Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the fourth quarter 2019 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. 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 one on your telephone keypad and wait for your name to be announced. I must advise you that this conference call is being recorded today, Wednesday, January 29th, 2020. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number two of the presentation, which contains the forward-looking statements. 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 fourth quarter and the year, net income and earnings per share increased substantially, boosted by higher charter rates and the addition of new ships. As part of our fleet renewal program, we acquired during the quarter four Panamax vessels with an average age of about 11 years and disposed of an equal number of ships with an average age of 27 years. During the year, larger vessels enjoyed a rising charter market, and today there is limited supply available in the post-panamax sizes. We have 18 post-panamax ships coming off charter over the next 12 months, which positions us favorably should market momentum continue. Moving to the slides presentation. On slide three, you can see the highlights. Net income rose by approximately 80% in Q4 2019 compared to last year. The adjusted EPS is $0.32.
Over the past year, net income was close to $100 million, posting a 47% increase compared to 2018. The adjusted EPS for 2019 is $0.91. Moving to the next slide. Over the past quarter, we sold four small-sized container ships with an average age of 27 years and replaced them with four large-sized Panamax vessels with an average age of 11 years. The four Panamax have been acquired with equity, and we are currently in advanced discussions with a leading European bank for their financing. Slide five. We do maintain a strong balance sheet with approximately 41% leverage and no balance sheet financing. We also concluded four separate refinancings with leading European and U.S. financial institutions for four 11,000 TEU container ships owned with York Capital. We raised about $265 million in total from these refinancings.
Regarding operational performance, during the previous quarter, we achieved utilization rates of close to 100% and very competitive operating expenses. Moving to slide six. Large container ships continue to benefit from a tight supply market. Over the next year, 18 of our vessels larger than 5,000 TEUs are coming off charter, which positions us favorably should market momentum continue. The idle fleet, adjusted for vessels undergoing scrubber retrofits, stands at a low 1.5%, while the order book has remained at levels close to 10%. We will be paying our 37th consecutive quarterly dividend in February. Insiders have been participating in the DRIP and since inception in 2016, have reinvested in total $82 million. Slide seven. In this slide, you can see the fourth quarter 2019 figures. During the last quarter of this year, the company generated revenues of $124 million and adjusted net income of $38 million.
Based on the above, the fourth quarter adjusted EPS nearly tripled to $0.32 from last year's fourth quarter EPS of $0.12. Our adjusted figures take into consideration the following non-cash items, accrued charter revenues, accounting gains or losses from asset disposals, prepaid lease rentals, and other non-cash charges. On slide eight, we are discussing our capital structure. As already mentioned, there are no substantial balloon payments due over the next 12 months. Our leverage sits comfortably below 50%. Net debt to adjusted EBITDA for 2019 was 3.7 x and EBITDA over net interest at 4x when our covenants have a minimum requirement of 2.5 x coverage. On slide nine, we are showing the revenue contribution for our fleet. Almost 100% of our contracted cash comes from first-class charterers like Maersk, MSC, Evergreen, COSCO, Yang Ming, and Hapag-Lloyd.
We have today $2.2 billion in contracted revenues at the remaining time charter duration of about 3.5 years. On the last two slides, we're discussing the market. As shown on slide 10, charter rates for larger ships have been rising faster during 2019 compared to those of smaller vessels. The order book of slightly higher than 10% is at low levels with very thin delivery schedule from 2022 onwards. On the last slide, the idle fleet is showing at 6.1%. Adjusted, however, for the vessels undergoing scrubber installations, it drops to 1.5%. Box rates are rising since the end of last year. As already mentioned, we are actively looking for new transactions in this market environment. This concludes our presentation, and we can now take questions. Thank you. Operator, we can take questions now.
Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star two. That's star, then one to ask a question. Your first question comes from the line of Ben Nolan of Stifel. Please go ahead.
Yeah. Hey, Greg. How are you doing? Thanks for taking my call.
Yeah, hi, Ben. Good morning.
Yeah, I have a couple. My first one is, and you called it out in the release in your prepared remarks there, the 10 or 11 or so vessels that are larger, 8,000+ TEU that are coming off contract in the next few months. I'm curious if the plan is to put those maybe on one-year contracts, or if there is a good market for three- to five-year contracts. Specifically within that, is there a wide gap between a one-year contract rate versus a three- or a five-year contract rate in terms of the pricing?
For the first part of the question, yes, we would also consider a longer tenure as opposed to a one-year charter. It could be three to four years or even longer, five years, assuming that the charter rate makes sense, and also assuming that we feel comfortable with the counterparty risk. To the second part of the question, whether there's a wide gap between the one-year time charter rate versus a three or four-year charter rate. There is a gap but depending on the specific asset, I don't think that this is so wide. This is something we are considering as well, assuming that we feel it makes sense to lock in contracted revenues for a longer period. This is definitely something we are discussing. The gap, I don't think that this is as wide a sort of risk as has been in the past.
Despite the fact that some years ago, there was no three- to -five-year market for larger vessels. We have also seen precedents of deals where liners have been committing for a three- to five-year deal for modern tonnages.
Right. Okay. That's helpful. My next question relates to four vessels that you acquired. First of all, could you maybe, I didn't see it, let us know how much you paid for this? I thought it was interesting that it looks like all four of them are narrow-beam Panamax, which I think has been pretty widely discriminated against. I'm curious what your thinking is with respect to that specific asset class, and especially as it relates maybe to selling much smaller ships. You think these are going to fill the place of those smaller ships in terms of their market position?
Yeah. For confidentiality reasons it's difficult for me to reveal now the exact acquisition price. All the ships were sort of bought together in block, in one deal. Those four ships, these are the 4,250 TEU container ships built, two of them in 2009 and two of them in 2010. The market for those ships today is between, I would say, $13,500-$14,000 or so for a year. We do consider that today's market rate, together with the potential earning capacity of those vessels compared to the purchase price it definitely makes sense. We shouldn't forget that those assets, they have a 30-year useful life, and as Costamare, we do have a lot of experience, and I think this is one of our strengths in operating older tonnage. We do take a long-term view regarding the capacity of those vessels and their earnings potential.
In the past, for similar acquisition prices, those ships a couple of years ago, they were getting between $10,000 - $11,000 per day. It's definitely a better charter market for those vessels at prices which have not moved a lot compared to levels we saw a couple of years ago.
Okay. With respect to sort of replacing them with the older tonnage, is that sort of the idea? Do you think that they're sort of being slotted into the same market position or?
No. Look, we generally renew our fleet. We sold four vessels. On average, they have an age of 26.5 years. Those ships, they have earned their money a couple of times already. They were, I think, the right candidates for scrapping. Taking into consideration today's scrap prices, which on a relative basis, they are sort of high, close to $400 or plus per ton. We would have bought those four Panamax ships in any case, whether we scrap those older vessels or not. It coincided time-wise, so there could be a difference of a couple of quarters. It coincided. Generally, we are renewing our fleet and the sort of equity released from the sale of those vessels, of the older ships, together with new debt which we have agreed for Panamax vessels.
I think it makes sense because without a huge equity cash outflow we are renewing the fleet with ships 17 years younger on average, and larger vessels as well.
Right. Okay. Lastly from me, and I'll turn it over. Just as it sort of relates to your customer demand for scrubbers, I know obviously you've sort of taken the approach that if the customers will compensate you for it, and then we'll do it. Has there been any increased sort of a renewal of customers saying, "Okay, well, let's go ahead and do it," or is that not really a discussion that you're having?
We are discussing with liners. We are in constant discussions with them. We have, up to now, agreed to install scrubbers in 15 of our vessels. These are the five new buildings which are currently under the construction phase, chartered to Yang Ming for 10 years. We have already agreed to install scrubbers in five ships chartered to MSC, and five ships chartered to Evergreen. Those 10 ships are already in the water. We are in discussion with the liners regarding installation of scrubbers. It's going to be a package together with a charter agreement. If it's something that materializes, of course, we're going to be announcing it. Yes, there is a lot of interest from liner companies regarding the scrubber installation today.
Great. All right. I appreciate it. I'll turn it over. Thank you.
Okay, bye. Thank you.
Our next question today comes from Omar Nokta of Clarksons Platou Securities. Please go ahead.
Yeah, thank you. Hey, guys. Greg, just maybe to one of Ben's questions regarding the purchases of the Panamax vessels. You've been continuing a trend or a theme of selling your sub 3,000 TEU ships, forgetting wide beam or narrow beam. Is this simply you're looking to exit sort of that sub 3,000 segment and just going larger? Or is it just simply you're selling them as a function of their age? As you said, they were 27 years old?
For those four particular vessels we disposed of, they are an age of 27 years old. We disposed of them in today's scrap prices. The ships, as I said, they have already returned their money or the sort of equity investment a lot of times. It's just that I think they were the right candidates for scrapping. It doesn't mean that we are exiting this sort of a feeder vessel or the smaller sizes. In the future, depending on prices we're looking at pretty much everything, as long as it is a containership vessel. We tend to have an average ship size today is above 7,000 TEU, so we tend to prefer bigger tonnage. Generally, if it's something that makes sense, even if it is a smaller feeder ship, we're going to look at it.
It's not that we are exiting this segment. Those four specific vessels, I think they have reached an age that scrapping made sense from a commercial point of view.
Okay. Thanks for that color. Also just wanted to talk about obviously you put in the release the $265 million refinancing on the four 11,000 TEU ships. At first blush, that seems very attractive. You probably have your own valuations, but it seems at least to be above a 70% loan to value, which I think is quite compelling considering the ships aren't on long-term contracts. Maybe could you perhaps just explain a little bit about how you're able to achieve that type of financing especially without the long-term contracts?
Yeah. Look, those are four ships 2017 built, and we have refinanced them with new facilities. We've done four bilateral deals, actually so it's not a syndicate with a tenure of five years for each facility, and the terms are sort of pretty much similar. Now based on our calculation, the leverage is not 70% or like 75%, but it is lower based on the valuations we received and based on the valuation also banks from their own sources have obtained. In some instances, we had a pre-agreed loan amount to be drawn of $65 million without the need to provide a valuation a couple of days before drawing. It was a pre-agreed amount. Generally, I would say that the leverage is definitely below 70% for those type of vessels today. These are high-spec ships, 2017 built.
I think their sort of value is higher than what, again, you have in mind for a 70%-75% leverage.
Okay. Thank you. Maybe just you sort of touched on this also in your remarks and also Ben's question. Those four ships in particular, like you said, they're high spec. What's the charter appetite look like for those? Are those vessels you think you could secure through your contracts in today's market?
First of all, those ships today two of them, the ones chartered with a specific charter, they are getting today close to $43,000 per day. Just judging from that, I think the value of those assets is quite substantial. The second part of the question, we think that we could definitely charter those ships today for a period of three to five years or even longer. Of course, subject to terms. I think there is definitely a lot of returns today for a medium or long-term charter contract for those specific five assets. It's five ships, actually. We can refinance the four, and we are currently looking into the fifth one. It is five sister vessels.
Okay.
All those ships are opening, as we mentioned, within 2020. We definitely believe that the time of opening of those vessels, it's something that makes sense from our point of view. It is quite beneficial.
Yeah. Okay, very good, Gregory. Thanks so much for the color. That's it for me.
Sure. Thank you.
Our next question today comes from Chris Wetherbee of Citi. Please go ahead.
Good morning, James on for Chris. Wanted to touch on scrubber capacity in Chinese New Year. Given Chinese New Year's underway, how much of a reduction of scrubber installation capacity have you seen? Have any ships essentially entered the market? Trying to understand essentially if there were charterers that decided to have a scrubber installation, what's the level of capacity that essentially had it installed before the end of the year?
Okay. The line was not very clear. The question is whether there is capacity today for new scrubber installation or sort of whether there are delays? I mean, what was the question?
Just near-term. Near-term, how much of a reduction in scrubber installation capacity have you seen from Chinese New Year? Longer term, how much-
We haven't seen anything today. Look, generally, it has been reported that there have been delays in the shipyards for the scrubber retrofit process. Which on average now could take between, I would say 55 - 60 days or something. Although initially people had hoped for a much shorter period. I mean, there are some delays experienced for a lot of ship owners and hiring companies. Leaving that aside, which is something that we know, we have not seen any specific delay or sort of any specific capacity reduction because of the Chinese New Year festivities, which is something that we sort of already knew, and it was accounted for. The fact that the Chinese New Year festivities may be extended for one more week as it has been reported, and what's going to be the effect of that, it remains to be seen.
I cannot make any comment now. This is a bit premature. Up to now, this week, it has been already factored in the calculations regarding the scrubber capacity. Nothing has changed.
Longer term, understanding that there have been delays, is there any possibility of actually being able to place an order for a scrubber retrofit and have it completing this year if you actually ordered today?
Yes. I think if you made an order today, it's two things. First of all, you need to make the order of the equipment. Secondly, you need to arrange for the retrofitting process with the shipyard. If you put an order today, I think, and depending on the shipyard you're going to choose, I think, yes, there is capacity in order to have the scrubbers installed within this year. It depends on the specific vessel, asset size, and shipyard, and also the cost that may be incurred. I would say that for 2020 installation within this year, I would say that yes, there is capacity. We haven't seen something to the contrary.
Got it. In your slides, you had called out slow steaming. Wanted to understand if you'd actually seen any slowdown in your fleet, particularly.
Any slowdown? Sorry, in what?
In your fleet.
No. I think we are progressing. We have the five newbuildings where the scrubbers have to be installed, they are progressing normally. For the rest of 10 of the vessels, there may be some slight delays, but nothing that it's going to change dramatically the scrubber economics, I would say. There could be some delays of like a week or so, but it's not it's going to be delays of like a quarter or something like that.
Got it. I think just wanted to touch on the level of slow steaming you're seeing in the market. Have you actually seen a reduction in speeds on your vessels?
Yeah. There have been reports that generally slow steaming is something that has been taking place. I cannot quantify exactly because it depends on the vessel, on the trade routes, and also on the particularities of each charterer. Generally, the slow steaming, if someone takes a view over the last year or 18 months, this is something that we have been witnessing, which generally, especially for the larger vessels, it is something that does help the supply and demand economics, for sure. I cannot forecast whether the slow steaming is going to continue and at what levels. However, assuming that and knowing that the fuel expenses, they have been heading north, I think slow steaming is something that definitely makes sense.
Got it. Thank you, Greg.
Sure. Thank you.
This concludes our question -and -answer session. I'd like to turn the conference back over to Mr. Zikos for any final remarks.
Thank you for being here with us today and for dialing in in the conference call. We are looking forward to speaking with you again in the next quarterly results. Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.