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Costamare Inc (CMRE) Q4 2018 Earnings Conference Call Transcript


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Costamare Inc (NYSE: CMRE)
Q4 2018 Earnings Conference Call
Jan. 24, 2019 , 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc., Conference Call on the Fourth Quarter 2018 Financial Results. We have with us today, 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. (Operator Instructions).

I must advise you that this conference is being recorded today, Thursday, January 24th, 2019.

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.

And I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you, and good morning, ladies and gentlemen. During the fourth quarter and the year, the company delivered profitable results. The year 2018 closed on a mixed note, while charter rates rallied in the first half of the year, average rates fell in the second half, finishing the year slightly below their starting point, except for the larger ships.

During the last weeks, however, we have witnessed a tighter market with regards to large modern vessels, where supply has been limited driving up charter rates.

We have been active during the year, entering into new transactions with a total value of close to $900 million. These include both new buildings and second hand ships with an average time charter duration of eight years.

Finally, on the financing side, we financed with a leading financial institution the two recently acquired 1996-built, 8,000 TEU sister containerships, as well as a $25 million balloon due in December of last year secured by older vessels. We have no meaningful balloon repayments over the next 12 months.

Turning now to the slides presentation. On slide three, you can see the highlights. The adjusted EPS is $0.12. Over the last months, we have chartered 12 vessels. The total value of newbuilding orders and second hand acquisitions by the company within the year amount to $900 million. We financed two 8,000 TEU containerships, which were acquired in Q3 2018, that's added to Maersk for 2.5 years. We concluded the refinancing of two credit facilities with an outstanding loan amount of about 44 million.

We do maintain a strong balance sheet with approximately 50% leverage and no off-balance sheet financing. Regarding the market, the idle fleet is 2.5%, and the newbuild delivers in 2019, are expected to be around 5% of the existing fleet, excluding any scrapping and slippage.

On slide four, you can see a summary of our recent chartering activity, what is worth mentioning here is the recent chartering of the 11,000 TEU vessels Cape Sounio and Cape Artemisio at rates of about $32,000 per day.

Moving on to slide five, you can see our dividend payments as well as the sale for scrap of an older vessels. On slide six, you can see the fourth quarter 2018 figures. During the fourth quarter of this year, the company generated revenues of $106 million and adjusted net income of $13 million. Based on the above, the fourth quarter adjusted EPS amounts to $0.12. Our adjusted figures take into consideration the following non-cash items : The accrued charter revenues; accounting gains or losses from asset disposals; prepaid lease rentals; and other non-cash charges.

On slide seven, you can see a lists of the transactions we concluded during the year. Those transactions were primarily focused on deals with long-term charters attached. The incremental contracted revenues amount to $1.1 billion over an average charter period of 8 years.

On slide eight, we are showing the revenue contribution for our fleet. Almost 100% of our contracted costs comes from first-class as charterers like Maersk, MSC Evergreen, Yang Ming, Hapag-Lloyd and Cosco. We currently have $2.3 billion in contracted revenues and the remaining time charter duration of about 3.8 years.

And to the last slide, we're discussing the markets. Regarding charter rates, there has been a further softening in the market during Q4, especially for the smaller size vessels. The idle fleet still stands at a low level of 2.5%. The order book remains at 13%. As already mentioned in the past, 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.

Questions and Answers:

Operator

Thank you. (Operator Instructions).

The first question comes from Chris Wetherbee with Citi. Please go ahead. Chris, your line is open.

James Monigan -- Citigroup Inc -- Analyst

Hi. James on for Chris. Wanted to ask about essentially the transaction market. Given the rate outlook, it seems like or given the rate environment and the rate outlook, it seems like great -- good environment. But what would be preference essentially for buying out existing JVs or acquiring older tonnage?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah. Couple of things. We are generally indifferent for smaller and bigger ships, as long as the numbers make sense, and we can consider pretty much everything, and this is something you can also see from our fleet list.

Now for the JV vessels, we bought this -- the 6% that York owned with these five $14,000 TEU vessels which had a remaining time charter period up until 2026, and contracted revenues north of $360 million. And so -- and the numbers made sense for us. In the JV with Europe, we also have some five 11,000 TEUs newbuildings delivered recently over the last couple of years, which have a charter period of close to one year. This is something we can consider as well, but mainly for younger vessels, we would prefer to have a time charter attached, leaving no ships aside, you can see that we have also bought secondhand ships without employment as long as we feel comfortable with the earnings potential of the assets.

Operator

The next question comes from Ben Nolan with Stifel. Please go ahead.

Frank Galanti -- Stifel, Nicolaus & Company -- Analyst

Hi, this is Frank Galanti on for Ben.

Gregory G. Zikos -- Chief Financial Officer and Director

Hi.

Frank Galanti -- Stifel, Nicolaus & Company -- Analyst

HI. So with kind of the weakness in the share price recently and a number of other shipping companies announcing share buyback programs. I wanted to get your thoughts on, any interest in doing so? And if there was any limitations on our share buyback program?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah. Couple of things here. First share buyback program, it is something that will be decided by the Board. So it's not something that I can decide now myself, but I can tell you some thoughts about it.

First of all, we normally do buy assets, and we expect to generate cash flows and returns from those assets. Now this doesn't mean that we don't believe that our stock price, that the Costamare common stock is today undervalued and underpriced. And I think some of which or most of it has to do with more generic economic conditions rather than with the company fundamentals itself.

This is something we may consider in the past, however, we also need to consider restrictions in the liquidity of the stock and the cash that we would have available in order to put discussion into work for new transactions. So it's those two things, which of course will be considered alongside the fact that the stock price today is undervalued and that share buyback is something that might make sense. But I'm not prepared yet to tell you exactly what the Board will be deciding on that.

Frank Galanti -- Stifel, Nicolaus & Company -- Analyst

Okay. Yeah. That's helpful. Then kind of follow up on capital constraints. In the press release, it was mentioned that you guys spent $900 million last year. Do you have a kind of rough outline on how much additional CapEx room, the company would have going forward without the need to raise additional equity?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah. This $900 million, it is the total value of the assets we bought, which were partly funded with debt and partly funded with equity. This is the first point.

The second point is that, today, our equity CapEx commitments amount to $31 million, all the newbuildings, the funding of the new buildings for the five Yang Ming of 13,000 (ph) TEU ships has been in place debt. So I mean the remaining CapEx we have today from an equity perspective from our cash is $31 million and that's all, there's nothing else.

And we have cash on balance sheet today north of $160 million, and the company is generating a positive like EBITDA. So bearing all of those in mind, I don't think that we are in a position today where -- in order to grow, also considering our very good access to commercial bank debt, that we will need to raise equity, quite the contrary, we can grow today and turn that into new transactions, without the need of equity based on the cash on balance sheet, based on the very limited CapEx commitments we have, and based on the cash flow generation from the ships in the water.

Frank Galanti -- Stifel, Nicolaus & Company -- Analyst

Okay. That's all I had. Thank you very much.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you.

Operator

The next question comes from Donald McLee with Berenberg. Please go ahead.

Donald McLee -- Berenberg Capital Markets -- Analyst

Good morning.

James Monigan -- Citigroup Inc -- Analyst

Hi, Donald. Good morning.

Donald McLee -- Berenberg Capital Markets -- Analyst

So just going back to scrubber installs from Q3, were those open-loop or closed loop? And then as a follow-up to that, how do you anticipate the recent bans on open-loop scrubbers in Singapore, China and the UAE, impacting either your thought process or your discussions with customers on incremental scrubber installs and their overall IMO 2020 strategy?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah. The scrubbers agreed for the five MSC vessels, they are closed loop scrubbers. Now the type of the scrubbers which is also affecting the cost of buying and installing this equipment. It is a decision made by the charterer, and the charterer -- because it's going to be receiving all the benefit from the fuel saving costs. Logically, we'll have to bear all the associated costs. So it is a charterer decision. For MSC, these are closed loop scrubbers. We know that there are restrictions in the use of the open-loop scrubbers in China, in Singapore, there were also some articles about Middle East restrictions recently. We know that, but it is a decision of the charterer mainly, and as long as the charterer pays for that equipment during the tenure of the employment of the vessel, we will cater to the needs of the charterer.

Donald McLee -- Berenberg Capital Markets -- Analyst

Right. But as those policies have changed, have you sensed any change in kind of what direction some of the customers are going to go in?

Gregory G. Zikos -- Chief Financial Officer and Director

We are in discussions with other charterers as well for the installation of scrubbers. It has not been finalized yet. I think they know very well the restrictions that they have to do with the open-loop scrubbers. At the same time, there is a price difference. We are currently in the process of the charterers evaluating the costs of the scrubber types that will be used. But I don't think a final decision has been made there for the rest of the fleet. We are discussing five more vessels in the water today about scrubber installation, and we have already -- as I said, they concluded with MSC for the five MSC ships, where closed-loop scrubbers will be installed.

Donald McLee -- Berenberg Capital Markets -- Analyst

Okay, great. That's helpful. Then just one more on the dividend. Could you comment on the level of participation in the DRIP from the founding family in Q4. I think Q3 was the first quarter where it wasn't full participation. So just wondering if that's changed back to kind of the status quo?

Gregory G. Zikos -- Chief Financial Officer and Director

I think that -- OK, in Q3, the participation may not have been full, but it has been for a substantial number of shares. In Q4, I think it's going to be at least the same participation like Q3, if not bigger than that. I have to remind you, however, that this DRIP and the founders support to the company has been in place since June 2016. So I mean like it's been in place for over two years. It's actually two and half years up to now.

Donald McLee -- Berenberg Capital Markets -- Analyst

Okay. Thank you.

Gregory G. Zikos -- Chief Financial Officer and Director

So it has been quite substantial. Sure. Thank you.

Operator

(Operator Instructions) The next question comes from Max Yaras with Morgan Stanley. Please go ahead.

Max Yaras -- Morgan Stanley -- Analyst

Yes. Thank you. I'd like to ask a couple of market questions. You mentioned earlier that larger ships are kind of creeping up in rates recently, while smaller ships have been doing as well. Just kind of what's explaining a divergence from what's driving rates higher for the larger ships?

Gregory G. Zikos -- Chief Financial Officer and Director

Yeah. For the larger ships, what we've seen recently over the last weeks or month, month and half is that, especially for large modern vessels, ships similar to the 11,000 TEUs we have, there are very few ships left in the spot market, and there is a quite substantial demand from charterers for those type of vessels. Which logically is making charterer rates up.

The latest fixture we did for those ships were like a $32,000, $33,000 per day. I have to remind you that in 2016, the rates for those vessels were $17,000 to $20,000. So -- and should the same supply demand dynamics continue? I think that the charterer rates for those vessels should go up substantially. We have not seen the same dynamics today for the smaller vessels either for the traditional Panamax ships, either the 4,250 or the traditional longer Panamax vessels, the 5,000 TEU or for the 3,500 TEUs.

For example, the traditional Panamax ships are now trading at below 10,000, whereas in the past there were trading at 10,000 or sort of north of that. It's all supply and demand.

Max Yaras -- Morgan Stanley -- Analyst

Okay. And then, I'm wondering could this partially be driven by liners, securing other ships as they install scrubbers on their own or has that not really started yet or do you expect that to happen?

Gregory G. Zikos -- Chief Financial Officer and Director

Look, for the larger vessels, you're right, there are a couple of additional considerations. First of all, it is expected that a lot of larger ships will be taken off-hire for retrofitting for the scrubber installation. And this is going to create some additional demand, assuming that the scrubber installations is going to may take between three to five weeks. So during that period, -- and there is a number of larger vessels which are going to be treated with scrubbers. During that period, there's going to be incremental demand for those ships or for larger vessels, which is going to lift the market up. So this is one consideration.

Another consideration is that we have seen ships in the major lanes slowing down or there is a tendency of slowing down, and the new regulations may provide liners with an additional incentive to slow them even further. In that case, for the larger vessels, there will definitely be one more -- you can argue (ph) there's going to be more upside, more demand will be generated.

So it is a couple of consideration for the larger ships, especially, which I would say provide us with a lot of optimism for 2019.

Max Yaras -- Morgan Stanley -- Analyst

That's helpful. Thank you.

James Monigan -- Citigroup Inc -- Analyst

Thank you.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Zikos for any closing remarks.

Gregory G. Zikos -- Chief Financial Officer and Director

Thank you very much for dialing in and for being here with us today. We are looking forward to speaking to you again during the Q1 2019 conference results call. Thank you.

Operator

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect

Duration: 19 minutes

Call participants:

Gregory G. Zikos -- Chief Financial Officer and Director

James Monigan -- Citigroup Inc -- Analyst

Frank Galanti -- Stifel, Nicolaus & Company -- Analyst

Donald McLee -- Berenberg Capital Markets -- Analyst

Max Yaras -- Morgan Stanley -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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This article appears in: Personal Finance , Stocks
Referenced Symbols: CMRE



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