Star Bulk Carriers Corp.

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bowl Carriers Conference Call on the third quarter 2023 financial results. We have with us Mr. Petros Papas, Chief Executive Officer, Mr. Hamish Norton, President, Mr. Simos Spirou, Mr. Christos Meglaris, Co-Chief Financial Officers, Mr. Nikos Raskos, Chief Operating Officer, and This is Harris Plakotonaki, Chief Strategy Officer of the company. At this time, all participants are on original mode. There will be a presentation followed by a question and answer session, at which point, if you wish to ask your question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. We now pass the floor to one of your speakers today, Mr. Spirou, please go ahead.

Thank you, operator. I'm Simo Spirou, Co-Chief Financial Officer of Starboard Carriers, and I would like to welcome you to our conference call for our financial results for the third quarter of 2023. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on slide number two of our presentation. In today's presentation, we will go through our Q3 results, financing and share buybacks, and update on fleet and operations, the latest on the ESG front, and our views on industry fundamentals, before opening up for questions. Let us now turn to slide number three of the presentation for a summary of our third quarter 2023 highlights. Net income for the third quarter amounted to 44 million, or 46 cents per share, and adjusted net income of 33 million, or 34 cents adjusted earnings per share. Adjusted EBITDA was 84 million for the quarter. For the third quarter, as per our existing dividend policy, we declare the dividend per share of 22 cents, with record date as of December 5th, 2023. Since 2021, dividend distributions and share buybacks exceed $1 billion, or $10.7 per share. Our total cost today stands at 268 million pro forma for the delivery of our four remaining sold vessels and share buyback from Oak Tree. Meanwhile, our total debt stands at approximately 1.26 billion. On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $15,068 per vessel per day. Our combined daily operating expenses and net cash G&A expenses per vessel per day amounted to $4,851. Therefore, our TCE less OPEX, less G&A is approximately $9,200 per day per vessel. Looking towards fleet renewal, we have agreed to sell five of our vessels with an average age of 15.6 years. During the nine months of 2023, we have sold 12 vessels and received insurance proceeds from one vessel which had a combined average age of 12.4 years. Total gross proceeds from these sales were $272.5 million. This additional cost has been used for share buyback at a discount to NAV. On October 2023, we entered into two firm and two optional seed building contracts for the construction of up to four 82,000 deadweight ton Kamsar Maxx new building vessels with delivery dates in Q4 2025 and Q2-Q3 2026. Slide 4 illustrates a summary of the recently announced strategic repurchase that was agreed with Oak Tree Capital. We believe we have utilized a variety of tools to drive shareholder value, and we expect these transactions to be accretive to NAV per share, EPS, and DPS. As of today, we have agreed to repurchase 20 million shares at an average price of $19 per share from affiliates of Oak Free Capital. Given that the shares repurchased have been mostly financed by vessel sales at attractive prices, we are creating significant shareholder value as the implied NAV from these historical sales is higher than current NAV. During this quarter, we have issued and sold 678,282 common shares under our effective ATM offering program at an average price of $19.81 per share, resulting in gross proceeds of $13.43 million and locking a favorable arbitrage. As of the date of this release, we have 93,861,792 shares outstanding, or 83,861,792 as adjusted for the closing of the second block repurchased by Oaktree. At the bottom of the page, you will see an illustration of our share repurchase and the sources of financing that allowed us to complete the buyback. I will now pass the floor to our COO, Nikos Reskos, to talk about our operational performance and update us on our fleet renewal efforts. Thank you, Simo.

Please turn to slide five, where we provide an operational update. Operating expenses excluding non-recurring expenses was at $4,851 for Q3 2023. Net cash GMA expenses were $1,024 per vessel per day, for the same period. In addition, we continue to raise at the top amongst our listed peers in terms of right ship safety score. Slide six provides a fleet update and some guidance around our future dry dock and vessel efficiency upgrade expenses and the relevant total of higher days. Our expected dry dock expense for the next quarter in 2024 is estimated at 39.7 million for the dry docking of 33 vessels with another $8.6 million towards our vessel upgrade capex. In total, we expect to have approximately 1,000 off-hired days for the same period. In line with the EXI and CII regulations, we will continue investing in upgrading our fleet with the latest operational technologies available, aimed at improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the starboard fleet. Regarding our energy-saving devices program, we have completed and tested retrofits on 26 vessels, with seven more vessels to be retrofitted by the end of this year. The above numbers are based on current estimates around dry dock and retrofit planning, vessel employment, and yard capacity. During the third quarter, we have progressed further with onboard testing of carbon capture technology, with a capability to retain up to 30% in net CO2 emissions. We will continue working on carbon capture technology with our industrial partners, aiming in developing our cost-effective solution, which can be selectively retrofitted in the future on vessels of our fleet. We are actively working on a demand supply and bunkering of carbon-neutral fuels, together with safety consideration and vessel design developments. Let me turn to slide seven. that has an update around a recent new building order. We have decided to take further steps towards our Camsomax fleet renewal, having designed and subsequently ordered two latest generation Echo Camsomax vessels with deliveries in Q4 2025 and Q2 2026, including options. The vessels are to be built in China to a high specification, fitted with the latest fuel-efficient engine coming into production in 2024, a shock generator reducing the energy requirements while at sea, and alternate marine power provisions aimed at offering our charters the optionality to connect to a land-based power grid to support the vessel's entire loading and discharging operations. The above measures ensure best-in-class fuel consumptions and emissions. On the sales front, we continue disposing of vessels opportunistically, having agreed to sell five vessels at historically attractive prices reducing our average fleet age and improving overall fleet efficiency. I will now pass the floor to our Chief Strategy Officer, Charis Plakatonaki, for an ESG update.

Thank you, Nikos. Please turn to slide 8, where we highlight our continued leadership on the ESG front. For a fifth consecutive year, Starbuck has published its annual ESG report, which provides a transparent and comprehensive account of the company's ESG performance, strategy, and objectives. The report has been prepared in accordance with the latest 2021 GRI standards and has received limited external assurance from Ernst & Young on specific GRI disclosures and SASB indicators. Among other key performance indicators, We report a reduction of 4.6% in total CO2-equivalent emissions, as well as an improved average fleet annual efficiency ratio compared to the previous year, as a result of operational and technical initiatives. The report also discloses the company's COP3 emissions affairs among grid-based dry-box shipping companies. Having engaged the company stakeholders, We present an impact analysis towards environment, people, and economy, paving the way for double materiality to be implemented next year. Following this development, Starbuck has improved its sustained analytics ESG risk smart score from 23.2 in 2022 to 21.3 today, achieving the highest score among our U.S. listed peers. On the societal front, we have improved the company's employee retention rates, following the implementation of well-being and engagement programs, and we have contributed to the union of Greek shipowners' efforts to support the local communities in Greece, which have suffered severe damages from floods. We continue our active involvement in the development of an iron or green corridor between West Australia and East Asia. I will now pass the floor to our CEO, Petros Papas, for a market update and his closing remarks.

Thank you, Harris. Please turn to slide 9 for a brief update of supply. During the first 10 months of 2020, The supply outlook continues to be close to the best we have seen in the recent history of dry bulk shipping, with an order book of 8.1% of the fleet and 29.6 million deadweight firm orders year-to-date. Uncertainty on future performance. The average steaming speed of the dryback fleet decreased to a new low of 10.95 knots during Q3 as a result of higher bunker costs, lower freight rates, and new environmental regulations. We expect the EEXI-CII regulations to increasingly incentivize slow steaming and help moderate supply over the next years. Let's now turn to slide 10 for a brief update of demand. According to Clarkson's, total dry bulk trade during 2023 is projected to expand by 4.6% in ton miles during the first three quarters of 2025. and minor bug trade and the recovery of iron ore exports. Despite the macro Coal trade is expected to expand by 6.9 percent during 2022. During the first nine months of 2023, Chinese imports surged compared to last year as thermal electricity Grain and soybean trade is expected to expand by 3.4 percent during 2023 and 3.6 percent in 2024. During the first three quarters of the year, grain trade was affected by the decrease of exports from Argentina, the U.S., and Ukraine. Brazil experienced record soybean and corn seasons that have helped fill the gap of crop losses. Increasing constraints in Panama Canal Mineral bulk trade is expected to expand by 3.9 percent during 2023 and 3.8 percent in 2024. Mineral bulk trade has the highest correlation to global GDP growth and is supported by improving global macroeconomic fundamentals. The war in Ukraine and the subsequent sanctions on Russian industries have disrupted the Atlantic fertilizer and steel industry and have created shortages Oxide exports continue to generate strong termiles for cape-sized vessels, with exports up by approximately 30 percent year-to-date. Finally, outlook for the dry bulk market remains positive due to increasingly favorable supply dynamics, improving macro sentiment, and large global infrastructure improvements. any more of your time. I will now pass the floor over to the operator for any questions you may have. Thank you. Ladies and gentlemen, at this time we'll be conducting a question and answer session.

If you'd like to ask your question, you may press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Our first question comes from the line of Amit with Deutsche Bank. Please proceed with your question.

Hey, good morning, good afternoon. This is Chris Robertson on foot, Amit. Thanks for taking our question. Hi, Chris. Yeah, guys, just looking at the rates book quarter to date, it looks so far to be sequentially stronger than 3Q. But just looking forward for the remainder of the quarter, do you think that we'll see a bit of a pullback on normal seasonality? Or are there any short-term factors like canal congestion or anything else going on that might keep the rates a little bit more robust than usual as we enter into the end of the year?

Hi, Chris. We think that this Q4 is going to be a normal Q4, better than the rest of the year, as it almost always has been. because the second part of the year usually carries about 54 percent of trade versus the first part. I don't know. I don't think anything will change to that. Also, the holidays are coming. We believe that Q4 will be better than the rest of the quarters as usual.

Okay. Yeah, I got that. Just looking at the dividend policy moving forward here, is the minimum liquidity threshold going to continue to be calculated off the 128 vessels, or will that be adjusted at some point to reflect the recently concluded and announced special sales?

Chris, we have announced today that we have released the 2.1 million for the 13 vessels that have been sold or are committed to be sold. So, in reality, the threshold is now 115 remaining vessels times 2.1 million.

Got it. That's helpful. Okay. And last question for me, just on the new building vessels. Looks like they'll be built with conventional but very efficient engines. Are there any design aspects to it that would enable future retrofitting of different technologies? And can you explain a little bit more what AMP is?

Hi, Chris. This is Nikos. Thanks for the question. Well, first of all, the ships have been upgraded with the latest engine from ManBMW that is coming out next year. And these are some of the first ships that are ordered AMP is a piece of equipment which allows you to use a real, basically, import and connect to ports that do have a power grid on dock so that you can shut off generators. You can actually operate the entire vessel using shore power, basically a plug-in facility. We believe that, apart from the U.S., which is already available in certain ports, this is going to be adopted worldwide in the next few years, and we prefer to offer this option to charterers. Got it. Yeah, sounds good. Well, we have made the study for methanol, geofuel methanol. We will wait to see developments on the supply side of green methanol before we make any firm decision to upgrade the vessels.

Any idea on the CAPEX that might be required on that in the future? I don't know for this.

You mean the methanol? Yeah. That's estimated on a council max roughly around $5 million.

Okay, got it. That's helpful. All right, guys, I'll turn it over. Thanks for taking our questions.

Thank you. Our next question comes from the line of Omar Nocta with Jefferies. Please proceed with your question. Thank you. Hey, guys, good afternoon.

Good afternoon. Hi, Omar. Hi. Yeah, just first question I have is maybe kind of following up on Petros, talking about the market a bit and the fourth quarter being the strongest of the year. Obviously, we've seen rates improve and strengthen thus far into the quarter, and averages are at their best across the board. I guess in terms of, you know, this improvement, Is this basically just, would you characterize this as purely seasonal, or are there other sort of demand factors or fundamental factors in the background that have caused this to improve accordingly?

Well, you know, during the second part of the year there is more iron ore trade. There's more production from Brazil, which also improves ton miles. I think this time around coal in, coal imports in India will also be strong, because India is, has very low stocks. And the rest of the trade, bauxite and grains, will continue to, as usual. So I think iron ore ton miles. And coal imports in India will be the major reasons why this market is going to be stronger during Q4. Okay.

Yeah, just kind of wondering if you, by seeing this market, be giving you a bit more conviction on perhaps next year or the medium-term outlook being better, or do you not look at this as a shift? You maybe characterize this as just much more of a seasonal thing, and so let's not get too excited. I just want to get maybe kind of how Starbuck in general is viewing this market strength we've seen over the past couple of months.

Well, my personal opinion is that 2024 is going to be similar. to 2023, unless if there are any geopolitical developments that are difficult to foresee. I think that iron ore, for example, will be about the same, mainly because, you know, the rest of the world is going to start improving their economies, and also because China has very low stocks. On the core front, I think that we may see lesser trade, actually, to a certain degree, And, of course, the world is trying to reduce coal consumption. I think bauxite to China will improve and will, as every year. And I think that grains are going to be doing better. El Niño is actually positive for grains. So, overall, I would say a similar market, perhaps a bit better.

Okay. Thank you. Thanks for that market color, Petros. And maybe just kind of a follow-up, perhaps, to the new buildings. As Chris was asking, you've obviously disposed of the 13 ships this year. You've raised a good amount of capital doing so. You used it to buy a big chunk of the oak tree position. You're down to 115 ships, still substantial critical mass. But how do you think about the fleet footprint as it is, as we kind of think about where you're going into next year? You have the CancerMaxx new building that you just announced. Should we be thinking of Starbuck continuing to be a seller in this market of older tonnage and then perhaps replacing them over time with more of these new buildings?

You know, I think we'll do the right commercial thing. You know, obviously our fleet is getting older every year, and it can't get old indefinitely. So, you know, we will look at the right opportunities to sell ships that are not going to have – And, you know, as always, we also continue to look at merger possibilities, and we see, you know, we're seeing opportunities all the time. As we've said in the past, these are always hard to close.

And just to add, Omar, this is Christos. We also have the seven chartering vessels, which effectively are all young vessels and are further renew the fleet.

And, of course, those vessels give us a lot of optionality.

Yeah, and they're all delivering this year, right? Yes.

Yeah. Got it. Okay, well, thank you. That's it for me. Thanks, guys. Thanks, Omar.

Our next question comes from the line of Ben Nolan with Stiefel. Please proceed with your question. Okay.

Thanks. I'm a little bit curious on the new builds. Obviously, you're selling assets. They're historically a little bit higher priced. And I appreciate the need to replenish the fleet and so forth. But new builds are a bit more expensive than they normally would be, too. Do you view this as just sort of a necessary evil investment? price in order to make sure that your fleet is new or do you think maybe we're in a new paradigm where we're just asset prices are higher and the price that you're paying for the new builds is reasonable on that basis well uh ben um

First of all, we're buying these vessels. These vessels are actually...their speed and consumption is actually similar to that of the best Japanese vessels. And we made sure that this would be the case, otherwise we wouldn't have gone forward. And Japanese vessels are similar. Japanese vessels are being sold like $6 million or $7 million more expensive than these ones. So we do not consider them that expensive. Second, vessels like that that burn like seven, eight tons less fuel than the older Kamser Maxxes actually save you almost $4,000 a day, a sailing day. So you recoup the differential very, very quickly. And at the end of the day, we do not think that... New building prices are going to go down. There's very little availability right now. And if one so wanted, I'm pretty sure that closer to the day, the delivery dates, one could sell these vessels even more expensive.

And also, you know, since the beginning of the COVID pandemic, you know, U.S. dollar inflation has not been small. You know, it's... You have to expect that nominal dollar prices of new buildings will go up.

Plus, we are seeing that decarbonization will probably take longer. than what we initially thought it would. And that will mean that best-in-class vessels will have the chance to trade for a lifetime.

That all makes sense. And then my next question... It was around the buyback and then also the ATM activity. And I appreciate that you're buying at a lower price than you're selling with respect to the share price. Although, again, at least according to my math, the shares are still trading below and aviating with it. Just curious, the thinking maybe behind not just selling a few extra shares in order to help fund the shares.

Well, Ben, you know, basically, you know, if you have a shareholder coming to you and saying, you know, I'm afraid that when Oak Tree sells, the overhang, you know, is keeping your share price down, you know, when Oak Tree sells. Can you do something about it? And then, you know, we sell shares at 81 cents above where we buy them in. Obviously, the shareholder is better off. It would have been even better if we could sell more ships at a very high price. But, you know, what we did basically was we wanted to buy 20 million shares, and we funded that with debt, equity, and proceeds from ship sales. And we did what we could do in each of those areas and in each. Right. The ATM was like 3.5% of the buyback. Yeah, but basically we sold the chips we could sell. We issued the equity that we could issue at prices that we knew would be profitable. And, you know, we tried to limit the borrowings to the extent we could. But, you know, all of it was good for the shareholders, we think. Right. Okay. I appreciate the color there.

As a reminder, it is star one to ask a question. Our next question comes from the line of Nathan Ho with Bank of America. Please proceed with your question.

Hey, great. Thank you, Tim. I think I would just want to continue a little bit on Ben's turn of thought there. And I guess I'll just ask this question a little differently. I mean, you know, you spoke a little bit about buying back shares from Oak Tree at a discount. and right with the share issuance. And now I think like with the disposal vessels, that all seems to align with the same type of framework. But now with this new build, I'm just kind of curious on how the team is thinking about capital strategy in context of where you're currently seeing your net asset value. Like how are you deciding what to do with your cash given where your asset value is relative to your share price? Well, I...

Thanks for the question, Nathan. You know, I think we looked at these new buildings, frankly, as being a chance, an opportunity that we would not have the chance to duplicate. You know, we think these are, this was an exceptional situation where the shipyard wanted us specifically as a client and offered us slots that were not going to be available anywhere else for a ship that has a quality that we couldn't get, frankly, at other shipyards. They worked with us to put an engine on that isn't available yet, generally, and to put a shaft generator on and generally tweak their design to our needs. So, you know, we're not, you know, planning to go out and replace our fleet with new buildings, if that's sort of the point of the question. This, we thought, was frankly an opportunity that was too good to let go.

Got it. Just to follow up on that, for a like-for-like vessel, what would the lead times look like in, say, a Japanese or Korean yard? Three times. For Korean yards.

For Korean or Japanese. Well, basically, we are about a year later. I mean, Japan is presently offering mid-2027 for vessels, and Korea doesn't build bulk carriers because they're occupied with LNG and container tanker vessels.

And I guess China, there are no slots offered for 2025. You can only find slots for 2026, and those are very few. And not this quality. And I think second half to 26, actually. Yeah, as you said, very few.

Okay, that's helpful. And Hamish, I think you brought up earlier about the possibility of potentially using mergers as another way of renewing the fleet. Maybe if you wouldn't mind just expanding a little bit about that, what kind of opportunities you're seeing and how you're seeing the market currently.

Well, you know, we always see opportunities to, you know, buy fleets. And much of the time we see the opportunity to use our shares. You know, we only do these transactions if we can use our shares at or above NAV. And, you know, frankly, we're not looking to increase our leverage. So, you know, we're a bit picky. The sellers, you know, have been, you know, until recently a bit picky. And it's been hard to get these things done since the COVID pandemic. Although before COVID, we did about eight of them, I think. You know, the market seems to be turning around a little bit and maybe making it easier to close these transactions. So, you know, I'm hopeful.

Thank you so much. That's really helpful.

Thank you. Our next question comes from the line of Bendik Folding, Detainees with Clarkson Securities. Please proceed with your question.

Yeah, thank you. I think I just wanted to touch, return to the market and touch upon some of the FGE aspects. Do you see any impact from FGE from factors such as the carbon intensity indicator or the EU ETS system? Do you see that affecting the drug market going into 2024 and beyond with regards to stuff like slow steaming?

Well, we think that vessels will probably, among the means to have a better CII, I think that vessels will probably also reduce their speed. So I think that this is going to be beneficial, because there's going to be basically less supply of vessels. So we consider this company and the environmental regulations as only positive for the shipping industry.

Okay, thank you. And just a little technical detail at the end there. The price point for the options, are those the same as for the firm vessels? And also, can you elaborate some on what you would expect the financing to look like if you decide to exercise those?

The option price is exactly the same as the firm vessels, that's the first part.

And, you know, we don't have a lot of cash to pay, you know, for the near term. It's like $7 million for the two firm vessels, and it would be $7 million for the two optional vessels, and that holds us for a while. So, you know, we're... You know, it's not a big deal. And then, you know, closer to delivery, we'll figure out the best way to finance it from the shareholders' point of view.

Just to clarify, this 7 plus 7 million will not affect our cash balance for the distributable cash for dividends?

Yeah, exactly. We're not planning.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. No further remarks, operator. Thank you very much.