Australian ore exports, higher Colombian coal exports, and an expected decline in deliveries in the second half of 2013, these factors seem to indicate more demand for ships throughout the remainder of this year.

This concludes my presentation. I would now like to turn the call over to Angeliki for your final comments.

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

(Operator Instructions) Michael Webber, Wells Fargo.

Good morning, guys. How are you? I wanted to just kind of jump in and talk a bit about the deal here, and forgive me if you mentioned any of these details in your commentary. I don't think you did.

But, first, maybe is it the same seller on all four assets? Then you mentioned likely getting financing in line with what you have in your current assets. Is the deal contingent on finding financing? I know you have a cash balance on hand now, but not quite enough to get it done. Would you look for a bridge or existing facility to finance that in the near term?

We already are in discussion with the banks, so this is a formality to finalize the financing. And also, don't forget we still have $75 million [in the balance], so it will not be a very difficult. We just need about $25 million to complete this, which we know we will be getting far more financing [done then].

Actually these buildings -- we are talking about newbuilding prices that is delivering in Q4, good point. Japanese vessel [is already] built, so this is a good quality pricing that you are actually getting with that price. I'd say we had historical lows for the 30 years, and also you are getting Japanese top-quality vessels versus prices we have seen from other yards.

And it's the same seller on all four?

Three are the same, one is different. But it's not from a Japanese owner.

Got you, okay. So you are expecting to get pretty similar financing to what you have on your books now. It seems a bit like a bit of a tall task, I guess for most, for unchartered dry bulk assets getting north of 50% leverage in this environment.

Is that a function or just Navios and the credit quality there? Or maybe can you give a little color on what you are hearing in terms of terms? It just seems like that would be more difficult in this environment.

Navios can get -- we could get up to 60% financed. I mean this group; it was done in similar transactions on charters. Usually we work with existing (inaudible) profile, a little bit less when vessels are (inaudible).

Got you. All right, that makes sense. You mentioned looking to charter these a bit later when they deliver and when, hopefully, rates have improved. Along the lines of the last couple third-party deals you guys have done where you are kind of picking up cheap market levers that could potentially bolster distribution coverage, if and when we get a recovery in rates. It's basically kind of the best you can do in this environment.

What level do you need to see rates at to actually lock these up kind of longer term and actually just guarantee they are going to be, at least to some degree, accretive to distribution coverage in 2014? Is it -- maybe on a return basis can you just talk a little bit about what you are looking for in rates to actually lock them up on something beyond spot?

Listen, one thing that Navios is not shy is to look at rates for longer term. Just realizing what we have done from last year when we went in the strategy, we have bought six vessels on the market at very good values we believe and today you have a breakeven of around $9,000. So if you go to Panamaxes historical 30-year average is (technical difficulty) but I give you like a gross, like $15,000, you have $6000 above the breakeven.

That gives you, with the $0.02 per $1,000 (inaudible) $0.12 accretion to all unitholders. So you realize with a strategy as we have done and as we are moving in second half 2013 and 2014 our breakevens and replenishment of our cash flow will be part --- will come though [partly] what we see and at rates that are very achievable today.

Got you. Okay, that's helpful. You guys have obviously been very busy on all three Navios companies. In terms of, I guess, Navios Partners specifically and these kinds of deals, are there more out there like this? You kind of gave that indication with the NNA and NM deal that that was kind of the start of a platform and there were other things you could do.

This is obviously a different animal, but are there other deals like this, more kind of on-block transactions that you guys think you could take advantage of this year?

We do believe that there will be transactions. We have two areas of opportunities. We see the Japanese market move again. As it moves to [100] it will release other vessels because book value now makes sense and we will see transactions happening.

We saw -- we were one of the first companies to react very quickly and I think we will see more transactions from that area. As you know, Navios has a long tradition in (technical difficulty) partner in a lot of these deals, most of it with -- some of these deals are (technical difficulty) in the market (technical difficulty). So there is now announced by other affiliate (technical difficulty) you have seen that Navios has managed to crack the German [banking] system and we are the first company outside Germany to be able to do a transaction there.

So I think we will (technical difficulty) of vessels. The reality is that we are very careful on any expansion. We are a disciplined buyer. We are not -- on the other side, we are not afraid of stepping in when we see attractive transactions.

Right. No, you guys have certainly been busy. Just one more from me and I will turn it over.

The deals, just to make sure, just to double check, these are falling outside the bounds of the revised insurance policy, correct? Whatever you guys do sign of those assets, on the new assets?

This is not issuance. This is we bought vessels in the market and you do -- as you remember, (technical difficulty) insurance there was never a cover for less than a year, so there is no charter here. This is a straight deal.

Right. I'm saying, whenever you do sign them, they would just fall outside the bounds of the revised insurance policy.

Yes, yes, we will be outside that.

Okay, great. Thanks, I will hop back in the queue. Thanks for the time.

Christian Weatherbee, Citi.

Good morning. This is actually Seth Lowry in for Chris. If I could follow up on the last round of questioning, I was just wondering could you ever envision a scenario where if you came across the right opportunity, and maybe it's Navios Partners pairing up with Navios Holdings, or some sort of structure where you could potentially invest in assets outside of dry bulk, or maybe just Navios contributing a bit of capital to a structure like that if the right deal came along. I am just wondering if you have any appetite for deals of that nature.

We value our investors and we care about cash flows. Any opportunity that comes along will be valued in its own way. We have not --- it's a matter of cash flows and what potentially we can provide to other shareholders and investors.

Okay, fair enough. Then if I could just switch gears more towards the current market, you have three or so vessels coming up for renewal in the second quarter here. I was just wondering if you have any update as to what level those may be chartered at and what duration. Just what your near-term plans are for the immediate three.

You can see on the ones that are coming, we see somewhere between $11,000 and $12,000 for approximately a year. And depends six months or a year and we would have seen a pickup on the rate of five to seven months, and that has been the sweet spot.

On the spot market, if you see it -- in the beginning of the year we started with the PBI at 700. Today you are about 900, so we have seen a modest recovery from a very low level. We believe that as yet, as we approach Q4 you will see a little bit of a better margin recovery, gradual recovery.

Okay. Then I guess on the back of that if I could ask more of an industry question. Have you seen any further indications of dry bulk players out there, maybe with higher marginal costs that you potentially laying up vessels? Or do you think this recent uptick in the market has maybe stunted that at all?

You mean if we have seen other owners picking up vessels or other owners having in?

Parking capacity, not using the vessels, just given that they can't achieve cash breakeven rates; other players with higher marginal costs. Have you seen that in the marketplace, or is that not --- are the other players hesitant to park vessels just given the strength in the market recently since the February lows?

We have not seen a lot of laid up. That's not --- we have not --- we have seen a lot of slow steaming, which is what we see in our industry. We have seen in the recent months that extra-slow steaming has been abandoned and we have more economically speed.

So there's no fault laid up for dry bulk vessels in an extensive way and we have seen the market moving from the very slow steaming to echo a split.

Okay. Great, thanks, I will turn it over.

T.J. Schultz, RBC Capital Markets.

Just a couple things. I guess first on the flexibility of delivery dates on the new acquisitions, two things really. I guess, first, on the newbuildings, just so I am clear; those two are scheduled to be completed in the fourth quarter this year or is completion sooner and you were able to delay delivery?

Then maybe if you could just expand on what made you all center on kind of fourth quarter of this year for ultimate deliveries to begin?

We've managed to get the vessels for Q4, maybe the vessels was earlier. We are receiving the Capesize in the most attractive time and the Supramax in the beginning of next year, which is also very appropriate.

Q4 usually is a stronger quarter and we have seen it. We also see we are running now at about 50% non-deliveries, as George has explained, which is quite substantial. And we are having a scrapping that is running around 30 million deadweight tons. So these two characteristics (inaudible) develops I think will create a better environment for our vessels.

The Chinese supply for iron ore is an all-time low. That will be a helpful development because in the second half we will most probably see a lot of ton miles increase due to the iron ore. So due to the conditions we are seeing the market, we are cautiously optimistic and we are optimistic for the fourth quarter that is, anyway, seasonally up.

Okay. Then I guess maybe for Efstratios, on the credit facility that was amended in March, is there any changes to the covenants that are in there or is it what has already been filed?

No, there's not things in the covenant package. The only thing that we did was prepay a portion of the facility. In this way, you will see that we have reduced substantially our breakevens by almost $1,000 per day, per vessel for 2013 and almost $3,500 per day, per vessel for the next year.

We reduced, of course, the cash flow nature of the Company for the next couple of years. Part of the package, the covenant package, in the other terms of the facility -- remember, the facility has a margin of 1.8% to 0.05% over LIBOR, which is something unique. This is remains unchanged.

Okay, thanks.

Joshua Katzeff, Deutsche Bank.

Good afternoon. I just wanted to quickly follow up on the prepayment. Just to be clear, the only reason for the prepayment was just to reduce the cash breakeven?

Yes, it made sense to us. We are successfully reducing our breakevens, and this is -- it creates a better visibility for our investors knowing that for the next two years we will have quite substantially lower breakevens.

Then I guess with regard to your new facility that I guess you are out of the market for the acquisition, I guess maybe can you give a little bit more color on expected margins? I know you said that it's going to be similar to your existing facilities, but I guess with loan margins close to 200 bps that's significantly below market. Do you think you could get margins at similar levels?

No, we have calculated internally around 3%, which is good margin for today's market.

And then I guess maybe with the newbuilding ships that you've placed the orders for, do those have the long-stroke engines in there? Are these I guess eco-ish type ships, or are they kind of maybe a little bit older design?

In the industry today in Mumbai -- these vessels are built in Mumbai. It is a top-of-the-line, more economical vessel, and the benchmark for the whole industry. So these vessels will have very attractive and very good fleets, and you can further do modifications to further improve.

So you get a vessel today that is a real eco-vessels second half -- from 2014 on. You get today a very nice designed vessel with extremely attractive and good consumption. Mumbai is considered the leading shipyard for construction and the best design for a Capesize.

We've definitely heard that from other owners about some of the Japanese ships, and so I guess there's already similar consumption data for the 2006, I guess 2005 built ships there. They have solid consumption?

Yes, they have their own Japanese-build in Mumbai and (inaudible), and they are good quality vessels that we will like the addition of these vessels in our fleet.

Then I guess maybe just shift some gears to distribution and distribution coverage. Can you maybe talk about the reduction in the CapEx reserve? What drove that and how you are calculating that now?

Listen, as we stated in the past, the CapEx reserve is always reassessed at the end of each year in order to take into account the current market values of our vessels. Of course, what has been accumulated over the last years for our replacement our fleet.

So every year that you have a reduction of the market and market values and also due to the fact that you have accrued a significant amount [for the] dedication of our vessels. It came a little bit down this year. As I said, this is a year's process and every year we reassess what is need to be (inaudible).

Of course, this is taken at the Board level and this is how it's done.

I don't think you will have that next year.

Okay. Then just one last question. I guess just thinking about post transaction pro forma cash, we should assume about $50 million or a little more for the acquisition, so you're left with, I guess, $25-ish-million cash?

Yes.

Great, I appreciate the time. Thanks.

(Operator Instructions) Ken Hoexter, Bank of America Merrill Lynch.

Good afternoon. It's actually Wilson Chen sitting in for Ken. If I could get a question in on post these four vessels, acquiring these four vessels, is Navios content to kind of take these and digest them?

Or if I just do some quick back-of-the-envelope math between the $25 million and cash left on the balance sheet and any cash you generate throughout the year, do you guys have more of an appetite to look for one or two additional vessels, depending on how much cash you have? Or are you more content to just digest these for the time being?

As we always said, we are opportunistic about the vessels, and in the previous quarterly call we said that we will acquire a number of vessels. We already have executed in a strategy, and this is a process that we assess all the time.

We're not going to be --- we are not aggressive. We have to --- we wait. We assess the market and we re-enter at an appropriate time.

Understood. If I could get a follow-up question on just a sense for how demand is. Prior to your announcement about these four vessels, have your counterparties expressed any more interest in chartering capacity later in the year, maybe ahead of anticipated kind of higher rates? Can you give us any color around that?

One thing that we can tell you is that if you want to charter your vessels for three to five years there is a very -- there is a lot of counterparties that they would like to take your vessel. Of course, you are locking in at a relatively low level of the market.

So this is one of the issues that you know there is expectation for the market to recover and you need to be careful of how you actually redeploy your vessel so that you maximize for your investor or you find an appropriate level to fix the vessels.

Great, thank you.

At this time, there are no further questions. I will now return the call to Ms. Frangou for any closing remarks.

Thank you, this completes our first-quarter results.

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