Star Bulk Carriers Corp (SBLK) 2013 Q4 法說會逐字稿

Welcome to the Star Bulk conference call on the fourth-quarter 2013 financial results.

We have with us Mr. Spyros Capralos, President and Chief Executive Officer, and Mr. Simos Spyrou, Chief Financial Officer of the Company.

(Operator Instructions)

I must advise you that this conference is being recorded today, Wednesday, March 5, 2014.

We now pass the floor to one of your speakers today, Mr. Spyros Capralos. Please go ahead, sir.

Thank you, operator.

I'm Spyros Capralos, President and Chief Executive Officer of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers fourth-quarter and 12 months 2013 financial results conference call. Along with me today to discuss our financial results is our CFO, Mr. Simos Spyrou.

Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide 2 of our presentation. Since I know that you read very fast, now that you're done with slide 2, I would like to summarize our recent strategic initiatives as presented on slide 4.

First of all, we have designed and executed an aggressive fleet expansion and renewal strategy with 11 fuel-efficient newbuildings from top-class yards, as well as opportunistic acquisitions of premium second-hand tonnage at what is essentially the bottom of the dry bulk shipping cycle. We secured compelling delivery slots in 2015 and early 2016, now worth $60 million to $65 million above the contract price.

We have adopted the flexible commercial strategy so as to maintain long-term spot market exposure, taking full advantage of a market recovery, as well as the savings from our fuel-efficient newbuildings. We have diversified the composition of our fleet by weighing more on larger vessels that will benefit mostly for our broad market recovery, due to the economies of scale they offer over freight return basis and increasing long-haul shipments.

Furthermore, we have, and will continue to do so, leveraged our sponsors' vast experience in shipping involving acquiring, operating and successfully disposing vessels along various stages of the shipping cycle. The benefits of the most barnacled areas from access to first-year shipyards to long-term relationships with charters and brokers.

Finally, despite being in a growth mode, we remain committed to the cornerstone of our goals, that is maximizing total return to shareholders. As our fleet expands and the dry market recovery is established, we will evaluate favorably the potential return of capital to our shareholders in a matter consistent with our overall business strategy cash flows and liquidity position.

Please turn now to slide 5 for a brief review of our recent key corporate developments during this clearly transformative year. First of all, we have totally reshaped our capital structure, raising $150 million of equity through two transactions in July and October 2013.

Two well accredited institutions, Oaktree Capital Management and Monarch Alternative Capital, have joined our shareholder base through these two transactions, enhancing and diversifying our social equity capital. Our market capitalization is now above $350 million, more than 10 times the respective figure in July of 2013, making Star Bulk an investable vehicle for pure drybulk play.

With this substantial financial power, we embarked on an extensive newbuilding program by ordering top-class yards in Japan and China, 11 high-quality ECO vessels with fuel-efficient specifications in three batches, with an aggregate purchase price of $482.9 million. We also returned to the S&P market by acquiring four high-spec premium secondhand vessels, two Ultramaxes and two Post-Panamax bulk carriers respectively.

Regarding the former, currently there are few such vessels in the water, and thus we clearly believe that this acquisition will provide us with competitive edge when pursuing charters business. Regarding the latter, we arranged to charter them back to sellers until mid-2016 at a healthy freight rate, strategically coinciding with the expansion of the Panama Canal and the emergence of new trade routes for these vessels.

Furthermore, we have secured debt financing for all four secondhand vessels acquired at competitive terms, both from existing as well as from new lenders. The last two new [Kasamax] ball carriers acquired come also with attached financing at 80% of their concept cost by way of innovative bare-bones high purchase structure. In addition, we extended our third-party shipment management business to 14 vessels currently, achieving senior economies of scale, while we expect to further grow this business in the years to come.

And finally, we are proud to report that 2013 marks the return to profitability of Star Bulk after two consecutive loss making years. And of course, the generation of $11.4 million of free cash flow from operations.

Star Bulk is well-positioned to take advantage of the firming drybulk market in 2014 with its premium competitive vessel portfolio, and with the management team that has demonstrated its skills to transform positively the Company during a challenging market environment.

And now I will ask Mr. Simos Spyrou, our CFO, to give you an update on the financials.

Thank you, Spyros.

Let us now turn to slide 7 of the presentation for a preview of our fourth-quarter 2013 and 12 month financial highlights in comparison to last year's.

In the three months ended December 31, 2013, net revenues amounted to $17.3 million, essentially in line versus the same period of 2012. Net revenues represent our total revenues adjusted for non-cash items less expenses. The reason we refer to our net revenues is because this figure nets out any difference in the number of charters we performed, and therefore is directly comparable to other periods.

Overall, we were able to positively benefit from the increasing spot freight rates due to the fourth quarter of 2013, as certain of our charters opted to redeliver the vessel to us at the latest redelivery date, the customized situation and the inside markets. This was the case without one of our newest gates, Star Polaris, which had an earliest redelivery date in the middle of October and the latest in the middle of January, with the second being the actual date that was redelivered to us.

Adjusted EBITDA for the fourth quarter 2013 was $7.4 million, increased by 16.5% versus last year's respective figure. Overall, during the fourth quarter of 2013, the Company had a marginal net profit of $54,000 compared to a net loss of $1.4 million in the fourth quarter 2012.

Excluding non-cash items, our net income for the fourth quarter amounted to $2.1 million, compared to an adjusted net income of $0.3 million in the fourth quarter 2012. Our time charter delivery rate during this quarter was $14,467 per day, compared to $14,969 last year.

Our average daily operating expenses were $5,392 per vessel, compared to $5,730 during the same period last year, representing a 6% reduction. The adjusted net income of $2.1 million represents an adjusted EPS of $0.07 per share, basic and diluted, versus an adjusted net income of $0.05 per share, basic and diluted, during the respective periods in 2012. So as you can see, this has been another profitable quarter for us, the third in 2013.

Continuing with our annual results now, for the 12 months ended December 31, 2013, net revenues amounted to $68.7 million, representing a 6% reduction, versus the same period of 2012. Our revenues were mainly affected by the lower charter rates achieved by certain of our vessels and the lower aggregate number of vessels due to the sale of Star Sigma and Star Ypsilon in 2013 and 2012 respectively.

Adjusted EBITDA for the 12 months 2013 was $32.3 million, compared to $40.4 million during the same period of 2012. The latter figure includes however an amount of $6.4 million related to a gain on early charter termination for Star Sigma in 2012. The $32.3 million of adjusted EBITDA represents a yield of approximately 11% on the average value of our in the water fleet for 2013.

Overall, during the 12 months of 2013, the Company had a net income of $1.9 million, compared to a net loss of $314.5 million in the 12 months of 2012. This is the first year after 2008 that we report a profit on US GAAP basis, and we are certainly very proud of this.

Excluding non-cash items, our net income for the 12 months amounted to $9.7 million, compared to an adjusted net loss of $0.3 million in 12 months 2012. This marks our return to profitability on an adjusted basis after two consecutive loss making years, again an achievement that validates our cost containment efforts and flexible commercial strategy.

Our time charter equipment rate during this six-month period was $14,427 per day, compared to $15,419 per day last year. Our average daily operating expenses were $5,564 per day per vessel, compared to $5,361 per day progressive during the same period last year.

Regarding this 4% increase, I would like to remind you that last year, one of our Capesize vessels, mainly Star Polaris, sustained an engine failure damage and thus was non operational throughout the full year -- quarter. These resulted in, firstly, artificially low operating expenses in the third and fourth quarter of 2012, and secondly, to higher insurance premiums to our fleet in 2013.

Our operating expenses in 2013 were also affected by the new common stocks regime, which didn't exceed last year as well. The adjusted net income of $9.7 million for the 12 months of 2013 represents an adjusted EPS of $0.69 per share, basic and diluted, versus an adjusted net loss of $0.05 per share, basic and diluted, during their respective period in 2012.

Please turn now to slide 8 to discuss our balance sheet profile. Currently our total debt stands at $260.3 million and our total cash position at $52.6 million, both including the $39 million available liquidity under our committed facility with Deutsche Bank to be drawn within this week. Consequently, our net debt on a pro forma basis is $207.7 million.

Furthermore, the market value of our fleet in the water stands currently at $404.1 million. In addition, our 11 newbuildings currently worth $546.7 million, $64 million or 13% above their conducted price, bringing our fully delivered fleet value close to $1 billion.

We have paid to $79.3 million in the form of advance payments for 11 vessels on order, and assuming 60% debt financing, we have approximately $93 million in remaining equity CapEx. Taking all the above into account, we calculate our NAV per share on a charter fleet basis of $11.6 per share.

Going forward, as you can see from the bottom left graph, our principal repayment so far this year stands at $4 million, while our remaining scheduled principal repayments for 2014 and 2015 stand at $18.5 million and $34 million respectively. These figures include the scheduled repayments of our $39 million credit facility with Deutsche Bank as well.

As is evident from the graph on the right bottom, assuming 60% debt financing, we essentially have no material remaining equity CapEx repayments for 2014, while for 2015 and 2016, the respective obligations stand at $77 million and $15 million respectively. So overall, we have a smooth debt repayment profile over the next two years, while our remaining CapEx obligations are heavy and supported by our cost loads and current liquidity position.

Currently turn now to slide 9 for a review of our cash flow generation during the 12 months of 2013. On December 31, 2012, our total cash balance, including restricted and cash, stood at $31.8 million.

During the 12 months of 2013, we generated $27.5 million cash from operations, while we have an additional $1.9 million of cash inflow from investing activities, exclusive of newbuilding advances and the sale of Star Sigma. Included in this amount are $3.9 million of insurance profits related to the main engine failure of Star Polaris in 2012.

Our debt repayment requirements, excluding any prepayments paid in connection with the agreements with our lenders and the sale of Star Sigma, were $17.6 million for the 12 months of 2013, thus leading to a fleet free cash flow of $11.5 million on an adjusted recurring basis. So despite the low freight environment, our fleet has been significantly cash flow positive in 2013.

For the 12 months of 2013, we have paid the total amount of $67.3 million in advances related to nine of our newbuildings ordered within 2013, while the two from [Exvolcays] acquired had a purchase price of $58.1 million.

As mentioned earlier, on April of 2013, we sold one of our oldest Capesize vessels, Star Sigma, for $8.26 million. While we proceeded with debt repayment a $16.1 million in one of our loan facilities. The both resulted in a net debt repayment of approximately $8 million.

Finally, including the $146 million net profits from the equity offerings this year, we are able total cash balance as of September 30, 2013, we stood at $56 million.

I would like now to pass the floor back to Spyros as to provide you an update with our fleet strategy, operational and commercial developments.

Thank you, Simos.

Please now turn to slide 11 to give you a brief overview of our fleet profile.

We currently own 17 drybulk vessels, five Capesizes, two Post-Panamaxes, two Ultramaxes and eight Supramaxes. We have total deadweight capacity of 1.61 million deadweight tons, and an average age of about 8.9 years.

I said earlier, we have a newbuilding program consisting of 11 fuel-efficient ECO friendly vessels. Under order in first-class shipyards, consisting of five Newcastlemaxes, two Capesizes and four Ultramaxes, with delivery spanning between 2015 and early 2016. Upon full delivery of our newbuildings, we will own a total of 28 vessels from 17 vessels in the water today.

The fleet is managed internally, which provides full efficiency and transparency to our shareholders. Aside from the management of our own fleet, we also provide ship management services to 14 third-party vessels for a daily fee of $750 per day.

At the bottom left graph, you can see that upon completion of our newbuilding program, we have grown our total fleet under management, including third-party vessels managed by us, to more than 8 million deadweight tons of representing a 35% compounded annual rate of growth on deadweight basis from 2009. This figure is inclusive of an additional number of approximately 30 more third-party vessels as we expect to take management until 2016. This will bring our operating fleet to approximately 70 vessels, giving us the size to benefit from higher purchasing power and economies of scale.

Please turn now to slide 12, whereby we will try to provide some further color on a recent acquisition announced last week. The latest additions to our fleet are two 208,000 deadweight tons Newcastlemax vessels built by SWS similar to the ones we already have on order with them.

We believe that Newcastlemaxes are the ideal way to play the drybulk shipping cycle during this early market upstream. These vessels are optimized for iron ore trade having access to all major iron ore trading ports without the size restrictions of VLOCs, offering simultaneously better freight economies -- economics from Capesize vessels. Furthermore, they maintain their versatility, being very appropriate for coal trade as well; not limited solely to iron ore trade as VLOCs, while again they are more competitive on a freight per ton basis versus Capesize vessels.

The construction price of these vessels is $59 million and $56.5 million respectively, while the scheduled delivery is in November of 2015 and February 2016. We have therefore high-pressure structure will have set up with CSSC, the company affiliated with SWS, is essentially a capitalist arrangement that provides us with debt financing at 80% of the aforementioned construction price of the vessels. The remaining 20% of the construction price, or $23.1 million, represents our equity portion of the transaction, under which we have already paid down $11.55 million.

The agreement has a term of 10 years, and we have the obligation to acquire the vessels at the end of the term for reduced predetermined price equivalent to the balloon payment of standard shipping loan. We also have the option to purchase the vessels earlier with such option being decided each month, again being equivalent to refinancing and standard shipping loans. The arrangement provides for monthly higher payments ranging from $371,000 to $410,800 plus LIBOR.

This monthly higher payments essentially consist of a margin portion, which is 4.5% percent over LIBOR, and a principal repayment portion, which equates to a payment profile of approximately 14.3 years. Assuming a LIBOR cost of 2%, the aforementioned terms result in an average daily rate of $14,850 and $14,200 for each vessel respectively.

We consider the above terms very competitive comparing to debt financing at similar advanced ratio available in the market, while it's worth noting that Star Bulk will not pay any commitment fee for this financing. Assuming 1% of commitment fees if it was, this is equivalent to approximately $1.8 million in interest expense savings.

Now let's turn to slide 13 for the overview of our fleet employment and charter counterparties. Currently, we have secured 40% of our available data in 2014, 18% in 2015 and 6% in 2016.

Specifically, our time charter coverage in the Capesize segment is 45% for 2014,19% for 2015, at an average gross daily rate of $23,463. While our Supramax average stands at 27% for 2014 at the gross daily rate of $11,314.

On the Panamax segment, we are fully covered for the next two years while we have secured 50% of our available days in 2016 at the previous announced growth charter rates of $15,000 per day. Overall, as of today, our total contracted revenue amounts to approximately $51.4 million, equal to an average gross daily fixed-rate of $17,000 over an average remaining charge duration of approximately [0.6] of the year on the fleet wide basis.

As we have stated before, our adaptive flexible commercial strategy mostly focuses on short-term time charter employment, maintaining increased exposure to long-term recovery in freight rates. This allows us to relatively insulate our fleet from adverse market movements in the short term, while maintaining our upside potential on the firming freight market. The current firming market validates the strategy, and you expect to achieve higher charter rates for our vessels as we move towards the second quarter of 2014.

Now please turn to slide 14. We will try to evaluate our operation performance over the last five years.

As a general comment, our cost cutting efforts in our operating and G&A expenses have played an important role in our financial and operating performance in this very challenging market environment. This of course has been achieved without the compromise in our high-quality and operational standards.

On the top right graph, you can see that for the 12 months of 2013, if you exclude the effects of Star Sigma, which was sold in April, our fleet utilization ratio is at 98.2%, essentially in line with our historic levels. I would also like to note that the utilization ratio for 2012 is not effective as well since it was negatively affected by the substantial off time of Star Ypsilon also sold in February 2012. Still, even if we adjust for this effect, our utilization ratio has improved this year by approximately 1%.

On the left graph, you can see the evolution of our average daily operating expenses. Since 2009, our daily operating expenses have been reduced from $6,903 to $5,564 in the 12 months of 2013, a 19.5% cumulative decrease.

For 2013, we have managed to contain our operating expenses, keeping them in line with our historical levels, despite the effects of increasing insurance premiums and renewed tax tonnage regime explained earlier. Furthermore, and approximately an amount of $200,000 or $40 per day of predelivery nonrecurring expenses were incurred related with delivery of the two Ultramaxes in late December 2013.

On the bottom right graph, you can see the total carrying capacity of our managed fleet versus our G&A expenses, which exclude one-off severance payments and stock based compensation. The G&A expenses are reflective of the in-house vessel management capabilities we have developed since our inception. As you can see, the G&A expenses for the 12 months of 2013, excluding non-cash items, are 7.5% higher than in 2012, while at the same time our total fleet under management has increased by 48% on a deadweight tonnage base.

Looking forward, we expect the expanded size of our operating fleet to provide us with economies of scale and synergies to the benefit of both our owned and our managed fleet and clearly to our shareholders.

Now I will ask again Simos to give you an update on the market developments. Simos, try to be brief on that, please.

Thank you, Spyros.

If we can now turn to slide 16 to summarize drybulk trade demand dynamics. As most of you know, iron ore and coal are the two most important commodities for the drybulk, accounting for more than half of the drybulk trade.

On the top right graph, you can see how Chinese production and Chinese iron ore imports have evolved over the last eight years. During 2013, Chinese iron ore imports have increased by 10% on the back of strong steel production growth and increased domestic to imported iron ore substitution.

As we had explained in previous presentations, Chinese domestic iron ore is of very low quality compared to international commercial mining standards, due to its low ferrous content. This trend has been consistent over the last 10 years with China producing iron ore of lower ferrous content year over year.

And last part of Chinese iron ore production is non competitive, with high cost breakeven above $100 per ton, due to small production scale, low quality of iron ore reserves, and long distance from Chinese steel mills. Of the other hand, the major international iron ore exporters comprising mainly of [Vallay BXB] and [fotress] enjoy low breakeven price levels given large scale of operations and high quality of iron ore reserves.

Furthermore, substantial additional mining capacity of premium is expected to come online until 2016, mainly by these companies. To put this into perspective, Vallay has lined up an investment of 90 million metric tones per annum additional iron ore mining capacity to come online in early 2016, a truly significant amount for a sole project.

So overall, it is apparent that the international iron ore market will see substantial additional supply coming in from producers that have the ability of predatory pricing in order to capture more international market share. This is expected to drive international iron ore price to lower levels of approximately $100 per ton, a level that leaves the majority of small private Chinese producers are non competitive.

This process has already started to take place as the iron ore price has dropped to below $120 per ton from $133 per ton at the end of 2013. Therefore, we believe that the substitution of the expensive Chinese iron ore production with imported ore can provide a significant support line on our trade even with zero production growth.

Regarding coal freight, as you can see on the left bottom graph, Chinese coal trade has evolved tremendously for the last eight years. China's increased energy needs have turned the country from a traditional coal exporter to the single biggest coal importer in the world in the last half a decade. From significant coal trade surpluses up until 2005, China had a cold trade deficit of around 422 million tons during the last 12 months.

What is even more impressive is the growth potential of these trades. China's coal production in 2012 was more around 4 billion tons.

As you can understand, the 442 million tons of net imports represent only around 10% of the total Chinese coal consumption. As China continues growing, we expect the need for energy in general and coal-fired energy in particular to continue growing as well.

Another major importer of coal is India, with enough material reserves to satisfy its huge consumption needs. As you will see from the bottom right graph, Indian coal imports have increased with the compound annual growth of 25% during the period of 2006 to 2012, raising 157 million tons per annum.

The main driver of this freight pattern has been increasing reliance of the country to coal fired electricity production enhanced on thermal coal. In absence of any economic viable alternatives, India thermal coal imports have increased substantially during the past years.

Going forward, according to Clarkson's, India is expected to reach 195 million tons per annum in coal imports in 2014, an increase of 25% versus 2012 levels. Furthermore, as the grain season kicks off in the second quarter of 2014, we expect this to provide an additional uplift in Panamax and Supramax freight rates.

Grain is a commodity that is carried mostly by Panamax and Supramax vessels, and according to Clarkson's, grain exports are expected to increase by 3% this crop season versus 2013 levels, due to the higher crop yields and production in US and Canada. If this is combined with a relatively flat exports of Argentinian grains or even decreasing ones as we have seen in 2013, this would further boost the base market while having a significant ton mile effect on a global basis as well.

Turning to slide 17, we will have an update on the supply side. Drybulk vessels deliveries have significantly decreased during the last three months of 2013 and peaked in January 2014. This is however expected as fleet owners tend to prefer and push for having their vessels delivered on January of the new year.

As you can see on the top right graph, deliberations between 2008 to 2012 have an average rate of around 30%. The expected figure for 2013 was close to 40%, and certainly we should expect some level going forward even though reduced.

Overall, as you can see from the top right graph, putting the forward schedule deliveries in the historical context clearly demonstrates that the worst is past due for drybulk industry. The nominal order book stands at approximately 21% of the fleet, substantially lower from the peak 80% in 2008. Furthermore, if the nominal order book is adjusted for orders originally placed before 2012, it is reduced to 16%, a level that can be more smoothly digested by the market and in line with historical levels.

On the bottom right-hand graph, we also provide the order book for the remainder of 2013, 2014 and 2015 and 2016 broken down in vessel classes. At this point in time, we can safely say that the order book for 2014 sticks while for 2015, first-year yards have essentially no available slots. We see limited risk in orders in place in second- and third-year Chinese yards for 2015 due to the current pricing environment, as well as the scarcity for bank financing for subs low quality vessels.

Finally, what is important and encouraging is the fact that bulk carrier demolition has stayed at record high levels the last couple of years. 2013's cropping activity of 22.2 million deadweight tons was very close to the second lowest -- highest, excuse me, the second-highest all-time level of 23.2 million deadweight tons in 2011.

Going forward and given the firming of the freight market, we expect this cropping activity to be reduced but still present since 9% of the fleet is above 21 years of age. Overall, this seasonal freight rates weakness in January and February of 2014 was expected and became more severe due to the temporal freight disruptions settled a two-month coal segment suspension in Columbia and the minerals export ban in Indonesia.

The current outlook however remains compelling. As the grain season kicks off and the iron purchasing activities resume, we will enter into a tightened freight rate environment expected to peak towards the end of the year.

Overall, the analyst consensus is that demand growth will outpace supply growth in 2014, while for 2015, this gap is expected to increase even. This is in line with our internal view as well, as we expect the freight market to transition towards a sustainable recovery in the years to come.

I would like now to pass the floor back to Spyros for his closing remarks.

Thank you, Simos.

In conclusion, as you can see on slide 19, we believe that investing in Star Bulk offers certain distinct benefits.

First of all, our fleet is poised to benefit from the drybulk market recovery, while we have the financial power to capitalize on any distressed opportunities that may arise. Secondly, our investors get exposure to superior assets with a diverse quality model fleet, including 11 top spec newbuilding orders.

Furthermore, we focus on what we do best, that is owning and operating drybulk vessels, while we have diversified our asset base to higher-margin vessels such as Newcastlemaxes. The experience with managers, led by our Chairman Mr. Papas, we have expanded our shareholder base through a credit institution such as Monarch and Oaktree. Clearly a vote of confidence in our transparent and efficient operations.

Lastly, we possess strong in-house management capabilities, of which we take full advantage by managing third-party vessels as well. This activity generates riskless revenue, diversifying our consolidated cash flows. Furthermore, as the size of our operating fleet increases, we enjoy substantial economies of scale and cost synergies benefiting both the third-party vessels under management, as well as our own vessels applicable.

Overall, we believe Star Bulk has a good set of characteristics that place us among the most promising companies in the drybulk industry. This has been clearly demonstrated through out this exciting year, and we certainly look forward to continue along this path.

Closing, I would like to thank our shareholders for their ongoing support and loyalty and reassure them that we will continue our efforts to ensure the Company's long-term viability and enhanced shareholder value.

Without taking any more of your time, I will now pass the floor over to the operator. In case you have any questions, both Simos and myself will be happy to answer them.

Thank you very much, indeed, Mr Capralos.

(Operator Instructions)

Your first question is from Stifel Financial comes from Ben Nolan.

Yes, and nice quarter, gentlemen. I have a few questions for you if I could.

Number one, with respect to the most recent Newcastlemax deal, it does seem to be a pretty nice deal both in terms of the acquisition price and the financing. Could you just maybe walk me through how that deal originated or were these vessels already ordered by someone else that were just -- where the order was walked away from, or was this a speculative build by the shipyard, or is it a brand-new order to the fleet? And how did you come by the terms that you did?

Okay, Ben, first of all, we also think that it was a very accretive transaction for us, as it combines the high leverage, as well as the options to be able to acquire those vessels any time from now until 10 years from now, then we have the obligation to pay for them. Having done the cash flows and the calculations, we think that, in today's market and also in future market, it leaves if you add those with operating expenses for those vessels, it leaves a quite substantial margin for profit on the table.

This deal -- we benefit from this deal from the connections of our chairman and previous good relationship with the yard since we are constructing a lot of our vessels in this yard. So we managed to get those parts, and I think this is important for the development of our fleet.

Okay, and from a modeling perspective, these would be seen as capital leases, correct? Rather than bare boat charter even though technically I suppose they are bare boats, but you would appreciate them.

Yes.

Okay. All right.

My next question relates to -- following this acquisition of these vessels, where do you see yourselves standing from a liquidity perspective both to fund the remaining equity that you need to pay for your newbuildings, but then also additional capacity to grow? Could you maybe walk me through where you believe that to be and any additional financing you may be able to get or anything of that sort?

Ben, this is Simos. As we said earlier, we have currently $52 million of cash on our balance sheet, and we did not have any remaining CapEx for 2014. Actually all our CapEx requirements are for 2015 and 2016.

And assuming 60% debt financing on the acquisition for the order price of the newbuildings, which to ourselves it seems conservative, the remaining equity CapEx for 2015 is $77 million, and for 2016 it's $15 million. So overall it's $92 million. Basically from your model, you can see that cash flow generation for 2014 and 2015 and estimate if an when we will be minked of new equity raise.

Okay. So by and large, I guess you should be able to fund it out of cash on hand and cash flow, but there may be at some point a need to do a modest equity raise. Is that how to think of it?

Depending on the market conditions and how freight rates are going to be and our cash flow generation, yes.

Sure, okay. And then last question, obviously, as of late, we've seen an improvement in asset values really within the past month. Where do you -- how do you come out with respect to being a buyer at these levels?

Do you feel like there is still substantial value in addition to where we've moved such that you'd still be a buyer right now, or do you feel like it could afford to cool off a little bit first? Where do you see the market from an acquisition standpoint?

Usually we do not like to buy in a market where there is frenzy with asset prices. I think we did our move, we placed our orders for newbuildings at the right time before the market picked up.

We felt that there were some good deals out there, and so we acquired the two Japanese Ultramaxes, as well as the Post-Panamaxes. We are there if we find -- we think there's a good business opportunity, then we may do a deal, but not just for the sake of doing a deal because what is of interest to us is the bottom line.

Sure. Okay. That's helpful across the board. I appreciate and congratulations on a nice quarter.

Thank you.

From Maxim Group, your next question comes from the line of Noah Parquette.

Hi guys. Just to follow-up on Ben's question about being buyers at these levels, you touched on it, but can you maybe give a little bit more detail of how you see the dividend being part of how you return capital to shareholders? I imagine it will not be until more of your ships are delivered, but can you tell us more about what you want to see in the market and when you're more comfortable with it?

Good morning. Basically we believe that, first of all, we need to see a much firmer market where charter ingrades will be at higher levels than what we are currently experiencing, and that's why we have most of our fleet in the spot market because we believe rates will continue firming.

And when we feel comfortable with the rates and when we see the potential is not there any more, then to our risk assessment will be chartering some vessels longer-term and making sure that the cash flows will be there. At that time, we will be able to start considering paying back capital to our shareholders.

Okay, so it's safe to say, once we start seeing you sign charters for your own six ships and more of the vessels are delivered, then that's when the time is at hand, basically.

That's correct because right now we still see a growth potential. We see that we have many vessels up and coming in the water.

We have 11 newbuilding vessels up and coming in the water in 2015 and beginning of 2016. Therefore, I think the market has a good potential for further growth in the chartering rates.

That makes sense. And then I guess quickly, you have the Star Mega older Capesize comes off charter later this year. What are your thoughts on what to do with it then?

Yes. When the charter rates will finish, and then we will have the details on the table about when is the next dry-docking view, how the market will be at that time. We think we will be at least creating that vessel until the time of the next dry-docking, then will decide what we're going to do. We may even sell those vessels at the time when the charters expire.

Notice Star Mega has the earliest delivery date this year. We see a further tightening in the market, charters might decide to opt for the latest redelivery, which is January 2016, depending on where the market -- January 2015, I'm sorry, depending on where the market is going to be at the time.

How much of a discount does a ship of that age gets versus 2012 build modern ship?

About 10% to 15% discount.

Okay. Thanks.

It depends always of the time with availability, and of course, charters prefer to in some cases even if the discount is not there to keep the vessels that they are already know, they've been trading for quite some time. And therefore we don't know whether they will decide or how the market conditions will be at the time whether those keep or not.

Okay, thanks again.

Thank you.

Now from Morgan Stanley, your next question comes from Fotis Giannakoulis.

Yes, hi, gentlemen. I also want to ask about your Newcastlemax acquisition.

If you could give us a little bit more background of what led you to sell some acquisition. Obviously the financing looks very attractive to you. But how did this opportunity come through to you, and why did you choose to buy Newcastlemaxes?

Thank you, Fotis, and good morning. We have already ordered two Newcastlemaxes from that same yard, SWS, which is one of the most reputable yards in China.

When this came as a deal that we could be part of it, we opted to proceed because the financing was very advantageous, and we gives a lot of opportunities to us and the option to acquire this vessel within a 10 year period. And looking at the financials, even though the credit terms and the spread that we are paying financial cost is higher than what we normally would pay now in commercial loans, we thought that the acquisition price of $59 million for the one and $56.5 million for the other one, as well as all the total costs involved, makes it advantageous if we are proven right that the market will become stronger for these class of vessels.

We like Newcastlemaxes. We think in the future Newcastlemaxes will be the winners in this Capesize segment, and that's why we proceeded to do it and because found those had deliveries late 2015 and early 2016. That helped our decision because these days it's very difficult and very rare to be able to get from quality yards deliveries at those early dates.

Thank you Spyros. A little bit more about the Newcastlemaxes.

We have seen other companies ordering this vessel, but the deals that we have seen, they always have some time charter for a number of years. How is the spot market for Newcastlemaxes?

How should we think the revenues the size, sounds pleasantly surprising on the acquisition price is very similar to Capesizes, but is there any premium or we should consider? And also how do the operating expenses of new build Newcastlemax compare with others of Capesize?

I will start with the easy part which is the last part of your question. We expect Newcastlemaxes to have similar operating expenses as the Capes. But now on the revenue potential, and because also these Newcastlemaxes are also modern designs and, therefore, they will more advantageous existing Capes.

But on the revenue potential, we haven't seen how much the market is willing to pay as a premium versus the Capes yet. We know the demand for such vessels, and but -- still in questions whether we will be willing to time charter them for long periods from now. Our answer is no, because we think that we can have later on higher prices than what the market is experiencing today.

And regarding the spot market, is there liquidity enough for vessels to operate with the higher utilization like Capesizes?

Right now there are not many such vessels in the water, but we think that, because they can go to the same ports as Capes can go, we think that's why they will have a higher and better potential because they carry exactly the same and they can do exactly the same freight, carrying larger quantities of iron and coal.

Thank you, Spyros. One question about the market. We've seen conflicting signals for the iron ore market at the beginning of the year.

On the one hand, the imports in China look quite strong, on the other hand, even ore price is rising and steel production is uncertain. How do you view the steel market in China, and do you see there are any risks of slow down in steel production in China that could have an impact for Capesize rates and the drybulk market in general?

This is a many million dollar question, Fotis. It's very difficult to know exactly what will happen with China. Of course there are different views and we see, and we analyze daily all those numbers that we see from China.

Obviously the market has picked up in the last few days which means that there's more demand for vessels, especially in the Capesize, which is the most volatile of all the drybulk segments. But of course, it's an unknown factor.

Things show that, despite the slowdown of China, there is going to be still more imports coming in China because due to the poor quality of the domestically produced iron ore, as well as the coal. But nobody can quantify exactly how much it's going to be substituted. It has to also do with the prices of iron ore and steel, and of course, we believe that long-term steel, China will be continuing growing importer of iron ore.

One last question, and it has to do mainly with your relationship with your two major shareholders with Monarch and Oaktree. I understand that Oaktree has a separate fleet that is growing fast.

First, how do you view the management income from operating the vessels of your major shareholder, and at what level this income can increase the next couple of years? And second, if you have initiated any discussions of potential expanding your asset base with vessels that are right now in the hands of Oaktree.

We enjoy a very good relationship with Oaktree and Ocean Bulk, and that's why we are managing their vessels. And we're doing I think a very good job the same way we're treating their vessels as we treat our own vessels.

Of course, it's a business that requires a lot of attention, effort and people, and that's why actually we get paid the $750 per vessel, which covers our costs. And I think that, long-term, when we getting many of their vessels because right now we only have 11 of their vessels; the other three are from other third-parties that we manage.

So the moment we get more vessels in the water, I think that will leave some money on the table for us. But this is not the most important thing. We think the most important is we manage to achieve synergies and economies of scale.

We managed to make better deals with all of our suppliers. And gives us a much bigger power to be able to negotiate and have better deals that improve, not only the managed vessels performance, but also our own vessels because everybody benefits from that.

For example at year end when we get rebates from suppliers from certain categories of goods, those rebates are attributed accordingly to the owned fleet as well as to the managed fleet. And that gives the benefits to all parties, and that's why I think that we enjoy a very good relationship with Oaktree. And we continue managing their fleets.

And regarding a potential transaction with the Oaktree fleet?

We are always there exploring all kinds of transactions and opportunities in the market. Therefore right now I cannot -- there's nothing more I can say. We're looking at everything.

Thank you very much, Spyros.

If there are no further questions, I will pass the floor back to Mr Capralos for closing remarks.

Thank you all for joining us today for our earnings conference call. And we look forward to your attendance in the next call with our first quarter 2014 results towards the end of May just before [Pasedonia]. Thank you all and have a good day.

And with many thanks to both our speakers today, that does conclude the conference. Thank you for participating. You may now disconnect. Thank you Mr. Capralos.

Thank you.