Earnings Call: Q4 2020

Feb 2, 2021

You for standing by, ladies and gentlemen, and welcome to the Costamare, Inc. Conference Call on the Q4 2020 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the company. At this time, all participants are in a listen only mode. And wait for your name to be announced. I must advise you that this conference is being recorded today, Tuesday, February 2, 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 the forward looking statements. And I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir. Thank you, and good morning, ladies and gentlemen. During the Q4, the company continued its profitability. On the back of a rising market, we chartered a total 20 second half vessels during the quarter for periods of up to 10 years, Substantially enhancing both our contracted revenues and charter coverage. The new charters contribute north of $440,000,000 in Incremental revenues have a weighted average duration of about 5 years. On the market, the idling contingency fleet continues Shrink and now stands at about 1%. Supported by healthy demand at the Kronig's orders of vessels, charter rates have been on the rise. We have 10 ships coming off charter over the next 6 months, which positions us favorably should current market dynamics persist. With liquidity of about $200,000,000 a streamlined debt repayment schedule and minimal CapEx commitments, we are well positioned for a healthy expansion in a volatile market environment. Turning now to the slide presentation. On Slide 3 you can see a company snapshot, more than 46 years in the shipping industry, Uninterrupted dividend payments is going public. Strong sponsor support never had to restructure our debt, A smooth debt repayment profile, fully aligned interests, no related party acquisitions, steady managed rented ownership and high growth potential with no legacy debt Restrictions. Moving to the next slide, here you can see the resilience of our business model, steady revenues and income a highly volatile shipping environment. On Slide 5, you can see the highlights. Adjusted net income for the quarter is 32.5 And the adjusted EPS is $0.27 Our adjusted net income for 2020 is $124,000,000 and the EPS is 1 point $0.02 We do maintain a strong balance sheet with liquidity of about $210,000,000 book leverage of 55%, Market value base leverage of 37% and no meaningful debt maturities until 2024. Moving to the next slide, we have chartered in total 20 vessels during the quarter. The new charters represent an increase of $440,000,000 in contracted revenues We have a weighted average duration of about 5 years. As you can see, we have charted 4 ships on a forward basis for a 10 year period At the rate of $33,000 per day per vessel and the 1996 built vessel for 2 years at the rate of $31,000 Slide 7. The charter market has continued to rise on the back of positive supply and demand fundamentals. Time charter rates increased substantially over the last 6 months. The idle fleet is 1% and the order book stands at 10% of the existing fleet, We see historically low number. As part of our fleet renewal program, we continue the sale of all the donuts. Over the past quarter, we sold a 21 year old container ship and have bought 3 younger vessels. The 2 2000 and 4 Brid 7000 TEU ships are expected to be delivered this month and upon delivery will be chartered to a leading liner company for a period of 2 years. Slide 8, we will pay our 41st consecutive quarterly dividend in February. Insiders have been participating in the DRIP instituted in June 2016 and since inception have reinvested in total $95,000,000 Slide 9. During the Q4, the company generated revenues of $119,000,000 and Adjusted net income of $33,000,000 Based on the above, the 4th quarter adjusted EPS is $0.27 The adjusted figures take you to consideration the following non cash items accrued charter revenues, organic gains or losses from asset disposals, Prepaid lease rentals and other non cash charges. On Slide 10, you can see a summary of our capital structure. Our leverage is comfortably below 40%. Net debt to 12 month trailing EBITDA is 2.4 times And EBITDA over net interest expense is at 5.1 times when our covenants have a minimum requirement of about 2.5 times coverage. On Slide 11, we are showing a terrific contribution for our fleet. Almost 100% of our contracted cash We have to date $2,400,000,000 in contracted revenues And the remaining times had a duration of about 4.4 years. On the last two slides, we're discussing the market. As already mentioned, charter rates have significantly improved, especially in the second half of twenty twenty. Works rates have increased by more than 170% on a yearly basis. Slide 13. The idle fleet has been reduced to 1% from a high of 11.6% in May 2020. The order book starts at 10%. As mentioned, we are well positioned to capitalize on opportunities in this market environment. This concludes our presentation and we can now take Thank you. Operator, we can take questions now. Thank And your first question comes from the line of Chris Wetherbee with Citi. Please go ahead. Hi, this is Liam on for Chris. Thank you for taking my question. So first, I just wanted to ask a little bit about your charter strategy. So it seems that most of the vessels you rechartered During the quarter, we're for about 1 to 3 year periods, but there were also 4 vessels that were put away on 10 year charters. So I just wanted to ask a little bit of get a sense from you guys on What your appetite is for longer term charters and if you're going to be focusing on those as opposed to more of the shorter term charters that have been kind of making up a little bit A decent size of your book lately? Yes. First of all, It also has got to do with the time charter rate. But in today's environment and considering where Where the rates are? I think from a shipowners perspective, it would make sense to lock in contracted revenues, Especially for 1st class and bankable charterers for a longer period as opposed to chartering a ship for 1 year. For instance, As you can see, we charted the 3,000, 9,500 TEU vessels for a period of 3 years at around 40,000 per day. We could go for a shorter period, but we felt that the 40,000 for the 3 year period for those vessels Would make sense. Also now specifically for those 4 11,000 TEU ships, These are 2016 2017 built. So the 10 year charter, which is On a forward page, so the vessels will be delivered to the new charter close to mid of 2021. So you have a time charter coverage Until mid of 2,031. The 33,000 for those is for a 10 year period, I think it is something that makes sense. So the long story short, In today's market, of course, assuming that the charter rates offered by the charter rates, we feel makes sense, which In most cases, do. We would also go for a longer period and have incremental contracted revenues Rather than go for a shorter period even if the charter could be marginally higher. Got it. So just also so I understand on the 10 year charters, because I did see that the rates are obviously a little bit lower than what previously contracted at. And is that kind of just because you're playing the market a little bit because you have to like they're not going to be delivered until 2021 and then You guys want to just kind of lock it in at a fairly high rate, even if it's a little bit lower than what your previous rate was? Yes. The previous rate, It was in the region of 40,000 plus, but it was for a year on the year. For a year and a half. So at this point in time, a year 4.5 years ago, we decided that there was no disavailability of the 5 or 10 year charters. So I mean, We decided to go for a shorter period at the highest rate available. Now that the market fundamentals are such, so that you can find 10 year charters For those vessels, we decided to go longer for 10 years at $33,000 per day windows. Ships were Fixed in the past year and a half ago, the market was not there for a 5 or for a 10 year charter. Market fundamentals have improved, especially after the second half of twenty twenty. Got it. And just one additional question. So I know your leverage ratios have gone a little bit lower on a historical basis. So I just wanted to ask a little bit about your priorities in terms of your capital allocation and how you might leverage your balance sheet. So when you guys think about that, What would your plans be or thoughts be around more aggressively pursuing secondhand vessel acquisitions or maybe even new builds? And then how you Kind of compare that to your thoughts about maybe raising the dividend or any other sort of capital allocation priorities? Yes. The leverage we have today on a book basis, leaving aside adjustments and market based Valuations is 55%. If we take the market Adjusted value of the assets on a chartered inclusive basis, as per broker valuations, we have to Obtained for our financial covenants, the leverage goes down to 37%. So I think that No one would disagree that this is a low leverage level. On top of that, we have a cash Close to $210,000,000 and very streamlined debt repayment schedule with no meaningful maturities up until 2024. So Starting from that basis and on a capital allocation question, I think that generally we have been active. We are looking Both for secondhand vessels with or without charter, younger or like older vessels, we don't have a problem with older vessels As long as the returns justify the acquisitions and as long as the fiscal condition of the vessel justified this As well, or also newbuildings. Now, the dividend and this is a question we have been Receiving quite often. I think that the dividend I mean, first of all, we own close to 65% of the company. So you have fully aligned Interest between the sponsors and the rest of the shareholders. We like dividends. Our goal will be to raise the dividend. However, we wouldn't have first of all, the dividend we have today, it is definitely sustainable. And secondly, increased dividends should come with increased contracted cash flows going forward, Coming from like a creditworthy charters. So we are not against the dividends, but it's a matter of deciding whether we're going to be seeing Any new incremental transactions are coming in. And what's going to be the chartering In the next couple of quarters and whether we're going to be able to secure similar long term charters. All right, great. Thank you very much for taking my questions. Thank you. And our next question today comes from Ben Nolan at Stifel. Please go ahead. Hey, good morning, Greg. I've got a handful of them here. One, just for Record keeping purpose and modeling purposes. Last quarter, you had talked about the acquisition of a 5,600 TU containership 2,006 Bill. I didn't see it anywhere in the fleet list. Could you just Update me on the status of that. Yes. This is a vessel that has been bought and that will be delivered Over the next month. So either upon its delivery or the latest, I hope During the next quarterly results, it should appear on our clip list. You're right, this 5,600 TEU vessel, 2,006 built. It has been boarded. It is a matter of the delivery taking place within Q1 Of this year. Okay, perfect. That's helpful. And then with respect to the 2 6,500 TEU ships that you acquired, Any color on the price? Or maybe a better question is, you have a handful of New vessel deliveries coming. How much CapEx is collectively on the schedule for over the next 6 months For 2020, if I could play again. Yes. Those vessels, the vessels that we're going to be buying, we're going to lever them. So I mean, and sort of assuming a leverage between 60% to 70%, not higher than that. I think the sort of equity that will be required, it's going to be minimal. You talk about Some 1,000,000 of dollars, nothing like nothing special. And the sort of and plus the new buildings that we still have to accept delivery of The 2,000 TEU chartered to Yang Ming that will be delivered within the first half of this year. The CapEx commitment there, I mean, our sort of Equity commitment because these are fully funded, it should be in the region of €12,000,000 or so, $12,000,000 to $13,000,000 So in total, together with the 2nd hand ships, I think we would have been north of like $25,000,000 $30,000,000 max. Okay. That's helpful. Right. And then Unless you said it. Yes. Yes. And then including the debt gets you to sort They all in CapEx. And lastly, just sort of circling back to a question that you talked a little bit about, The possibility of acquiring ships and looking at secondhand ships. And obviously, you've done a few of those in the last quarter. But asset prices have really come up a lot, as you would expect with longer contracts and higher charter rates. At what point do you start You know, prefer to simply bank the cash as opposed to potentially taking an increased level of Residual risk with asset values if the market should soften at some point in the next couple of years? Yes. Normally, when we buy a vessel a secondhand ship, we have a pretty good understanding of its chartering Arrangements. So and considering that today For a secondhand ship, you can get a 2 or 3 or 4 or 5 year charter commitment. We would buy them on the back of a commitment for a minimum period, so that we would make sure that today's acquisition price, Combined with the charter commitment for a minimum fixed rate would make sense. Otherwise, buying something At the price, which you can argue that it's high or it's higher than compared to what it used to be a year ago, Without a good understanding of the chartering arrangements that you can put in place, this is something we wouldn't do. So whatever we buy, we have a pretty good understanding of how much we can charter it and for how long. And we make sure that we feel comfortable with The residual value risk for this secondhand vessel acquisition. Right. Well, and maybe the inverse of that question is, Yes. Obviously, quite a number of the big miners have been actually buying ships themselves as opposed to Locking in charter commitments and paying premium values for those ships. Are you in the market to potentially sort of sell maybe some of your assets in order to Take advantage of the higher prices and further strengthen the balance sheet and position yourself to be countercyclical acquirers of assets possibly? Yes, we sold 1 vessel this quarter. I think it's the Halifax Express. This is something we mentioned in the press release. So we are doing this as well. And of course in the future we may decide to dispose of more vessels. And as you may recall from the press release of the previous years, we normally don't sell a lot of seats. We normally tend to buy them and Hold them and monitor them for period, but this ship because of market conditions, we decided to sell it and the equity Released to be put in other vessels. So I mean, we would definitely consider selling additional ships. If we take the view that the cash received can be accretive or more accretive in other acquisitions Or if it could be used in order to renew the fleet, yes. Okay, perfect. And then last for me. As you mentioned, obviously, cash Lot better. Some of those preferreds are callable. I suspect that that's still a Pretty valuable part of your capital structure, but any thoughts about potentially calling back in the preferred? Yes, we did buy some preferreds. I mean, The most we could last year when the preferreds were trading at much below par. Due to a lot of legal restriction, We couldn't buy more than what we did. I know that these preferreds, they have a yield which is On the high side, we pay for that because these are truly preferred instruments with no step up options And sorry, and to in perpetual, this is something to consider as well regarding Our capital allocation. So it could be the preferred or most probably it could be new vessel acquisitions. If we don't find any, then of course it is the preferred, it's the dividends, it's share buybacks, it's a lot of things that We can do, but they prefer to separate one of the options. I have to say however that all these are both decisions. So And these are not the issues that have been, I mean, The dividend raising or the preferred buyback, it's not something that was discussed in the latest Board meeting. But generally, these are thoughts that have to do with how we use our cash going forward In order we don't find any new transactions, but today I would say, as you can see from our press release, we're generally active and we feel The transactions we do together with the time charters we attach to those vessels do make sense. Okay. All right, perfect. I appreciate it. Thanks, And ladies and gentlemen, this concludes the question and answer session. I'd like to turn this conference back over to Mr. Zikos for any final remarks. Thank you for dialing in today and for your interest in Costamare. We are looking forward to speaking with you again Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.