Safe Bulkers, Inc.

Standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call to discuss the second quarter 2020 financial results. Today we have with us from Safe Bulkers, Chairman and Chief Executive Officer, Mr. Polys Hajioannou, President, Dr. Loukas Barmparis, Chief Financial Officer, Mr. Konstantinos Adamopoulos, and Chief Operating Officer, Mr. Ioannis Foteinos. 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, you will need to press star 1 on your telephone keypad and wait for your name to be announced. Following this conference call, if you need any further information on the conference call or the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Concerning future events, the company's growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of the word and similar expressions are intended to identify forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies. and many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in the demand for dry bulk vessels and other factors in the market in which the company operates, associated with operations outside the United States and other factors that occur from time to time in the company's Filings with the Securities and Exchange Commission, the company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. And I now pass the floor to Dr. Barbaris. Please go ahead, sir.

Good morning. I'm Loukas Barmparis, president of SafeBulkers. Welcome to our conference hall and webcast to discuss the financial results for the second quarter of 2020. I would like to start by thanking our chief hires for their commitment and dedication throughout this difficult period. The difficulties for crude changes continue, and I would like to say that in many places the situation It is very unfair for people who had stayed on board for extended periods supporting the smooth operation of supply chains. Our results for the second quarter were negatively impacted by the reduction in charter rates due to COVID-19 outbreak. A number of charter contracts that had expired in the previous period has been replaced by contracts with lower charter hires. Despite that, There is a small increase in our aggregate revenue due to scrubber benefit and due to addition of the new vessel. However, voyage expenses that are deducted from the revenue in order to calculate the TCE were substantially increased due to vessel repositioning, higher cost of baggage, and consumption cost for scrubbers. Our decision in this uncertain environment is to maintain strong liquidity which was 111.3 million as of July 31st, 2020. This can be a cushion if situation with coronavirus is developed negatively or a strong tool that will allow us to do opportunistic move when the situation improves. Moving to slide three, we were able to develop six five-year charter contracts and two contracts of average duration nine and 12 months which represent a substantial change in our chartering policy. Together with the three CAPEs, we will have fixed about one fourth of our fleet in medium to long period time charters. The anticipated total revenue on the basis of FFAs is about 113.7 million, and the important feature is that liquidity is provided up-front. The second point is that the charters that we have concluded in July, they have higher charter hire, 13.8 thousand, compared to those in May at 11.75 thousand. Let's move into analyzing the market conditions. In slide 5, we are presenting a comparison of the CAPES and GAMSAR markets' chartering rates as published by the Baltic Exchange between 2020 and 2019. The COVID-19 effect in terms of seasonality coincided with the lower quarter of the shipping market. Therefore, following a low first half of the year, the market started improving after May and picked up in July at about 14,000 for Kamsar Marxes and 34,000 for Capes. Presently, Kamsar Marxes are trading in the region of 12,000 and Capes in the region of 20.5,000. Main reasons for the recovery of the market is the resumption of the economic activity after the lockdown and especially the resumption of China, providing for increased volumes of iron ore, coal and grain in trade. Looking forward, the implementation of the U.S.-China trade deal is an important factor for the shipping market, with the COVID-19 remains a threat. Turning to slide 6, we provide more input in relation to the Chinese economic recovery. During the lockdown period in Q1, China's economy contracted by almost 7%. Disruption of economic activity and fiscal measures to stimulate Chinese economy have led to a V-shaped recovery with a GDP growth in Q2 of about 3.2%. Moreover, as shown in the bottom graph, China's industrial indicators show continued recovery. According to the Chinese National Bureau of Statistics, data show that the industrial output grew by 4.8% year-on-year in June, underplugging to about minus 15% during the lockdown. The fixed asset investment infrastructure is down by 1.2%, as compared with a decrease of about minus 30% during Q1. The fixed asset investment in manufacturing is down by 11.7% as compared with the decrease of about minus 30% during Q1. The actual effect of this recovery is reflected in the increased volumes of Chinese imports for dry bulk commodities. As presented in slide number 7 on the graph within June 2020, there were increased imports on the major dry bulk commodities. 20 iron ore imports increased by 16.8% month-on-month and 35.3% year-on-year. For the period January to June 20, iron ore increased by 9.3% as compared to the same period in 2019. Forecasts of Brazilian major miners leading players in the Cape market remain unchanged, implying a substantial increase in their second half 2020 volumes. As is estimated by the shipping analysts of our shipbrokers, the shipments would need to rise in the second half of the year by 31% versus the first half if Brazilian miners distribute its lower target for shipments. The middle graph presents the increase on Chinese imports in thermal coal and lignite. The June 20 imports increased by 14.6% month-on-month and by 23.1% year-on-year. While for the period from January to June, 20 imports increased by 34.5% as compared to the same period of 2019. The lower graph presents the increase on Chinese imports of soya beans. The June 20 soya bean imports by 19% month-on-month and by 71.4% year-on-year. While for the period from January to June increased by 17.7%, as compared to the same period of 2019. As the rest of the importing countries will be dealing with COVID-19, it is possible to assume a soaring in demand formulating a bottleneck of imports towards the end of the year. Furthermore, according to market information, increased exports of grains from U.S. Gulf are already scheduled as part of the implementation of Phase I, Trade B. On the supply side, in slide number 8 and the order book, things have remained unchanged with literally no new orders. As of today, the order book for CAPE stands at around 8% of the total fleet and 6% for Panamaxes. In both cases, it is evenly spread within 2020 and 2021. Slippage or cancellations due to COVID-19 are still creating extensive delays. We believe that aging of leaf, low freight rates, and increased capex for complying with environmental regulations may enhance scrapping activity. When demolition countries, India, Bangladesh, begin recovering from COVID-19, the scrapping activity is expected to increase. Lastly, the ongoing environmental discussions for emission decarbonization will not favor new orders. Turning to the next slide, number nine, we make a brief presentation on the status of the fuels market. Global lockdowns and mobility restrictions have reduced the demand for fuels and distillate products. As global lockdowns ease, oil demand will continue to improve. The future market indicates that bankers' prices will recover in 2021 and in 2022. The spread differential between 0.5% very low sulfur fuel oil, which is a compliant fuel, and 3.5% high sulfur fuel oil, The so-called high-five has narrowed massively. The futures curve indicated high-five will be recovering in excess of $80 in 2021 and 2022. Eventually, the recovery of global economies, the full restoration of mobility restrictions and subsequent increase of crude oil prices will possibly push the high-five differential towards pre-COVID-19 levels. Turning to slide 10, in the context of our environmental space social responsibility policies, we undertake significant environmental investments by retrofitting scrubbers and balanced water treatment systems on our fleet. We have already invested $58.2 million as of June 30, 2020, and have retrofitted 19 scrubbers out of 20 scheduled in total and 36 balanced water treatment systems. By the end of the third quarter of 2020, five more balanced water treatment systems and the last scrubber will have been installed. On the bottom table, we estimate the expected downtime in days for Q3 and Q4 2020 in order to assist analysts with their projections. In slide 11, let's summarize the key market takeaways. The Chinese fiscal stimulus package may signal a V-shaped market recovery. We have a declining order book 2020 onwards. The ongoing decarbonization discussions do not favor new orders. Slippage, aging of cliffs, low freight rates, and increased environmental capex may enhance scrapping activity. Global lockdown adversely affects demand for oil and diesel fuels. We may have a slow oil demand rebounding in the second quarter of 2020, as global lockdowns ease. Eventually, the bear prices recovery may lead to a wider high-five spread differential. Concluding in slide 12, let's summarize SABAL's key takeaways. Key note is our liquidity exceeding $110 million, which gives us flexibility in the present unstable and uncertain market environment. We have entered in total into eight long-term peer charters during the second quarter, evidence of excellent relations with our charters. Our ability to complete our environmental investments is an evidence of our technical expertise. Our smooth and dead profile for the next two years is an evidence of ledger's trust and support. Now I will pass the floor to our Chief Financial Officer, Konstantinos Adamopoulos, who will present the quarterly financial results.

Thank you, Loukas, and good morning, everyone. Let me continue with our liquidity in slide 14, which as of the end of July 2020 stood at $111.3 million, consisting of $89.9 million in cash and bank time deposits and $19.4 million in restricted cash and $2 million available under an unsecured reworking credit facility. We have refinanced a large portion of our debt and in slide 15 we present our repayment schedule as of June 30, 2020. In close cooperation with our lenders, we pushed back loan payments to 2022 and 2023 which were originally scheduled for this year in 2021, expanding the average tenor, creating a smooth repayment schedule for 2020 and 2021, and maintaining the same covenants of our debt while increasing our flexibility during this difficult period. Moving on to slide 16, we present our quarterly daily OPEX which stood at $4,729 versus our quarterly Daily GNA, which stood at $1,374. The aggregate number for both OPEX and GNA for the second quarter of 2020 was $6,103, demonstrating our focus on lean operations. We believe that this figure for both OPEX and GNA when comparing apples to apples is one of the industries lower. Given the fact that we conclude that we include in our OPEX all are dry docking expenses and in our GNA are director's compensation and all expenses related to our administration. Moving on to slide 17, we present our quarterly TCE which stood at $8,094 clearly affected by COVID-19 versus our quarterly OPEX which stood at $4,729. Let's move to slide 18. We have quarterly financial highlights for the second quarter of 2020 compared to the same period of 2019. Net revenues increased by 5% to $49.3 million from $45.5 million, despite a relatively weak charter market due to COVID-19 restrictions, mainly due to the additional revenues earned by our scrap fitted vessels and the additional vessels which were delivered in April of this year. During the second quarter of 2020, we operated in a weaker charter market environment compared to the same period in 2019. This was evident from the reduced TCE of $8,094 compared to $11,970 during the same period in 2019. A number of charter contracts entered in previous periods expired and were replaced by contracts with lower charter rates higher. However, net revenues were supported by the benefits from scrubber-fitted vessels despite the reduced price differential between heavy fuel oil and compliant fuel, which was due to the oil price war, and by revenue contributed by our new-built delivery. Pocket expenses substantially increased due to increased pleasure repositioning expenses, higher loss on banker sales due to the oil price war, and consumption costs for the scrubber-fitted vessels. Daily vessel OPEX increased by 2% to $4,729 compared to $4,616 for the same period last year, whereas daily vessel operating expenses excluding dry docking and pre-delivery expenses decreased by 2% to $4,207 for the second quarter of 2020 compared to $4,283 for the same period in 2019. Our adjusted EBITDA for the second quarter of 2020 decreased to $6.3 million, compared to $21 million for the same period in 2019. Our adjusted loss per share for the second quarter of 2020 was $0.16, calculated in a weighted average number of 102.8 million shares, compared to adjusted loss per share of $0.01 during the same period of 2019. calculated on a weighted average number of 101.3 million shares. Closing our presentation, slide 19, we present our quarterly flipped data and average daily indicators compared to the same period of 2019. We would like to emphasize that in this period we have worked extensively despite the tough market conditions and we have contracted a total of eight long-term period time charters. including six 5-year charters, adding front-loaded cash flows. We refinanced a large part of our debt early in 2020, providing us with additional liquidity, and we took a step further to push back to 2022 and 2023 loan payments scheduled for this year and next year. We have installed 19 scrubbers, with just one remaining. To have a strong balance sheet with comfortable leverage, a smooth debt profile for the next three years, and the liquidity of $111.3 million. And lastly, we took measures to protect our seafarers, ensure employees' health and well-being, and kept all our vessels sailing, continuously servicing our charters. Once again, concluding, we would like to thank our seafarers for their commitment and dedication and efforts throughout this tough period. Our press release presents in more detail our financial and operating results. And now we are ready to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and 1 on your telephone and wait for your automated message advising your line is open. Please state your first and last name before asking your question. If you wish to cancel your request, please press star 2. We will take our first question from the line of Chris Wetherby of Citi. Please go ahead. Your line is now open.

Hi, this is William Arthur Chris. Thank you for taking my question. So just starting off on the rate side, it does seem like, as you guys have mentioned, that there's been a recent increase in some of the shorter-term rates that you guys have been able to obtain in the spot market. So I'm just wondering how... Yes, hello, good morning. Yes, the rates as we speak in the last month have been increasing sizably and right now the spot market

is performing at around $12,500 a day. Since we have the majority of our ships in the spot market, we are able to capture this increase very, very quickly. So we are in a very good position to enjoy this improvement of the market, which As we said in previous calls, we were expecting it to start after China announced a big stimulus plan. And it's happening now with a very strong grain export in South America the last three months and now with a very strong grain export from U.S. Gulf and from U.S. West Coast.

And do you think that this recent increase in rates will kind of lead to a sustainable increase in vessel values? I know that they've also recovered a little bit recently, but obviously have remained at fairly low levels.

Yes, we think that vessel value always are affected by increased freight rates. And we think that this will be the case again. I think that there is good support from Banks over the last year or so, and they are there to finance projects. It's more technical problems, technicalities that they are involved with the acquisition of vessels at the moment. You know the difficulty to conduct inspections on behalf of the owners, pre-purchase inspections because of restrictions on boarding vessels. This is the only negative thing. Otherwise, I thought, I think that as the freight market is improving, I think that prices will start very soon to improve as well.

All right. And one other question that I had was, I know that you guys have discussed the increase in voyage expenses that is recently in place, but they also did step up from the first quarter to the second quarter as well. I know a lot of that is due to repositioning expenses and also fuel-related costs, but I just wanted to provide some sense of where you expect that expense line to go in the remainder of the year. Should we expect it to kind of be at the first half average around $17 million, or should it be stepping down?

Look, volume expenses have increased in the past for three reasons mainly. First of all was the valuation of the of the fuel that we have on board, whose price was dramatically, it was quite lower in the previous months due to the fuel-oil war. The second was repositioning of vessels, as we said, and the third was that right now the fuel that is used for scrubbers is is included in this voyage expenses, is recorded in the voyage expenses part, and so that's why we will maintain somehow higher voyage expenses in the future. The one part which is due to the prices, the oil prices, I believe that it will not be affected so much in the future. The second part, which is basically the repositioning will be lower, we're sure that it will be lower. The last part, which is due to the recognition of fuel for scrubbers in the volume of expenses, will remain.

Got it. Thank you. And just finally, I know you guys have $100 million of debt maturing in the remainder of 2020 and through 2021. I was just wondering if you could touch on how you plan to refinance these payments.

Could you please repeat the question a little bit slower because you have some noise?

Apologies about that. So I'm just referring to slide 15 where it shows your debt repayment profile. and it looks like you guys have 100 million maturing in the remainder of 2020 and 2021. And I was just wondering what your plans are to refinance these payments.

These are not mature. These are scheduled installments. We don't have any debt maturing this year or next year. But there are in 2023? Yeah. The first maturity, I believe, is in 2023.

All right. Well, thank you, Sarah, for that confusion. But I appreciate you answering all my questions.

Your next question comes from the line of Randy Givians of Jefferies. Please go ahead and ask your question loud and clearly.

Ladies and gentlemen, it's Randy Givians from Jefferies. How are you? Hey, so yeah, you know, you booked these six long-term charters in the second quarter. Is that more of the same? Are you going to look to lock in additional longer-term charters or now that the spot market has improved, focusing more on the short-term charters in spot going forward? And what was the rationale for the five-year charters in the last couple of months?

Look, The rationale of the five-year charter was that we get a good premium in the first two years above the current spot market at the time we did the fixtures. So this is a very good cash flow injection during an uncertain time until we get over this pandemic of COVID-19 or COVID-20 or whatever that will be. The policy now that the market is improving is to log in into some more period charters when we get the opportunity. Of course, they cannot all be five-year charters or the same structure. It could be one or two-year charters. As we approach or exceed break-even levels, it makes sense. to charter at this sort of levels. It wouldn't make sense a year ago or six months ago to charter one or two years period at $8,000, $9,000, or $10,000 a day. Now that we can secure numbers around $13,000 a day, it makes sense for the company to try with appropriate charters to secure some period charters. So we have many ships in the spot market and we can play a more balanced, take a more balanced approach.

Okay. And then following the swaps, which were very attractive here for three to five years, what is your weighted average interest rate in terms of the premium or the margin as well as what you're swapping it at?

The average of the swaps that we've done so far is a little bit below half a percent. So we fixed around 35% of our loan book.

Yep, and then the margin?

We don't disclose...

We'll get you the number. We'll get you the number, yes.

But it's not in the report, but it's about 2%, a little bit just higher of 2%, about 2.10, the average.

Okay, so all-in interest expense sounds like it's below 3%. Yeah, yes, yes.

It's a very comfortable level based which we can make our forward planning. Yeah, absolutely.

All right, and then I guess final question. Now that you have kind of the refis done and swaps and what have you, what is your first use of cash?

Are you looking at preferred repurchases?

You know, those are yielding 11%, 12%, what have you now. So is that an option? Do you have some authorization there? What is your appetite for the preferred repurchases?

Look, the most important thing, I think, is to keep a strong cash position in the balance sheet because there's a lot of uncertainty ahead. We are optimistic about the market and the stimulus pack, but there's no guarantees. We have already a second threat from this coronavirus disease that we don't know how it will be developed in the winter months, if there are more lockdowns or partial lockdowns or other things. So we intend to keep a strong cash position. and, if possible, use part of it to deliver and prepare earlier some installments of the loans. We want to focus right now on handling the situation with COVID-19 and COVID-20. with the least possible damage to companies' operations. Right now we face a very big challenge, all companies are facing, and I think this also may help the freight market. We are facing a lot of delays in various parts of the world with crewing matters, with changes of crew, with the testing of the crew, with delays in ports to berth before they Test the crew. Also with the limitation of the ports around the world where we can make crew changes because of strict regulations and the non-availability of flights, international flights. We also are very disappointed to say that The owners are not having the support of charterers when it comes down to social responsibility into the well-being of seafarers. We have to face all the costs ourselves, which I mean is the least, but here we have lack of cooperation by many charterers, including major ones, when there is a need to make a small deviation from the intended route in order to disembark Our crew and put on board fresh crew. Even big names, big charterers that they should have supported such small deviations. Of course, at onus cost. They are not willing to collaborate and to assist because they need their cargo faster in the destination. and they are creating a lot of hassle and problems to the owners to make such small deviations which are primarily due to compassionate reasons and humanitarian reasons for our crew. I think this is a time bomb for the shipping industry. It will explode one day and it will hit all of us. It may kill all of us one day, what is happening right now. And it's not good for the major charterers only to put it in their reports in their reports and mention the social responsibility that they have and how well they feel about the well-being of the crew and all the people associated in the chain of sea transportation. The principles that they state in their brochures and in their code of ethics, they don't pass it on to their chartering departments who are resisting whenever owner is asking to make a small deviation for crude changes. I think there is a lot of hypocrisy in the market. We all need to sit down together. and cooperate in order to save a time bomb that is going to hit the world transportation chain. So I have seen only two or three charters really understanding the problem and cooperating. The good names like Kargil or Bangi, they are doing their best to assist. But there are some other names that we are really disappointed and I consider this as the biggest problem of the shipping industry for the next six to 12 months. People have to make an effort to assist owners in order the crews that they are on board more than 12 or 14 months to get relief and to go back to their homes. New crew to be able to join the vessels. Otherwise, things will explode, I'm afraid. And I want to say these things that, you know, we all have to face our social responsibilities. Not only the owner himself, but he can do it. We need the cooperation of all the parties, the cargo owners, the charters, everyone. Got it.

Okay. And how much is outstanding on the preferreds right now? Is it still the 137?

Look, the preferred is a part of our capital structure, and we will continue to maintain it for the foreseeable future, simply because we feel that having one of the best operating expenses in the market, a very comfortable management fee, and also the preferred dividends were quite competitive. I think the need right now is liquidity. And as Mr. Hajioannou said just before, there are two points here. The one is liquidity needs in this low part of the market, which can be used as a cushion if the market, if a second wave hits. or Assetum if there is an improvement in the market. And the second point is deleveraging because as we always say is that we intend in the next three to five years to bring the net debt of the company close to the still value. So basically we have a specific target of our deleveraging policy and we also maintain our liquidity. I think this is a recipe for a good company for the following years.

It is more important to bring the debt down to the scrap value of the vessels than to repay early the preferred, which is equity, perpetual equity, and can be repaid at any time in the future when freight rates really overperform the current situation. So I think this time will be in the next few years. We will get the opportunity. As the world trade increases and as the world fleet is not increasing, we'll get the opportunity of better markets to start reducing that preferred. But for the time being, there's no plan to reduce the preferred.

I'm just asking the outstanding amounts on preferreds.

It is $187 million.

Got it. Okay. Just making sure. Well, that's it for me. Thanks again, fellas.

Thank you. There are no further questions at this time, so I will hand back to the speakers for closing. I now hand back to the speakers to close off the call. Do you have any closing remarks?

Thank you very much for attending this call during the summer month of August. and stay safe all of you and we believe that we will see better markets in the second half of 2020. Thank you to all.

That does conclude our conference for today. Thank you all for participating and you may now disconnect the call.