Thank you for standing by, and welcome to the Capital Product Partners Second 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 the forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Thank you, Paul. 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. During the second quarter of 2023, we took delivery of the motor vessel Buenaventura Express, the last of three 13,000 TEU container vessels we have agreed to acquire last year together with the LNG Carrier, Asterix I. Furthermore, we agreed to sell our sole dry cargo vessel, the motor vessel Cape Agamemnon with delivery of the vessel to her new owners expected in the fourth quarter of 2023. Finally, during this quarter, we completed the dry dock of the Athos and Athenian, along with significant energy efficiency and emissions abatement upgrades. Now turning to the Partnership's financial performance. Net income for the second quarter of 2023 was $7.4 million. Our Board of Directors has declared a cash distribution of $0.15 per common unit for the second quarter. The second quarter cash distribution will be paid on August 8th to common unitholders of record on August 2nd. We continued acquiring units under our unit buyback program. And during the second quarter of 2023, we repurchased 156,560 of the Partnership's common units at an average cost of $13.30 per unit. Finally, the Partnership charter coverage for both 2023 and '24 stands at 96%, with the remaining charter duration corresponding to 6.7 years and contracted revenue backlog of more than $1.8 billion. Turning to slide 3. Total revenue for the second quarter of 2023 was $88.5 million compared to $74 million during the second quarter of 2022. The increase in revenue was primarily attributable to the revenue contributed by the three 13,000 TEU container newbuilding vessels and the newbuilding LNG Carrier Asterix I recently delivered to the Partnership as well as…

[Operator Instructions] Our first question is from Omar Nokta with Jefferies. Please proceed with your question.

I just wanted to ask about the -- obviously, you completed the acquisitions from last year. You took the three container shifts in the LNG Carrier. And so now that's completed and you're basically harvesting the cash flows. And then you just outlined on slide 12, the drop-down opportunities, which you've continuously updated us with, and we've been seeing the contracts now filling in. How do you think about those right now in terms of timing? Can we expect drop-down near term? Is it really just about timing of the vessel deliveries themselves, or is there something you're waiting for before proceeding with any drop-down?

Thank you, Omar. No, I think it has been important as we have communicated in the past to complete this acquisition cycle before we start considering what we do next. And again, today is a very premature discussion as the Board considers where we go from here and how we grow the Partnership into the future. But, as just high level thoughts, obviously, growth is not being pursued for growth's sake. But, when you look at our peers, especially those on the LNG side, we believe that by further growing the Partnership's fleet and becoming among the largest two-stroke LNG vessel owners in the public domain, it is possible that over time, we can achieve more investor visibility, liquidity and what is also the end goal here, a better equity valuation. So, in my prepared remarks, as you say, this is just an outline of the LNG Carrier order book of Capital Maritime. This is a big order book that's well in excess of $3 billion in terms of charter-free fair market value today. Of course, as you pointed out, there is also the distinction. They are about five vessels that either have or are very close to securing employment. And that would be an average charter duration of seven years, which is, I think, quite attractive. Importantly, I think for the Partnership, this is an interesting segment, and we see this as a multiyear up-cycle, especially for vessels like this, that is two-stroke vessels. I think this is supported by the increasing commodity supply, and we have seen the FIDs taken this year. But energy security considerations that have played also a very important role over the last couple of years and I expect them to remain at the forefront. And of course, the role of that LNG is…

Thanks, Jerry. That's a very, very deep dive. I appreciate that. And it sounds like, clearly, Capital Maritime as an organization has a pretty substantial size two-stroke LNG fleet and would be one of the biggest, right, publicly. As you think about that -- and I don't want to put words in your mouth, but it sounds like before making any sort of commitments on that front, you’re going to think further strategically about where CPLP is. You mentioned some of the unencumbered assets. Do you think that perhaps -- could one of the options be monetizing the containership fleet over time and utilizing those proceeds for the investment in LNG?

Potentially, yes. I mean, we could -- we sold the Cape Agamemnon. Of course, this is something that we have signaled for, for some time. And there is -- and there is also very conscious move from our side over the last few years to modernize our fleet. I mean, it started with the spin-off of the older tankers, then selling some of our older containers in a very tight container market and bringing in brand-new containers and LNG Carriers. I think we will have to think -- as you say exactly, this is what we need to think about the positioning and the strategy. I'm not sure if it is divesting, simply selling, for example, the containers, it might be more looking to how to structure transactions so that we can, if you want, unlock some of the value that we have been creating over the last few years. I think we have been creative in the past from spin-offs to mergers to whatever we think it's necessary to create more value for shareholders. And I think that's something that we need to think about, but still quite early, I think.

Got it. Thanks for that, Jerry. And one just final one. You touched on this, just in terms of more kind of taking a step back and just thinking about the LNG charter market itself. You had a very -- at this time last year, the spot rates were through the roof and -- if I recall. And they had a pretty strong fall. And since then, they've been a bit volatile towards the downside, but that's just a spot market. How would you characterize the term charter market here recently? It obviously has been very active for maybe at least two years or so. How has that sort of been moving here over the past couple of months? Is that still firm? Has there been any kind of impact from a softer spot market or lower LNG prices?

I think that apart from the seasonal softness that we see in the spot market and then kind of affects the shorter period curve, anywhere between one to three years. When you look at what has transpired in the long-term market, it has been increasingly at higher rates when I say long-term market, anywhere between 7 to 10 years. Over the last few months, we have seen FIDs for three new liquefaction terminals being granted. That's more than 41 MTPA. And you -- whatever multiplier you use, you still come up with anywhere between 70-plus new vessels that we will be requiring somewhere in the period of 2026, 2027. And then, you look at the order book, which always looks quite big, if you think in a nominal way, right? I mean, it's still 52% of the current fleet. But the uncommitted ships are only 33%. So -- and that's without taking into account potential removal of all the inefficient vessels like steamships or whatnot. So, I think the long-term period demand is there, the softer commodity price and the seasonal downturn has affected slightly the short-term period the market, but it's still quite tight. Not to mention, of course, that newbuilding prices have been moving up. We are -- in reality, we say that today, you will order a basic spec ship for the second half of 2027 that basic spec ship, if you want to be half respectable in this market means automatically mid to 160s plus, maybe even above that. And then you look at the delivered cost, take into account cost of capital and whatnot, and maybe you are much closer to $300 million together with supervision and pre-deliver installments. So in order to get a decent return on a $300 million vessel for delivery in 2027, you still need to be very close to 6-digit day rate numbers. So, I think for all these reasons, there might be sort of fluctuations but still a very tight market overall.

[Operator Instructions] Our next question is from Ben Nolan with Stifel.

Hi, Jerry. This is Frank Galanti on for Ben. I wanted to follow up on the discussion around the LNG drop-downs, potential drop-downs. It's sort of sounding like growth through drop-downs is becoming a priority and sort of correct me if I'm putting words in your mouth. But can you sort of frame in how much capacity you think the Partnership has for drop-downs? And how do you sort of think about balancing that between paying down debt and returning capital to shareholders?

I think it's -- this is exactly the question that we will need to answer over the coming quarters. I pointed out to our cash position and the unencumbered assets. But this is still a quite capital-intensive sport, the LNG industry. So, there is so much that we can do with these tools. So, this is what we're going to think about, I think, over the coming months. Is it a priority? I think it is very much the same message that -- it hasn't really changed that we have communicated before. So, we have said that over time, we will continue to allocate about a quarter to a fifth of our free cash flow which is going to be returned to our unitholders with distributions and unit buybacks. And I think we are quite close to these levels. And then the rest, we will continue to focus on growth. Opportunistically, we will repay debt. But we can always repay debt and avoid that incremental cost of capital and then if - you need to relever if there is an accretive opportunity. So I don't think we are ready to say what we want to do and how much we want to do. But I think the message has not changed. It's really the same. We will continue to be focused on growing both of fleets, especially in the LNG and container segment with the LNG being quite attractive at this point, and with that the same allocation, so return of capital to unitholders and then also equity going towards growth.

Okay. That's really helpful. Sort of following up -- well -- yes. Actually, so following up on the leverage question, the euro-denominated bonds coming due in 2026. Obviously, it's pretty far way away, but it's a big bullet maturity and sort of given where prices have -- or interest rates have gone, it will probably be more expensive to refinance. Is that -- how do you think about that specific debt instrument?

I think we have some time until we cross that bridge. And we have been always prudent in the way that we calculate our capital reserve even notionally. So despite this being a non-amortizing instrument, we are still -- when we're looking at the cash we generate, we allocate notional cash under capital reserve. But having said that, I think the base scenario is right now that we will potentially refinance with a similar bond closer to maturity. The market, the Athens Stock Exchange seems to be open. There has been a placement by another issuer recently and not very different pricing compared to what we achieved a year ago or so. So -- but this is -- at the same time, we are also creating a lot of headway in terms of our leverage. I mean, we are repaying about $88 million of debt amortization every year. We have Unencumbered assets. We are generating cash. So one way or another, I think we don't -- we're not particularly concerned about that maturity.

That makes sense. And one more, if I could. Just in terms of -- you said about a quarter to fifth of capital to be returned to shareholders. And now that all the vessel drop-downs have been completed, can you sort of talk about how you are thinking about the split between share buybacks and distributions?

Yes. I think it's that very logical that we have communicated in the past, and we have said that once the drop-downs are complete, that we will reconsider our distribution policy in line always with the strategy. And I think that if you look at what we're doing today, that is unit buybacks and distributions, we’re actually quite close to these targets, having also somewhat increased the pace of our unit buybacks over the last few months. Now, I think the difference compared to when we started is, of course, the current rate -- interest rate environment. I mean, when we started thinking about the drop-downs and the potential distribution uptick and -- but it is a very different interest rate environment, and until we have more visibility with regard to the forward interest care will continue with the same communicated distribution guidance of $0.15 per quarter. The Fed decision just two days ago clearly demonstrates that we're not past that increasing interest rate cycle. So, I think we are in line with our stated policy with regard to how we allocate our cash flows. But of course, we are going to be mindful of the interest rate environment and changing circumstances as to how we look at this in the future.

Our next question is from Climent Molins [ph] with Value Investor's Edge. Please proceed with your question.

I wanted to ask a bit about the environmental upgrades you've done over the past few months. Could you speak a bit about what kind of efficiency improvement are you looking at? And secondly, you mentioned that Hapag has paid for part of the cost. Should we expect charterers to put part of the bill on other potential average going forward?

That's a great question. So, the bow modification and the self-polishing silyl acrylate paints, each of them, theoretically, they will give you net efficiency gains anywhere between 2% to 4%, but it's not always -- they don't always work, as you would expect. So, it's not necessarily that you would expect 4 plus 4 equals 8%. But they definitely make a difference. We expect that this will help the CII rating of the vessel and of course, the energy efficiency. I think we can maybe -- in a couple of quarters from now, we can revisit this and give you actual numbers, because these are, for the moment, theoretical. But from other bow modifications and use of paints, we see that they can be meaningful. And of course, the benefit is here for the charterer who pays for the bankers. The charterer in this specific case, they also wanted scrubber, which, of course, does not really change the energy efficiency of the vessel, but reduces SOx emissions. And effectively, what we have agreed, which is I think, more unique to this charter party than in others is that Hapag will pay part of these modifications. This is always a function -- and without wanting to go into the confidential nature of the agreements, in the end, it's a function of market conditions, the age of the vessel, so who is going to benefit most from these improvements and the duration of the charter. So, I don't think there is one size fits all for this type of arrangements. But, as you know, it has been done -- we have done it again with -- in the past with HMM and scrubbers. We, for example, in that case, financed the scrubber installation cost and we got an increased rate on our charters. So, it can work in many ways. And as I said, it depends on the number of things as to whether it will be the same for future deals.

Makes sense. Thanks for color. Regarding the dry-docking schedule, you did a couple of vessels during the second quarter and the Aristomenis in July. Do you have any additional special service scheduled for the remainder of the year?

No, there is none for this year.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Mr. Jerry Kalogiratos for any closing comments.

Thank you all for joining us today, and wishing you all a great weekend.

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