Costamare Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the Costa Mare Inc. conference call on the fourth quarter of 2021 financial results. We have with us Mr. Gregory Zekos, 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 1 on your telephone keypad. and wait for your name to be announced. I must advise you that this conference is being recorded today, Thursday, March 10, 2022. 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. Zicos. Please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. 2021 has been a record year for Costa Mare. With a fleet of 123 vessels, including 46 dry park ships, the company generated net income of above $400 million. As of the end of the year, liquidity stood at $550 million. On the container ship side, market conditions remained firm with strong demand and logistical disruptions continuing to impact the sector. We charted in total 35 second-half assets during the year, which added incremental contracted revenues of $1.4 billion. Total contracted revenues amount to $3.3 billion, with a weighted average remaining time-sharded duration of about four years. We have covered substantially all of our container ship open days for 2022. and now we are in the process of arranging employment for the vessels coming off charter next year. At the same time, we agreed to dispose of some older donors with forward year-end deliveries at prices that do reflect today's tight market environment. Regarding our expansion into the dry bulk shipping business, we entered a market with favorable supply and demand dynamics, underpinned by a historically low order book. Our dry ballot fleet is currently trading in the spot market, generating steady returns on the back of timely acquisitions. In light of the above, the company has decided to declare a special dividend of 50 cents per common share. While rewarding our shareholders as a result of increased cash flows and profitability, the payment of that dividend is not expected in any way to affect our capacity to continue growing opportunistically in a volatile market environment. Moving now to the slide presentation. On slide three, you can see the 2021 record results. For the full year, net income was above $400 million, or $3.3 per share. Net income for Q4 21 was above $150 million. Adjusted net income for the last quarter was $0.91 per share. Based on that performance, we have decided to declare a special dividend of $0.50 per share payable with our Q1 2022 dividend. We also initiated the share repassage program of up to $150 million for our common shares and up to $150 million for our preferred stock. On slide four and five, you can see our recent S&P activity. As you can see on slide four, we have agreed to sell five assets with forward deliveries in late 22 and early 23. for total gross proceeds of $333 million. The sale prices of these vessels reflect today's tight market dynamics. We have also been very active on the dry bulk sector, where our fleet now stands at 45 vessels, with one ship to be delivered during Q1 of this year. On slide six, you can see our pictures. Recently, we fixed seven vessels at rates that are on average 80% higher compared to their current rates, adding contracted revenues of 410 million. For 2022, our container ship revenue days are essentially 100% fixed, and for 2023, we are around 90% fixed. Moving to slide seven. On slide seven, you can see an update on our liquidity and current financing arrangements. During Q4, we have concluded around 180 million of financings through three new loan agreements in order to refinance nine tribal vessels and five container ships. We have concluded another hunting license of 100 million that gives us additional firepower and extended the 150 million hunting license facility. At the same time, We continue to maintain a strong balance sheet with liquidity of above $550 million and market value-based leverage at around 26%. Moving to slide 8, the container ship charter market continues to outperform even the highest expectations. The dry bulk market has rebounded from its seasonal lows in February. As already mentioned, we have put together a share repurchase program of up to $150 million for our common shares and $250 million for our preferred shares. We also continue to have strong sponsor support through the DRIP. Slide 9. On this slide, you can see the fourth quarter 2021 results. We had an average of 108.1 vessels during Q4, up 79% year over year, and our adjustment income was $0.91 per share, our best quarter since going public. Our adjusted figures take into consideration the following non-cash items, accrues other revenues, accounting gains from other disposals and other non-cash items. On slide 10, you can see our capital structure and liquidity. Our leverage is at a very conservative 26% based on current market values. And we have ample liquidity of 550 million to continue growing opportunistically in a volatile market environment. On slide 11, we show the contingency market environment where rates remain at historically high levels, and the idle fleet is at 0.5%. Charters continue to look for vessels to fix, and chartering one year in advance has become the norm. On the last slide, we discuss the drivel market. Rates for vessels in our size class remain at healthy levels, up 70% year over year in February. The dry bulk fleet order book is at 6.8%, a historically low level that will keep supply growth in check for the years to come. With that, we can have the call back over to the operator for the Q&A session. Thank you. Operator, we can take questions now.

Thank you. As a reminder, if you'd like to ask a question, please press star then 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star then 2. Let's start with one to ask a question. And your first question today comes from Ben Nolan at Stiefel. Please go ahead.

Hey, Greg. Good quarter, and those asset sales are really impressive. I have a couple questions on the dry bulk side, if I could. So first is, I'm just curious, obviously you have that hunting license. There's been a decent amount of sale and purchase activity in the market. You now have a war chest of a lot of cash that you got out of the container space. How do you feel about where you sit in that market and where asset prices are at the moment?

Thanks, Ben. First of all, those two facilities, the handy glasses we are referring to, the one is expiring in June and the other is expiring in December. Now, depending on market conditions, we may extend them or not. We have them in case we see some softening in the market, especially in asset values for the dipole vessels, so that in order to have them available. It doesn't mean that, like, we're going to use them. As you know, this last year we bought a lot of ships beginning from last May, May to June or May to September, where asset values were generally lower levels where they are today. So we're going to be very opportunistic. We don't have to grow. We don't have to buy vessels. As long as we feel that market values make sense, also considering the cash generating capacity of those assets, we're going to proceed. Otherwise, we will not. Those facilities there, they may not be extended or in case we see some deals, we may utilize them. It's all got to do with market conditions and it's there as like proactively managing our liquidity, nothing more than that. Should we see some softening in the market and should we take the view that it makes sense to expand? Based on our analysis, you can see that we have the firepower in order to conclude a lot of transactions simultaneously.

Okay. So need to see asset values a little lower than they are right now, but you're keeping an eye on it. All right. And then I had a question on the employment side. I noticed there was half a dozen or so ships where employment was being negotiated and so that has a little bit of an impact on utilization. At the same time, there is a time charter market. We've seen it from others. Any thoughts on what you might be able to do to either improve the cash flow visibility through time charter or maybe just get a little bit more consistent utilization out of those assets?

Yeah, first of all, you're referring to the dry bud budget, right?

Yes, yeah, I'm sorry. Right.

Yes, okay. Look, we currently, we do trade those vessels in the sport market. And some of those vessels, they are linked, the, you know, charter rate is linked to an index. Now, we may take the view that at some point when we see the rates moving up or when we take the view that there may be some softening in the market, we may charter those vessels for a longer period. Longer period for dry bulk may mean a year or a year and a half or something like that. compared to the containers. It remains to be seen. Now, regarding utilization, this is something I will look at. Sometimes we may prefer to hold on to the vessel before chartering this out in order to get a better rate, and we have achieved that. So I think utilization needs to be considered alongside the charter rate finally received. For the time being, we're going to continue the same strategy for the dry bulk vessels. Also, I need to mention here that we bought those ships last summer in a lower asset value environment. The leverage there is in the region of 50% ballpark figures. So the cash break given, including debt service, is at relatively low levels. So, I mean, we have the luxury to sit and wait in order to get the best rate available. Of course, should market conditions change and we take a different view, we may go for longer. But this remains to be seen. I'm afraid I cannot predict more than that.

Okay. No, that's good color. You're trying to optimize for rate, not necessarily utilization. Understood. Understood. All right, well, I will turn it over, and congrats on those asset sales. Those are pretty eye-popping numbers. Thank you. Thanks, Ben.

Thank you. And our next question today comes from Chris Weatherby in Citigroup. Please go ahead.

Hey, guys. James on for Chris. Just wanted to sort of follow up on the questions around the bulk lead. In terms of the purchases that you're doing, do you see more of an opportunity, essentially, to buy essentially larger collections of ships or individual ships. I'm trying to understand the sense of like essentially how fast you plan on growing that fleet.

Look, we are pretty much flexible. It could be a fleet of vessels, some sort of vessels by the same owner bought together, or like it could be individual assets here and there. In the past, we've done We've done pretty much both, although we have tended to rely more on buying individual assets from various owners. However, we wouldn't exclude anything. It's all got to do with the purchase price and with where the market is and how we feel about the asset. So assuming that the numbers make sense, whether it is a fleet of vessels, or sort of whether it's individual assets. We can go both ways. Also, from the 46 versions we've bought up to now, most of them were bought from individual owners here and there. So this is not an issue should we see asset values that we feel make sense.

Got it. And then also just trying to understand essentially sort of how do you envision the fleet collectively or maybe even separately moving forward? The long-term goal is to separate them individually and sort of what level of scale or size and position do you want the bulk fleet to be in, if that is the case, or do you actually sort of see some benefit to keeping them together and some sort of essentially cyclically offsetting elements to it, just trying to understand sort of how you're thinking about that fleet? longer term and just to follow up on the prior question, how fast do you think you can grow that bulk fleet across the coming year?

The second part, how fast we think we can grow, we can easily grow the fleet substantially subject to market conditions. We have available credit lines. uh which like we mentioned uh substantial amount we have custom balances of like uh 350 plus million uh we have uh very strong contracted revenues and we have fixed all our containers for 2022 and most of the days for 2023 so there's a lot of cash coming from there so there's a lot of cash also uh generated organically so we can grow substantially. It is to find the right transactions rather than our equity capacity or for like our ability to secure debt. It all has to do with market conditions. We can be patient like we are now or like we have been in the past or we can accelerate like we did last year. Now, the first part of the question, which has to do with whether we keep them all together or separate the two fleets, for the time being, I think we're going to continue as we are. We have the benefit of trading those dry park vessels in the spot market. Those ships have a low break even, and we can be opportunistic regarding that chartering. At the same time, we have the contracted cash flows of the second half basis of 3.4 billion, which extend for more than four years, which do provide us with a lot of incremental cash flows, so we have the best of both worlds. Now, how things are going to develop in the future, I'm afraid I cannot predict, but for the time being, based on what we know today, I think we're going to be proceeding the same way we are set up today. Yeah, thank you. Okay, thanks. Thank you.

Thank you. Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press stars and one. Our next question comes from Clement Mullins with Value Investors Edge. Please go ahead.

Good morning. Congratulations for this quarter. You have declared a 50-cent special dividend, and I was wondering if you could provide some commentary on the reasoning behind declaring this special dividend and And why did you choose to do that instead of, for example, raising the regular dividend or repurchasing shares at the discount you're trading at?

Yeah, it's two things. First of all, this is a run of dividend which coincides with additional contracted cash flows coming either from long-term transferring of our container ships and with substantial gains which have resulted from sales of containers in vessels. And those sales, they are committed now, but with deliveries from Q4 2022 up to beginning of 2023. If you notice, for example, we sold some 6,500 EU ships, 2,000 built, for 75 million or so. So there is a lot of incremental cash and we felt that part of that cash and it is something that could be shared with our shareholders. This is in one of dividend, however, and obviously there can be no sort of a guarantee about the future dividend payments. Now, you've seen we have liquidity of north of half a billion. And we have also put together a share repurchase program, both for the common and for the preferred shares, which is something that we may be utilizing as well. But I think that cash outflow coming from that dividend, so it's 50 cents for more or less 120 million shares we have today, outstanding. It's not an amount that we consider as substantial that could affect our future growth plans. On the contrary.

That's helpful. Thank you. And following up on Ben's question on the broker fleet, if asset pricing was to be deemed attractive, would you continue to focus on the mid-sized to smaller broker classes? Yes. And if so, could you provide some commentary as to the reasoning behind such decision? What have been the main drivers behind your decision to focus in the smaller sizes of the bulk carrier market?

You are referring to the drive valve investors, correct?

Exactly, yeah.

Yes, for the drive valve investors, if you look at the 46 ships we have bought, on average, Our like average dry bulk vessel, it's like 11 years old and it has a dead weight of like 52,000. We have focused on those ships and we have bought from Handys up to Ultramaxes and for the time being we have stayed away from the caves. Now with the benefit of the hindsight, The Hantys and the Supras we have bought since May of last year, they have turned out to be a very good investment. And I cannot comment about our future potential acquisitions. As mentioned earlier, this is subject to market conditions. But we stayed away at this point in time last year of the case, which were much more volatile compared to the Hantys or to the Supras. The Zupras today, they're getting close to $30,000 per day in the spot market. Those ventures were bought at relatively low prices from a historical perspective, and we feel quite comfortable with those investments.

All right. That's helpful. That's all from me. Thank you very much for taking my questions, and congratulations again for this quarter.

Okay.

Thank you. And, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Zicos for the closing remarks.

Thank you very much for dialing in today and for your interest in Costa Mare. We are looking forward to speaking with you again in our next quarterly results call. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.