Ladies and gentlemen, thank you for standing by, and welcome to the Capital Product Partners First Quarter 2019 Financial Results Conference Call. We have with us; Mr. Jerry Kalogiratos, Chief Executive Officer; and Mr. Nikolaos Kalapotharakos, Chief Financial Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advise you this conference is being recorded, today, the 13th of May, 2019. The statements in today’s conference call that are not historical facts, including our expectations regarding cash generation, future debt levels and repayments, our ability to pursue growth opportunities, our expectations or objectives regarding future opportunities -- sorry, regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, and our expectations regarding employment of our vessels, redelivery dates and charter rates, fleet growth, and market and charter rates maybe forward-looking statements and as such are defined in Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no predictions or statements about the performance of our common units. I would now like to hand the conference over to your speaker today, Mr. Jerry Kalogiratos. Please go ahead, sir.

Thank you, Steve, and thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on our website, as we go through today's presentation. As previously announced, we concluded on March 27, the spin-off of the partnership's tanker fleet and subsequent merger with DSS Holdings, forming Diamond S Shipping one of the largest publicly traded tanker companies. In connection to the transaction, the partnership effected a 1-for-7 reverse split on common and general partnership units. Post transaction, the partnership's fleet comprises 11 vessels consisting of 10 Neo-panamax container vessels and 1 dry bulk vessel, which constitute our continuing operations. Accordingly, we present our financial results for the first quarter of 2019 as well as comparative periods on a continuing operations basis except where reference is made to discontinued operations. The partnership's net income from continuing operations for the first quarter improved to 7.2 million, compared with net income from continuing operations of 3 million for the first quarter of 2018. Our Board of Directors declared a cash distribution of $0.315 per common unit for the first quarter of 2019. The first quarter cash distribution will be paid on May 15, 2019 to common unitholders of record on May 13. Common unit coverage for the first quarter 2019 after adjusting for the capital reserve stood at 3.5 times including the contribution of the tanker business or 1.4 times taking only into account the adjusted operating surplus generated from the partnership's continued operations. Remaining charter duration stood at the end of the first quarter at 5.1 years with 94% and 76% of our fleets available days fixed for 2019 and 2020 respectively. Turning to slide 3 and looking back, we believe our transaction with Diamond S has been a positive transaction overall with numerous advantages…

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Thank you. We will now take our first question. Please go ahead. Your line is open.

Hi, guys. This is Sean Morgan from Evercore.

Hi, Sean.

So, just a couple quick questions. The Agamemnon, the Cape Agamemnon has a pretty attractive charter rate now, and I guess it expires in 1H 2020. Would you look to try to re-charter that at potentially a lower rate or would you look to possibly exit the segment or what do you think in terms of drybulk?

I think we will take that decision closer to the date. The vessel is expected to be redelivered sometime around June/July 2020. If you look at the re-chartering of our vessels as it stands today, the two 8,000 TEU containers, but also the step ups that we have secured for the HMM charters, you would see that these more than make up for the expected drop in the earnings of that vessel. Now, for the moment, we have the intention -- is to continue with that vessel and we have booked the scrubber. But again, as I said, it will -- a bit depends on what we see in terms of period interest closure to the date. We might decide to sell the ship as you say and let's say focus on another asset class or we might decide that depending on what we see in the period market to go ahead with installation of the scrubber and secure a longer-term charter for the ship.

Okay. And then on the existing fleet, I think you guys took a pretty material write-down on the fleet that was disposed of the Diamond S. Was the existing fleet -- did you do an impairment test on the remaining container ships at that time, or are those sort of insulated from any impairment due to the long-term charters that they have in place?

We do an impairment test every quarter for our fleet, both in the past as well as of course for this quarter. And the impairment test did not result in taking an impairment on our continuing fleet. The reason that we had to take an impairment on the tanker fleet, which is part of our discontinued operations was that their carrying value was simply at the time of the transaction below the estimated fair value. But we do an impairment test every quarter.

Okay. So the fair value of the residual remaining fleet is fine where you guys have.

Exactly.

Okay, great. That's all for me. Thanks.

Thank you, Sean.

Thank you very much. We will now take our next question. Please go ahead. Your line is open.

Great, thanks. This is Ben Nolan from Stifel. Thanks, Jerry.

Hi, Ben.

I have few, but just really quick. First, I guess for modeling purposes, are there any -- should we expect any other discontinuing operation line items or preferred issues in subsequent quarters or is all of that now backward looking?

No. It is all backward looking, of course, when it comes to comparative periods, you will -- you won't have discontinued operations, but you will have the preferred interest in the continued operations when it comes to the comparatives, but going forward, you will have none of that. So, this is also why I mentioned in our prepared remarks that in this quarter if it wasn't for the preferred interest, our revenue would be closer to $0.40 as opposed to the loss of $0.10.

Okay, got you. So, just wanted to make sure. Now, as it relates to the regular Agamemnon that's come off, sort of I guess in the next few weeks or months or whenever it is. That is -- it looks like you're installing a scrubber in the third quarter and I know in the release you said that ships of that 8,000 plus -- 8,000 TEU plus or the market is 24,000. I'm curious now I'm sure you're having discussions with charterers about the use of that ship, but scrubber fit and I assume the 24 is for non-scrubber fit. Are you getting any closer to any sense of what that scrubber premium might be worth to charterers relative to, kind of, where the market is?

That's a good question. So, the -- as we've discussed during the presentation, there is a lot of interest for 8,000 TEU plus ships, the supply scarce and especially for ships like ours where you have AMP installed, so cold ironing that's -- I think especially attractive for charterers. At the same time, you have to take into account that charterers over the last few years with few exemptions have been quite spoiled in terms of choice. There was always kind of a perceived oversupply of container ships, and suddenly we have seen the rates rise. So, liners are definitely there to pay up. We have seen ships potentially inferior to ours having being fixed at around $24,000 per day for 12 months. But what we haven't seen much of is longer period commitments when it comes to vessels without scrubbers. So, I think there is a push and a pull here. So, for owners like us who take it upon us to spend the CapEx and then secure a fixed return on that scrubber, I think we will be able to achieve a longer period, but definitely at lower perceived rates than you would get, let's say for one year or maybe two, if you were to commit today a ship without the scrubber. So, that's a complicated way of saying that, we are together with some other owners trying to create a market -- a long-term market for these vessels. And the question that -- the real question is what is the rate for an 8,000 TEU -- the long-term rate for an 8,000 TEU vessel without a scrubber and then you can discuss what the scrubber premium is. And I think that's what's missing from the market now -- right now. There is no less than or isn’t less than for a long-term period. So we are looking -- what we want to do here is, find long-term employment, preferably for those two ships, but at a rate that does not represent, including the scrubber, a big discount to what the current market is. If we don't see that then we might actually go for a shorter period and aim for a higher rate.

Okay. Now that's very detailed. And I certainly appreciate the color and understand that the principle behind it. And then lastly for me, just again, kind of looking at the drop down candidates, you primarily had a combination of container ships and crude tankers. But I'm curious if you can -- some of those they're a little bit older 2010, 2011 versus more modern crude tankers, but generally, it looks like they have pretty good time charters across the board. As you’re thinking through drop downs and the right price to pay for drop downs, how do you weigh in or, I think, one of the areas that a number of MLP have gotten in trouble is buying older equipment at -- on the basis of cash flows without taking into account the older nature of the assets. What's the right discount in terms of how you think of valuing the cash flows or something that might be 2010 or 2011 versus 2018?

I think it's a combination of factors, so with an average age of around 70 years today, we have a fairly modern fleet. Definitely, it qualifies as modern when compared to a number of our peers, but we are very much cognizant that, as you say, these assets have a finite life and partly the Diamond S transaction was done also for this -- the very same reason that increasingly those assets would be inappropriate for our business model. So, I think, the answer or the board when it will contemplate drop downs, it will look at distributable cash flow accretion. It will look at, for how long this accretion is secured, so that is a tender of the charter, and then as you say, the age of the fleet. And of course, again, there is a bit of push and pull in the sense that you'd get obviously better returns from an older vessel compared to a newbuilding especially nowadays, depending on what the debt amortization is, which is a very big factor in the accretion calculation. So, I think, it's going to be -- in the end, it's going to be a combination of all these three. I'm not sure if we have a particular number for you when it comes to what discount these vessels should be acquired for. But in my mind, overall, I think, vessels around six -- 70 years of age, which is our average age, are actually quite a nice spot, the sweet spot when it comes to acquisitions and return on equity.

Okay. That's very helpful. I appreciate. Thanks, Jerry.

Thanks, Ben.

Thank you very much. The next question today comes from the line of Amit Mohindra. Your line is open.

Liam Burke.

Hi, Liam.

Hi, Jerry. How are you today? Jerry, could you -- you’ve got a multiple dropdown opportunities, could you talk about your current liquidity situation and how much funding or dry powder you have to fund potential acquisitions?

Post transaction or rather let's say today, which is even more important. We have an enhanced cash position compared to where we were before the transaction. We have approximately $60 million in cash sitting on the balance at the day after the quarterly debt repayment, and after also significantly reducing our payables, which were mostly associated with our tanker business. Now with $5.5 million restricted cash and all our vessels on time charters, our working capital requirements are limited. And that's leave approximately $40 million in the cash to fund CapEx related to scrubbers and of course potential acquisitions. Now you should add on top of that that with our contracted revenue profile and given what our common unit distribution is today, we should have a portion of free cash flow to fund future growth as well. So with let's say, $40 million of available cash on top of our, let's say of a $20 million buffer -- working capital buffer, which I think is more appropriate for 11 vessel fleet with -- on time charters. We have some scrubber CapEx, but as I said, we are also generating cash and putting aside cash every quarter. I think that should easily allow for about $30 million or $40 million of that money to be deployed within 2019 for acquisitions. If you want on a 50/50 debt equity basis, that would be anywhere between $60 million to $80 million of new acquisitions.

Sure. And then looking at your potential dropdowns, do you see anything outside of the of the dropdown opportunity on the acquisition front? Or are you going to stay within the dropdown model?

Well, there is definitely no obligation to remain within the dropdown menu. Typically, we think -- more convenient to look at the sponsor’s dropdowns because they are for us. They can wait for us. They can wait for our process. They are typically good assets from a stable that we know quite well. But if there are other opportunities in the secondhand market or M&A, if it came down to that, we are definitely open. What we do recognize is that we need to grow our asset base again. We have been quite busy closing the transaction and also making sure that we get the reporting light, which is more complicated than our usual reporting. But I think over the coming months, management together with the board would look at the whole menu be it dropdowns from Capital Maritime or anything else outside of that.

Great. Thank you, Jerry.

Thank you, Liam.

Thank you very much. We will now take our next question. Your line is open. Please go ahead.

Hey. This is Chris Snyder on for Amit. So, first question just following up on the scrubber premium, so you got roughly $5,000 per day premium on the five high-end day 5,000 TEU. So, the rest of the container ship fleet is larger. So, is it fair to think of this as kind of the baseline rate and the premium could -- it actually come in above that on the bigger ships?

Hi Chris. Not necessarily, the HMM arrangement was a bit unique in the sense that we had a superior negotiating position, if I may say, in the sense that we had a very long-term charter. So, the installation of the scrubbers, if the charter wanted to have it as they did, it went through the owners. Also, I think we were -- we had a bit of an early movement advantage, because when we were negotiating the scrubber, the spread between high sulfur fuel oil and gas oil or at least compliant fuel was much wider than it is today. So, 5,000 TEU vessel consumes on average from our historical, let’s say, data around 14,000 tonnes of heavy fuel oil, but is main engine of generators. At today, the spread is smaller. It's closer to $200, if you compare it to very low sulfur fuel oil for first quarter of 2020. But that would still be a substantial saving for the charter. Now, for the 9,000 TEUs, for example, or the 8,000 TEU vessels where the vessels are coming off charters, it's going to be a new negotiation. So, I wouldn't necessarily expect us to be able to achieve the same kind of return at least on this scrubber installation.

Okay. Thank you for that. It's interesting. So, I think, as I said, you have about 60 million to 80 million purchasing power, over the somewhat near-term. But I guess, I was kind of wondering on, if you did see something very attractive would you guys consider using shares as a source of currency. I think the yields look around 12%. So, it's obviously kind of high, but it’s just kind of wondering how you thought about that given where we are in cycle.

No, I think that as we also pointed out in the presentation, the valuation of CPLP today is I think, at least compared to its peers quite low. I mean almost across many of the financial and operational metrics, we have a strong balance sheet in modern fleet, some distribution coverage, and importantly, after adjusting for a conservative capital reserve and longer remaining charter duration. And if you look at our rechartering exposure that lies predominantly in Neo-panamax container sector, which is actually doing quite well as of late. So, I think before we use common equity at least at this valuation as at all, I think we would need to see our equity valuation improved and I think that will happen as many of the characteristics that I just mentioned and the ones that you saw on page six of the deck become more apparent to the investor community, but also as we deliver growth in an accretive manner, mostly with internally generated cash flows and cash sitting on the balance sheet.

Okay. Yeah, makes sense. And then just real lastly, so you guys kind of talked about crew tankers, container ships and maybe even LNG as a source of growth. When you are kind of evaluating all these options, how much -- or you're just looking for what you think is the best deal on whether it'd be like a DCF or just freight value. And how much are you taking a view on each of these different segments and saying hey, I think, this one's going to outperform that one?

Yeah. So, that's a fair question, I guess. The idea is, to look at transactions that have, I would say, medium to long-term charters, that would be anywhere between three to five years remaining charter duration. We do have a view, as you say; some segments long-term have very good potential. LNGs, for sure, it's easy to construct a story, whereby you can see that long-term demand growing. But, I think, also, to be honest, in the shipping world anything -- any projections over two, three years, they are, let's say, more theoretical as this is also very, very geopolitical. So, I think, with unsecured long-term charters, the accretiveness of those tangible charters is what will be mostly driving the decision. And what do we need to make sure is, that we actually find assets with that good charter coverage.

Okay. Makes sense. Thanks for the time, Jerry. I appreciate it.

Thanks, Chris.

Thank you very much. [Operator Instructions] We'll now take our next question. Your line is open. Please go ahead.

Hi, Jerry. This is Randy Giveans from Jefferies. How are you?

Hi, Randy, I'm well, yourself?

Hey, good, good. So two quick questions for me, first. We're assuming a coverage ratio of about; let's call it two times for CPLP later this year and 2020. Obviously, units are yielding 12%. So what is your distribution coverage target and thoughts around possibly growing the distribution?

So for this quarter, as I said in my prepared remarks, the coverage for the continued operation was about 1.4 times. There is -- you have a few things happening in 2019, so you have potentially the re-chartering of one of our 8,000 TEU ships. If we were to re-charter that vessel or let's say, a shorter term charter is definitely upside to that -- to the number that is fixed today. But at the same time, as we discussed in presentation, there will be significant off-hire associated with the scrubbers. So I think, when you’re looking at the coverage of 2019 and 2020, these are not really -- just let's say, the first half of 2020, you have to take into account this off-hire, because it's going to affect the coverage from one quarter to the next. So, right now, we're not targeting a specific coverage. What we have said is the capital reserve. And the capital reserve is equal to our debt amortization and I tried to make a point in the call earlier that this is a very conservative reserve higher than many of our peers put aside. Given what the yield is today, I don't think it makes an enormous sense to increase the distribution simply on the back of improving, let's say cash flows going forward. But as we see our valuation normalized, we might revisit this again. In the end, the game is to increase our distributable cash flow, but we have to be also -- we have also to get to a more fair valuation in order for us to consider increasing the distribution without a dropdown.

Okay. That’s fair. And then I guess lastly for me, the U.S.-China trade war, making a lot of new headlines, so how do you see the container ship market being impacted by possibly no trade deal in 2019 versus a trade deal actually happening relatively soon?

So as you know, the U.S. administration first imposed a punitive tariff of 25% on $50 billion worth of Chinese industrial exports in July last year. So it has been quite some time when we had the first round of this. Now in September, we had the 10% tariff, additional tariff imposed on a broader range of goods, but it was $200 million annually. And now this is going to be raised to 25%. And I understand that again the U.S. administration said over the weekend that they would start the paperwork to apply a 25% rate and all the remaining Chinese imports worth $325 billion, so this is quite heavy. I understand also that China just announced that they will now raise tariffs on part of the list of U.S. goods worth $60 billion. Now all this or the newly announced tariffs are going to apply to Chinese goods shipped from this week onwards. So not on products already on the route to U.S. ports and given that this is going to be a transpacific trade that should give both sides some extra time until the end of the month to negotiate a settlement. Until now, this roller coaster of trade tariff discussions had an initial adverse impact on charters appetite for long term deals. But we have also seen a short-term positive effect in the form of stockpiling ahead of the potential increased tariffs, but all this over the last few months has been put in the backburner as the overall positive sentiment for large Neo-panamax vessel has taken over the agenda between owners and charters and everybody has been focusing on the increased rates that the vessels of Lycrams [ph] has generated. In other words, we have not seen much of an effect from an owner standpoint, maybe from a liner standpoint, but from an owner standpoint if anything -- rates have been rising because simply Neo-panamax vessels or 8,000 TEU plus vessels were not -- are not there in the same quantity as they were. But to answer your question more directly, I think that in order to have a sustainable environment for vessel charter rates in the medium to long run, we need the operators to have -- to operate at better margins. And if we see a substantial reduction in global trade. That would be a step in the wrong direction. But from the -- again from the micro world of an owner facing the liner, I think the whole discussion of tariffs has not really been an issue other than the lack of -- or the decrease in long-term deals that we used to have in the past.

All right. That's it for me. Thank you.

Thank you, Randy.

Thank you very much. There are no further questions at this stage. Please continue.

And with this, I would like to thank you all for, once again, listening in today.

Thank you very much. That does conclude the conference for today. Thanks for participating. You may all disconnect.