Thank you for standing by, and welcome to the Capital Product Partners' First Quarter 2023 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you this conference is being recorded today. The statements made in today's conference call that are not historical facts, including our expectations regarding cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates, may be forward-looking statements as such as 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 the completeness of forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand the call over to your speaker today, Mr. Kalogiratos, please go ahead.

Thank you, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. Since the end of the fourth quarter of 2022, we have completed a number of significant transactions for the partnership, including the delivery of 13,000 TEU newbuilding eco container vessel and one latest generation LNG carrier, both with long-term employment in place. In addition, we secured new employment for one of our container vessels from approximately 2 years, which is expected to add $34.4 million of gross revenue to our backlog. With this fixture, our next period charter expiration does not come before the first quarter of 2025. Furthermore, we were paid in full one of our leasing agreements, which now leaves us with a total of 10 vessels unencumbered. Turning to the partnership's financial performance. Net income for the first quarter of 2023 was $10 million. Our Board of Directors has declared a cash distribution of $0.15 per common unit for the first quarter of 2023. The cash distribution will be paid on May 12 to common unitholders of record on May 8. We continued acquiring units under a unit buyback program. And during the first quarter of 2023, we repurchased approximately 129,000 common units at an average cost of $13.57 per unit. Finally, the Partnership's charter coverage for both 2023 and 2024 stands at 96%, with the remaining charter duration corresponding to 6.8 years, including the final newbuilding container vessel expected to be delivered to the partnership towards the end of the second quarter of 2023. Now turning to Slide 3. Total revenue for the first quarter of 2023 was $81 million compared to $73.4 million during the first quarter of '22. The increase in revenue was…

[Operator Instructions] Our first question comes from the line of Omar Nokta with Jefferies.

Jerry, thanks for the updates. I just wanted to maybe ask how are you thinking about things strategically right now? You've got the container ship that was coming up for renewal, you fixed that on a pretty solid contract. You've got the LNG fleet that's fully contracted. How are you thinking now about the business as it is today? What are your top priorities?

So I think the top priority is to finish with the current acquisition that we have announced last year, the $600 million acquisition of the 4 vessels. We have 1 vessel to go the last 13,000 TEU container vessel to be delivered ex yard in mid-June. But beyond that, I think that we continue to find the LNG segment particularly interesting. I think this is a multiyear up cycle for latest generation 2-stroke vessels. The fundamentals are strong, be it the increased supply of the commodity going forward in terms of liquefaction capacity, energy security considerations, the role that LNG is also expected to play in terms of the energy transition. I think all these are going to favor the LNG industry long term. And in addition to that, we, of course, like the long-term profile of the LNG charter structure. We have the right of first refusal on certain LNG carriers. We have, I think, discussed this over the last few quarters. And I think once we are done with the current acquisitions, we will look again as to what we can do in the space. So I think probably the second half of the year is when you should expect to hear more from us in terms of concrete growth plans going forward.

Got it. And then maybe, obviously, you spent lots of focus on LNG, lots of opportunities with multiyear growth for that segment in terms of just the trade and then the fleet needed for that. How are you thinking just about containers at the moment? Because there's clearly been a -- we're in this potentially -- it's tough to quantify or say where we are in the market because you have liners that are, as you mentioned, are taking many measures to try to support freight rates. And yet they continue to be active looking for vessels on contract as you were able to secure your ship at a pretty decent rate for 2 years. What do you think -- are there opportunities that are developing in the containership space? Is it too early? Is there -- what's going on with ship values? Is there an opportunity in the S&P market to take advantage of buying vessels perhaps cheaply and then maybe securing them on contracts. Is there any opportunity that you see there? Or is it still too early?

I think it's still early in the sense that the dust has not settled down. As you said, we have seen charter rates fall and then also recover over the last couple of months to the tune of anywhere between 15% to 25% depending on the size and type of ship and dates, which is quite significant. Again, case in point is the charter that we managed to secure. Obviously, it's not what it would have been if we were fixing last year, but it's still an above, let's say, cyclical average rate with a first-class account. So the demand seems to be there. And I think both owners as well as liners have been caught a little by surprise as to how the market has developed. Let's see how things fare. I think in the medium term, we are quite optimistic because the regulatory impact in terms of the -- especially environmental regulations, I think, are going to affect the container market may be more than others given the fact that many of the customers of the liners are becoming increasingly more sensitive to Scope 3 emissions. In addition to that, of course, you have ETS here, purely you, EXI, all this, I think, will increase demand for modern ships and will force older ships to either slow steam and pretty sure that a number of vessels will head to the scrap yards as a result of a combination of a worse market potentially as well as the regulatory framework. So I think we still need to see the dust settle with regard to the order book as well as the regulatory impact before one makes a move. It's still maybe a little early. But I'm confident there will be opportunities, especially for owners that have modern fleets and liquidity to take advantage of them.

That's a very good overview. And maybe just one final one. You mentioned the 10 ships that you own right now, debt free, and you used the example of potentially levering up 50% as a source of cash if you wanted. Is that kind of how you're thinking about that? Do you plan to refinance those? Any sense of timing to do so? Or do you think you'll monetize them as another option?

I think we are in no hurry. Effectively, what I was trying to highlight is that having a number of unencumbered ships on the balance sheet gives you a lot of flexibility. It is a liquidity lever. It is a sign of financial strength and flexibility. We don't know. We don't have any plans. I think at this point, we have plenty of liquidity. And if anything, it is going to increase going forward, given the cash flow generation of our existing fleets. If there is an acquisition that is accretive and makes sense for us to take on more leverage, then we can pull that lever. But there are no immediate plans.

Our next question comes from the line of Ben Nolan with Stifel.

Jerry, I've got a couple here. I'm a little surprised to hear about the potential of adding incremental vessels next year, given interest rates are - you guys are paying more than 6% for your debt and at the same time, the unit prices is down pretty substantially. It seems like on a relative basis that might -- even just paying down debt might be a better use of capital. Can you maybe talk me through how you're thinking about that?

I think we can hopefully achieve a better return than a 7% return if we acquire assets. And I think we have been able to achieve much better than that so far. So the repaying of the debt is a short-term solution for excess cash. And I think we are getting a decent return from that. Don't forget that at the same time, we can put up cash at 4%, 5% interest income. So it's not a huge saving, but it is a saving of 2%, 3%. So this is also why where we're doing it while we don't have the immediate use of the cash. But I'm hopefully confident that we will be able to put that equity to good use and achieve higher returns than that if and when we acquire additional vessels. On the buyback side, we have increased the base somewhat. It is challenging. Liquidity has dried up. It has halved effectively over the last couple of quarters. But we have been out there for some time, having bought a total of sort of 1 million units over time. So a cash outlay of about $13 million, and we will definitely continue doing that. That's at least the plan for now.

Okay. So circling back to the returns that you're able to get, historically, in the recent years, you had, I don't know, cost of debt of maybe 3% and your cash on cash returns when you were buying or dropping down an asset or 10%, call it. So assuming that your cost of debt has gone up by 300 basis points, is it fair to assume that the required return, given that equity risk premium of 6%, 7% is now 12%, 13%, like that's the kind of cash-on-cash return that you would need to be able to get?

It is definitely higher than it was before. But I think in the past, we have achieved returns closer to the -- and when I'm saying in the past over the last 4, 5 years in terms of acquisitions and closer to the mid-teens. If you look at certain transactions that have effectively closed in terms of buying, chartering and then selling, some of them are well in excess of that. So hopefully, we can replicate that.

Yes. I was just talking about like unlevered cash on cash. But certainly, the back end of those transactions is pretty important to driving the value. The last one comes up all the time. There's still the caption the final of the dry bulk vessels after all these years that we've talked about selling for a long time. asset values are a little bit higher. I don't know, is it is now the time do you think?

Yes. Again, it's -- the Kenon has been a drag in the sense that it doesn't fit with the business model. And it has been also -- it had also certain unscheduled repairs last quarter and higher that's built into this quarter. So it earned on average around 4,400 per day. So it really underperformed. So we are -- yes, I think it's not for the lack of conviction. It's -- we are just trying to optimize the sale, but I think we'll do it at an opportune time. I know we have talked about it a lot, but we are just trying to optimize the exit.

Thank you. [Operator Instructions] Our next question comes from the line of Liam Burke with B. Riley Securities.

Jerry, you have -- I mean, contract coverage that extends fairly significantly. Would it be -- do you ever consider just moving excess cash from the buybacks to unit payout and up the unit payout, or an MLP.

So we have said that we will revisit the unit distribution after we complete the acquisitions. The -- the way that we see returning capital to unitholders is obviously the combination of unit buybacks and quarterly distributions. The -- of course, the interest rate rises have kind of changed the long-term forward outlook as well as our ability to earn incremental cash. the decision that I think the Board will have to take in the second half of the year would be whether continuing to continuing this 2-pronged approach between unit distributions and unit buybacks is the right way? And what is the ratio between the 2. As far as I'm concerned, I think unit buybacks tend to make more sense at this point because it's not only returning capital. But importantly, the -- the acquisitions are quite accretive given the NAV dislocation that we have discussed a few times in the past.

Okay. Great. And we're looking at an LNG order book continuing to grow and then spiking in the next several years. Does that -- how does that affect your view about adding assets on the long term?

I think this is -- if you look really at the demand that will be coming online for LNG transportation and by this able when it comes to LNG carriers. And the strong preference of charters for 2-stroke vessels that would probably push steam ships and that to a certain extent, TFDE vessels in a 2-tier or 3-tier market and potentially some of the -- especially the steam ships into the scrap yard. You can see -- you can very quickly paint a picture where the LNG shipping market might be in deficit by 2027. So the fundamentals of the LNG market are unique, both of them in terms of the demand and the supply factor. And this is without even talking about the impact of regulations. Again, if you look at the potential impact of EU ETS or PLU and, of course, CXI and CII on older technology ships. There will be a substantial impact. And since many of these vessels will be trading into the European Union as the AU has become a very significant player in the LNG market. This was not the case 2 years ago. All this will create incremental demand for 2 strokes generation ships and make older steamships and to a certain extent, the FTEs more obsolete. So I think there is -- despite that headline number, I think this is going to be a good market for a while.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Kalogiratos, for any final comments.

Great. Thank you, and thank you all for joining us today.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.