Earnings Call: Q1 2021

Jun 1, 2021

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. Conference Call on the 4th Quarter 20 21 financial results. Pardon me, it's the Q1. We have with us Mr. Gregory Zukas, Chief Financial Officer of the company. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. At which time if you wish to ask a question, please press star then one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today, Tuesday, June 1, 2021. We would like to remind you that this conference call contains forward looking statements. Please take a moment to read slide number 2 of the presentation, which contains some forward looking statements. And I would now like to pass the call over to your speaker, Mr. Zikos. Please go ahead, sir. Thank you, and good morning, ladies and gentlemen. We are pleased to announce the results of another profitable quarter. The market rebound that began in the second half of last year has continued, drawing strength from favorable supply and demand dynamics. Strong demand for goods, restocking of inventories and the balanced container vessel market have both helped the charter market to its levels that we have not seen for a decade. Since the beginning of the year, we have agreed to acquire in total 15 secondhand vessels, and we have taken delivery of our last 2 newbuildings, which have commenced their 3 year targets. Employment already Since our previous quarterly earnings release, we chartered out a total of 17 second half ships at increasingly high levels of hire. We have a total of 23 ships coming off charter over the next 18 months, which is a favorable position should the current market conditions continue. Finally, on the financing side, we have recently concluded the issuance and listing of the 1st shipping unsecured bonds on the FX exchange for €100,000,000 Based on an exceptionally high demand, the bond was priced at the low end of the yield range with a 2.7% coupon for a 5 year period. Based on these business developments and our increasing long term cash flows and liquidity, Management is pleased to recognize to the Board of Directors to increase our Q2 2021 dividend by 15%. Our balance sheet, together with cash flow from operations and liquidity position, provide us with the ability to increase the dividend without any impact on our growth plans. Moving now to the slide presentation. On Slide 3, you can see a company snapshot. More than 47 years in the shipping industry uninterrupted dividend payments is going public strong support never had to restructure our debt, smooth steady payment profile, fully aligned interest, steady management ownership and high growth potential with no legacy debt restrictions. On the next slide, Slide 4, here you can see the resilience of our business quarter. Management will recommend to the Board a 15% increase in the quarterly common dividend effective from Q2 2021. Adjusted net income for the quarter is €38,000,000 and the adjusted EPS, €0.31 In the previous week, we concluded the issuance of the 1st unsecured bond on the adverse exchange. The tender is 5 years, and due to the exceptionally high demand, it was priced at the low end for the year, range of 2.7%. Moving to the next slide. We have been quite active on the SAP market. In total, we have acquired 17 vessels worth north of $760,000,000 VICI, remember, contracted revenues from the acquisitions amount to approximately $830,000,000 We have also agreed to sell 3 of our vessels. Sales are expected to be concluded within 2021. On Slide 7, you can see our new financing arrangements since the beginning of the year. In total, we have concluded financing agreements of about 430,000,000 The new financing commitments amount to $237,000,000 All vessels acquired in 2021 have either been financed or We do maintain a strong balance sheet with liquidity of about €140,000,000 book levels of 60%, market value based leverage at around 40% and no meaningful debt maturities until 2025. On Slide 8, we have chartered in total 12 vessels in 2021 at higher levels than the previously agreed ones. On top of all, These 5 secondhand vessels will deliver is expected to occur within 2021 are our long term charters. As already mentioned, we have a total of 23 ships carrying off charter over the next 18 months, which provisions favorably should carry market conditions continue. On the market, the charter market has continued to rise on the back of, of course, the supply and demand fundamentals. In April. Insiders have been participating in the DRIP and Cision section in 2016 have reinvested north of $100,000,000 On the next slide, you can see the Q1 2021 results. During the Q1 of the year, the company generated revenues of 127,000,000 On Slide 11, we are discussing our capital structure. Our leverage is comfortably at around 40%. EBITDA per net interest is at 5.8x, 96% of our contracted cash comes from first class charters like Maersk, MSC, Evergreen, Coastal, Yanom, Inc. And Havok Lloyd. Today, we have $3,000,000,000 in contracted revenues and the remaining time charter duration of about 4.2 years. On the last two slides, we're discussing the market. Charter rates have continued to improve. Since the second half of twenty twenty, Rates have increased on average by 300%. Box rates have also a positive trend due to favorable supply and demand dynamics. On the last slide, Slide 14. The IHDF rate is at 1% from a higher 12% in the same period 1 year ago. The order book has risen to circa 18%. It should be noted, however, that it takes close to 2 years to build a new ship, and new Prefix Now orders will be delivered from 2023 onwards. This concludes our presentation, and we can now take questions. Thank you. Operator, we can take questions now. Our first question today comes from Chris Wetherbee with Citigroup. Please go ahead. Yes. Hey, thanks. Good afternoon, guys. Hi, Mike. Good morning. Hey, maybe I could start on leverage. And I wanted to get a sense of kind of where you are in your comfort zone in terms Whether it's debt to EBITDA or however you would want to look at, at sort of your leverage metrics, how much more capacity do you have, do you think, incremental debt to reinvest and potentially grow the fleet? Yes. The leverage today based on the financial covenants as agreed with our lenders, and this is leverage based on market values of the vessel. It's, as mentioned, below 40%. This is also due to the fact that we have long term contracts and the cash flows Those ships are factored in the levers calculation, so we take a charter inclusive valuation, which is, I think, the right thing to do in Container Shipping. So based on that and based that we are at below 40% levers today, I think we do have a lot of capacity to grow. The thing is that asset values are at very high levels. And we normally don't like buying at the peak of the market, but now charter rate and also asset values are at historically high levels. So This is something to consider. But from a leverage perspective and from a capacity perspective, Whether discussion balancing, access to commercial bank debt and the ability to lever up, I think we have more than enough capacity. Okay. Okay. That's helpful. I appreciate that. And then maybe just a question about the general sort of fleet development and the order book. So you have a helpful slide on or chart on Slide 14, it shows that the order book has risen as a percent of the total fleet. I know it takes time to get these shifts, but when do you start worrying about that Is that something that we do need to consider as we go out if we see a significant amount of incremental ordering? What do you think sort of the right number is? And maybe how long could we see the cycle play out if we sort of maintain a more rational approach to adding capacity into the market and new ships into the order book. Yes. It's first of all, the order book The period 2007, 2008, the containership order book, it was at around 60%. So it may be considered that it's come up significantly from the 9%, 10%, 11% we had last year. However, we do feel that it's still manageable. And looking at it from a historical perspective, it's definitely not at the peak levels. Now As you mentioned, it takes 2 or like 3 years to have a vessel delivered. Most ships that have been ordered also to a substantial number of ships that have quarter. They are on long term charters. But it remains to be seen what the demand and supply dynamics will be in 3 years' time. We never thought of the market. This is our principle, and the company is being grounded based on our tax capacity and liquidity. However, I have to say that historically, an 18% order book, I don't think it is at the prohibitive levels considering what we've seen in the past. And For the next couple of years, we know what the supply will be, the supply that will come to the market. And definitely, the consensus Panelist is that we will have very terrible supply and demand dynamics over the next year or over the next couple of years. Okay. Okay. Last question. Could you put an order into the order book now? When are you assuming the vessel? How long is it to get one? It depends on the vessel and on the shipyard. But I think now, most probably, like 2021, the most probably delivery would be 2024. But I mean, it's not black and white. It's got to do with the CPR. It's got to do with the characteristics of the vessel. But I would say generally that the deliveries now could be 2024 going forward. Okay. That's helpful. Thanks for the time. I appreciate it. Thank you. The next question comes from Ben Nolan with Stifel. Please go ahead. Hey, Greg. I have a couple. I wanted to start on the bond. First of all, congratulations on it's a historic offering, but The brakes were fantastic, frankly. And so I wanted to dig in a little bit on that. I was curious how if you have any color on how much of it was place with traditional institutional investors or were there sort of maybe perhaps some more private capital That was investing in. It's something really curious if this is something that can be replicated either by you or others Or if you think of this as maybe just sort of available just to you, maybe Yes. Sure. First of all, the allocation, it was close to 70% retail investors and the rest was institutional investors. The bond was 6.6x oversubscribed. And the initial yield range, it was between 2.7% and 3.1%. And based on the book we had, obviously, we priced at the low end of the range at 2.7%. This is a fully unsecured bond, which is It's a typical structure for shipping bonds, and it has a 5 year maturity. We started with a low value, So €100,000,000 which is $820,000,000 because it was the first pure shipping bond issued in the Greek market. People were not that familiar with shipping or more particularly with customary or With container shipping, so we were a bit reluctant and cautious. But finally, I think that the result 6. However, the main point here is, apart from the low coupon, which is This is definitely something that in the future we can replicate and hopefully at even better terms. Considering that It was fully subscribed within the first 24 hours, and we had a book of north of €650,000,000 within the 3 days of marketing. Great. That's helpful. If I could Shift gears a little bit. As I was going through the filings and I recall this, I was reading that you guys had been given some equity as part of the FIM restructuring a number of years ago. And then also They're doing a secondary offering today. I was curious if you guys still have an equity position in that and I wasn't able to find sort of what that is, but was curious if that is a meaningful number at all? You're talking about Zim, sorry, I couldn't hear you clearly. Yes. Zim, sorry. Yes. I mean, we do have 1,200,000 shares. And if you look at our adjustments to the P and L, We have adjusted now that the regime is public, at the end of the Q1, we have Right. They gave sort of some income in our P and L because of the valuation of those shares. This is something we sort of have adjusted. And the adjustment was slightly below $26,000,000 Right. How do you think about that position longer term? I don't know. I mean, this value of $26,000,000 this reflects the stock price as of The end of the Q1 where the stock was trading at around $20 Now the stock is trading double or more than double. So it's come up. But I mean, we are patient. So we are in Ohio to sell. So we will see what we're going to do with that asset. But as I said, we're patient. There is we don't need more liquidity now. So I mean, generally, we're not sellers. We will take our time and consider when is the optimal time based on our thoughts to see what we're going to do with that asset. However, in the $0.31 of adjusted EBITDA sorry, of adjusted EPS, this But we thought that it is fair because this is a non operating item, it is an asset that is on our balance sheet for some years now. We said that it is fair to have an adjustment to have the $0.51 of EPS based on pure operational performance. Right. Okay. That's helpful. And then lastly for me, obviously, you guys were buying and selling assets even recently, Basically doing both though. And it may even with the high asset prices, I think you can look at the time charter rates and see that you're generating substantially more than what you're paying for the assets and less than 3 years in many cases. And so the math Works pretty well on that basis. But I'm curious where you stand right now. Like are you a better buyer or seller or both? Or are you getting close to being at a point where you might just be on the sidelines for a little bit? Any color there? Yes. Look, the acquisitions we did, I mean, most of them or like, if not all of them, were concluded during the 1st months of the year. After that, the digitized asset values and charter rates, they are sort of extremely high levels. So sort of after that, we stopped. Now we are past proportioned. It will be difficult for us to sort of replicate the same acquisitions We did in January, February, March of 2021, where now asset values are. So now we take our time in That level of environment in terms of asset values and charter rates, we're going to be much, Much more cautious. So we take our time. We do have a lot of liquidity. We know that we have to invest generally and generate returns. But where now asset values are even with very high rates, those deals now by default, they are becoming more levered Operationally and finally. Also financially, because we have had levels, let's say, 10% of the level, 60%, 70%, whatever that is, it doesn't matter to a much higher asset value, which we don't like. So now we're going to take our time and Consider and think what is the best way in order to invest our liquidity because based on the charter rates you've seen And without any new business, liquidity and the cash balance is going to be Climbing up every single quarter going forward. So this is something for us. All right. Perfect. I appreciate the color there, guys. Okay. Thank you. This concludes our question and answer session. I would now like to I turn the conference back over to Mr. Greg Psikos for any closing remarks. Thank you very much for being here with us today. We're looking nineteen. This does conclude our conference for today. Thank you for all participating. You may now disconnect.