Costamare Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the Costamare Inc. conference call on the fourth quarter, 2023 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, then one, on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today, Wednesday, February 7th, 2024. 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, Mr. Zikos, please go ahead, sir.

Thank you, and good morning, ladies and gentlemen. 2023 has been a growth year for Costamare. The company had revenues of $1.5 billion and generated net income of about $350 million. Liquidity stood at around $1 billion as of year-end. Following our strategic decision in 2009, we have grown from 2021 to enter into the dry bulk sector at an opportune time in the cycle. We have grown during 2023, our newly established trading platform to an operator, managing a fleet of 51 dry bulk vessels. Having invested $200 million in the new venture, we have a long-term commitment to the sector, whose fundamentals we view positively. Regarding Neptune maritime leasing, the platform has been steadily growing on a prudent basis throughout 2023, having now concluded leasing transactions for 23 ships with a total value of about $250 million. We are committed to further growing the leasing business on the back of a healthy pipeline, extending over the coming quarters. On the old dry bulk fleet side, we are executing our strategy to renew the dry bulk fleet and increase its average size. During the year, we took the decision to dispose of 12 smaller sized vessels and have agreed to acquire three cave size and one ultramax vessel. Subject to market conditions, our goal is to continue our expansion in the dry market. In the continental market, recent events have been contributing positively to the supply and demand dynamics, pushing up box and charter rates. Those recent developments are mitigating the effects of oversupply in the continental market. A storage is expected to remain tight at least until the Chinese New Year. We have, however, proactively secured employment for 95 and 78% of our open days for 24 and 25 respectively, putting our contracted revenues for the continental vessels at $2.5 billion with a remaining time-tracked duration of about 3.6 years. Moving now to the slides presentation. On slide three, you can see our annual results. Net income was about $350 million or $2.95 per share. Adjusted net income was around $250 million or $2.07 per share. Our year-end liquidity stands at roughly $1 billion. Slide four, regarding CBI, we have chartered in period 51 vessels with the majority of the fleet being on index link agreements. On our leasing platform, we have already invested around $120 million. Since inception, NML has financed 23 assets through sale and leaseback transactions and has a very healthy pipeline going forward. Slide five, we have now acquired York's equity interest on a feeder container ship and have now agreed to acquire one Cape size dry bulk vessel. In parallel, we have concluded the sale of two Supra Max and three handy size ships while we have agreed to sell three more handy size and one Supra Max dry bulk ship. Slide six, during the fourth quarter, we have financed the acquisition of one dry bulk vessel through a new hunting license facility while we have roughly available $132 million for financing of further vessel acquisitions. We do continue to charter all our dry bulk vessels in the spot market, having entered into more than 40 chartering agreements since our last earnings release. On the container ship side, as already mentioned, our revenue days are fixed 95% for 24 and 78 for 25 while our contracted revenues are $2.5 billion with a DU weighted average remaining duration of 3.6 years. Moving to slide seven, during 2023, we have purchased approximately 6.3 million of common shares for a total consideration of $60 million. In addition, we continue to have a long uninterrupted dividend track record boosted by strong sponsor support. Slide eight, as mentioned already, our liquidity stands at roughly one billion. This liquidity gives us the ability to look for opportunities to grow the company on a healthy basis. Moving to slide nine, charter rates in the container ship market have been rising daily across all segments, having benefited from the RETCHY crisis. The idling capacity remains at low levels at 0.8%. And moving to the last slide, or slide 10, you can see the recent dry bulk market trends in the spot and forward market. Charter rates remain volatiles, having been corrected from the highs of Q4 2023. Today's order book is at 8.5 of the total fleet. With that, we can conclude our presentation and we can now take questions. Thank you. Operator, we can take questions now.

Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star then two. Again, that's star one to ask a question. Our first question comes from Chris Weatherby with Citigroup. Please go ahead.

Hey, good morning. This is Matt Owen for Chris. Thanks for taking the question. All right, good morning. Good morning. Yeah, just wanted to touch a little bit more on CBI. Last quarter, you mentioned having a fixed fleet of 59 dry bulk vessels on period charters, but this quarter 51. So we're just wondering if you could provide a little bit more detail and sort of what drives that variability on the platform from quarter to quarter and how that can affect profitability levels as well as the magnitude of potential shift in that profit. I think that would be great to start.

Yeah. Thanks for the question. First of all, you're right. It was close to 59 ships chartered in the previous quarter. We mentioned 51 now. It has nothing to do with our intention to grow the company further. It is just that during that quarter specifically, there were some re-delivers which coincided altogether. And we are now in the process of chartering in additional vessels. Now, at the same time, I need to remind you that we also employ FFA. So, I mean, instead of chartering in a vessel at some point, if you cannot find a suitable asset in the market, you can buy, for instance, FFA days for KF or for Panama access. So the smaller amount of ships chartered in has absolutely no effect and this should be misconstrued as our willingness to swing the business quite the opposite. This is a long-term strategic decision and we are committed to the dry bulk sector, both through CBI and also through our own dry bulk ships. So it is a matter of re-deliveries that have coincided where the market is. We may be buying FFAs instead of chartering in ships. And in this business, we need to be opportunistic. More ships will be chartered in when we find the right asset also at the right price.

Okay, interesting. Okay, thank you for the further granularity. And just as a follow-up, wanted to touch a little bit more too on the topic of share repurchases. You've been holding off on buying back your stock over the last few months. And just given the current plan that you guys have, which is outstanding in terms of 30 million for common shares and 150 for preferred, what was your plan moving forward with that and sort of how do you think about how share account can move moving forward?

Yeah, first of all, the share repurchases like the common stock dividends, this is a board decision. And these are subjects that are part of the board discussion every quarter, but leaving that aside for the time being, we are the majority shareholders, the founding family at about 60%. So both dividend and share repurchases that help the stock price, we are all like the stock price go higher. We are 100% aligned. At the same time, regarding the optimal capital allocation, we need to be able to tap on new opportunities when like there are. So we bought back common stock worth of $60 million during the years, or sort of during last year. And we also did some purchases in the past some years ago. I'm not saying that we sort of excluded this is a board decision and those issues are discussed, but I'm not ready to tell you that we're gonna be buying back more stock like next quarter or in two quarters time. This is all subject to market condition and this is subject to the view we take regarding the optimal capital allocation of the company. So I'm afraid I cannot be more specific on that simply because this is a no-going discussion. For the time being, we feel that this is something that could happen the next quarter or the quarter after or like during 24, but I'm not in a position to give you an exact timing, depends on market conditions.

Got it, got it, understood. So we would be fair to assume that for the foreseeable future at elevated stock prices, it's unlikely that repurchases are going to be executed on,

correct? Well, no, I didn't say that because I believe that the stock is undervalued and if you look at some NAV calculations, you will see that the stock's value also considering the value of the container ships and also the dry bulk vessels and the contracted revenues from the container ships and the net debt, I think on a NAV basis, the stock is worth much more than the 10 or like $11. So the fact that we are not buying back shares, it's not because we don't believe that the stock is undervalued. We definitely believe that the stock is undervalued. However, we still may find it optimal to use that cash in order to buy ships or in order to boost the CBI or Neptune Maritime Leasing, but it doesn't mean that because we don't buy back shares, we don't feel that the stock is undervalued. Quite the opposite. The stock has been undervalued for quite some time now. As is in most of the cases, this is what's happening with shipping stocks. So we are definitely trading at below NAV.

Understood, thank you very much for all of the further color. I'll turn it over on that.

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

Good morning, Greg. I had a couple, but I wanted to start with the asset sales that you guys did. I know that in the release, you posted the net after debt repayment, but could you give the gross proceeds from the asset sales?

I can tell you that for the ships we sold, after debt repayment, the net cash in total for the 23 is close to $80 million, more or less, 79 million.

Okay, I guess my question is how much is that debt that we expect to be repaid?

Yes, sorry, this debt for those ships has been repaid. So I mean, we sold the ships, we paid back the debt, and the net equity proceeds were like 80 million for all the ships. Now, the new ships we bought in total, bought or sort of have agreed to buy, it's like four capes, and you can assume that those are gonna be funded with a leverage of close to 60% on the asset value. I think these are...

Okay, all right.

My

next question had to do with the Neptune leasing program, and you guys still have a little bit more to go under your original commitment, but obviously it's growing. How do you think about that longer term? Is this something where once you reach sort of your commitment level, that amount would grow, or do you think in time, your relative position shrinks because there's capital coming in from other sources that mean that your effective position is a little bit diluted? Or how are you thinking about that business?

Now look, up to now, this business has grown. I mean, when we started, we started consolidating that business, and we bought the servos in interest in March of 2023. So we took about three quarters of operation, and over those three quarters, the business has from funding one to two vessels. We are like 23 today funded, and with a very strong pipeline going forward. So our goal is to further grow the business, and in order to boost our returns, as you can imagine, we are also focusing on back leveraging our equity. So boosting our returns, but at the same time being able to participate in more transactions with our equity shareholding. Now, when we reach the 250, where with bad leverage, the 250, it could be total deals of, depending on the asset and on the leverage between 800, 900, a billion, whatever the bad leverage will be, I think it's gonna be a meaningful size. At this point in time, we're gonna see how, I mean, how like, whether we want to grow the business further, whether we want to have other people join in, what are the alternatives, a listing, a lot of things. I'm not ready to talk about this yet. I mean, the fact that we have options, it's a good thing. The fact that it is growing, it's good as well. And I have to stress that it's not growing for the sake of growth. It's growing based on deals that we feel from a credit perspective, and also from a returns perspective, including the bad leverage makes sense. So this is sort of a growing business which completes the rest of our assets. You don't expect to have the volatility of the returns you have with the dry bulk vessels or sort of in CBI, but it is, I would say, a steady return, which does make sense. And there are a lot of options at the moment where we're going to be reaching the one billion of deals or 800, whatever that is, depending on the back level. So we are quite positive on the light of business.

Okay, and then I guess my last question relates to container business. Obviously your existing book is well covered, et cetera. Asset values have fallen, certainly from the peak. Are we getting to a place where maybe deals and returns in the container market are getting close to something that you'd look to maybe come back to and invest in that space again? Or in your views, there's still some room to go?

I think there is still some room to go, though you can never predict the market, but if we take it one by one, if you look at new buildings, new building prices for container ships, they still remain at very high levels. So I mean, this is the first thing. Then the second thing, also second hand prices, still they are at levels which have come off, they may come off even more, but where they are today, buying at levels that would make sense if you have to have, first of all, if you want to have a good understanding of your residual value risk with some potential upside, I think that we still have some way to go. Of course, as the new buildings will continue kicking in, whether the asset prices and new deals may make sense in a year's time, or like in six months, or like in two years, I cannot tell, but for the time being, I think we need to be patient there. If we want to have a well structured transactions with like a manageable downside and also with some residual upside. Right,

okay. I appreciate that, Greg.

Thank

you, thank you, Ben.

The next question comes from Clement Mullins with Value Investors Edge. Please go ahead. Hello? Clement, your line is now live.

Sorry, sorry about that. Good morning, thank you for taking my questions. I wanted to follow up on the question on CBI. Could you provide some commentary on how the segments fare during the quarter? And secondly, has recent turmoil in the Red Sea had an effect on the market? Is there any one that rates you are engaged on, specifically on CBI?

Okay, regarding CBI, we don't provide in our press release, detailed segmental information, neither for CBI nor like for the dry bulk on velsers, or like for the containers, or for national maritime leasing. There will be some information in our 6K filings, but for the time being, I'm afraid, this is not part of our press release presentation. So we provide the full picture, and for every business, we provide the number of assets that CBI has chartered, sort of in velsers, for example, with a generic description about the transactions there, like for example, that most of the ships are chartered in a team that's linked to charter rates. So I'm afraid that this is for CBI now. Regarding the Red Sea events in the CBI business, I cannot say that we had a huge effect on our mortgage charters, or like the profitability. For the capes, for instance, the C3 or C5 may not be affected by that area. So I cannot say that we saw something which made the market much more volatile. For the capes, for instance, for 2.4, we saw increased volatility because of adverse weather conditions in China. But this was not linked to the sort of Red Sea disruptions. So concluding, I cannot say that we saw any major effects in the CBI business.

Makes sense, thank you. I also want to follow up on Ben's question on Neptune leasing. As I understand it, it's fully consolidated in your financial statements. You mentioned potentially adding leverage to free up capital, but I was wondering, was there any debt outstanding on Neptune as of year end?

There is, there is, because Neptune, it is capitalized by our equity, and in the transactions we conclude as Neptune. Neptune gets a back leverage, so it gets debt from third party providers. For every transaction, it is entering into. So there is also leverage at the Neptune level. Now, generally, the leverage of Neptune is at low levels in the region of, I don't know, between 35 to 45%, depending on the transactions. But yes, but in order to have solid returns on our equity investments in Neptune, we need to have some back leverage there as well. However, at lower levels.

Makes sense, thanks for the comment. That's all from me. Thank you for taking my questions.

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

Thank you all for dialing in and for your interest in Kostamare. We are looking forward to speaking with you again during the next quarterly results. Thank you very much, bye.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.