Diana Shipping Inc. (DSX) Q1 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Diana Shipping Inc’s 2017 First Quarter Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Edward Nebb, Investor Relations Advisor. Thank you. You may begin.

Thank you, Andre, and thanks to all of you for joining us today for the Diana Shipping Inc’s first quarter conference call. The members of the management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Maria Dede, Chief Accounting Officer. Before management’s remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call which are not historical facts are forward-looking statements under the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections or beliefs as to future events that may not prove to be accurate. And for a description of the risks, uncertainties and other factors that may cause future results to differ from the forward-looking statements, please refer to the company’s filings with the SEC. And with that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer.

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping, Inc. for the first quarter 2017. During recent quarter, we maintain our focus on strengthening the company’s financial position in a difficult dry marketplace. At the same time, we have pursued the prudent expansion of our fleet in order to be in a position to benefit from an eventual industry recovery. To review our financial results, Diana Shipping recorded a net loss of US$26.5 million and the net loss attributed to common stockholders of US$27.9 million for the first quarter of 2017. This compares to a net loss of US$31.4 million and a net loss attributed to common stockholders of US$32.8 million reported in the first quarter of 2016. Our time charter revenues were US$31.3 million for the first quarter of 2017. This was an increase from US$30.8 for the same period of 2016 due to an increased average time charger age for our vessels and increased ownership days resulting from the enlargement of our fleet. Diana Shipping continued to maintain a strong balance sheet. Cash, cash equivalents and restricted cash were US$108.2 million at March 31, 2017. Long-term debt, net of deferred finance increase was US$645.4 million compared to stockholders’ equity of over US$1 billion. Subsequently, at the end of the first quarter, the company completed a public offering of US$80.5 of our common stock. Reflecting our confidence, in the future of the company, entities associated with certain Diana Shipping executive officers and directors including myself such as 5.5 million shares in the offering. We continue to seek opportunities to expand our fleets and expect to employee substantially all of the net proceeds of the offering to fund the acquisition cost of additional dry bulk vessels. The vessel purchases including to 2013 built Post-Panamax dry bulk vessels and one 2013 built kamsarmax dry bulk vessel. All of which will be acquired from unaffiliated third parties, few of the vessels were now delivered. The motor vessel Phaidra, a 2013 built Post-Panamax vessel of 87,146 tons deadweight as the motor vessel astarte, a 2013 built Kamsarmax vessel of 81,513 deadweight. The remaining Post-Panamax vessel is expected to be delivered by the end of this month. Including these recent acquisitions, our fleet will consists of 51 dry bulk vessels. We continue to manage the fleet in a prudent manner that promotes a balance of time charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 64% of 2017. Going forward, Diana Shipping will continue to deploy its strong financial capacity to support shareholder value oriented strategy. With that I will now turn the call over to our President, Anastasios Margaronis, for a perspective on the industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview. Thank you.

Thank you, Simeon. We welcome analysts, investors and other participants to this quarterly conference call of Diana Shipping Inc. The bulk carrier markets provided us some excitement during the past few months. And this is reflected in all the main dry Baltic Indices. The general Baltic Dry Index stood at 963 on the first trading day of the year and closed yesterday at 964. Baltic Panamax Index started the year at 811 and closed yesterday at 864. While the Baltic Cape Index showed a strong improvement going from 1,538 on January 2nd, 1,704 yesterday. This doesn’t sound very exciting in itself. However, in the interim period, the Baltic Dry Index reached a high of 1,333 on March 28, while at around the same time the Baltic Cape Index reached 2,765. On April 18, the Baltic Panamax Index was at 1,621. According to Banchero Costa, in March of this year, Panamax time charter rates averaged 9,564 to date, up 168% year-on-year. Howe Robinson believes the main reason behind this year's improved market conditions has been mostly increased grain shipments, particularly from Brazil, where first quarter soya bean exports were up 24% year-on-year. Although significant coal shipments from the Black Sea, also, a record weak harvest in Australia and some congestion in the Canadian and U.S. North Pacific grain ports, have also played their parts. Increased coal shipments from Colombia and the USA also helped the Kamsarmax and Panamax market. We should not underestimate the importance of increased iron ore shipments to China and a favorable supply situation mentioned below. Most recently, however, according to Commodore Research, South American spot grain cargo movements have fallen sharply from just a few weeks ago and this has taken a distinct out of Panamax trades. According to Banchero Costa, in March 2017, the Capesize market averaged US$16,280 per day after met [ph] on a year-on-year basis. Rates have recently been negatively affected by the absence of Australian coal cargoes following in Cyclone Debbie with the lack of shipments expected to last a few more weeks. Ship pricing now. According to Clarksons, the recent increase of the bulk carrier earnings has led that to ship values rising by an average 44% year-on-year at the end of March this year. Let's look at the world as a whole and macroeconomic factors. The IMS has recently boosted its global growth forecast to 3.5% despite prevailing geopolitical conflicts. The prediction for 2018 growth stands at 3.6%. Then Eurozone services PMI increased to 56.2 in April according to [indiscernible] it is the highest rating since April 2011. The Eurozone services PMI also went up to 56.2, again, the highest it has been since 2011. In Japan, manufacturing PMI increased to 52.8 in April, which is the eighth consecutive reading above 50 and indicates an expand in economy. India's economic growth is expected to pick up from 6.8% in 2016 to 7.2% by 2017. In China, industrial production in March rose at 7.6% according to the National Bureau of Statistics. Overall, the Chinese economy grew 6.9% year-on-year during the first quarter of this year. According to Commodore Research, the sharp increase in Chinese investor production seen in March seems to indicate that the turnaround in China has intensified. It is for this and other reasons that Commodore Research remains very bullish on China's iron ore import prospects. This in turn, makes them particularly bullish on the prospects of Capesize earnings for the rest of the year. Looking at scrapping. Clarksons report that Panamax demolition totaled 115 vessels with an aggregate of 8.3 million deadweight in 2016, up 22% and the second highest level on record in terms of deadweight. However, the pace of Baltic demolition, so far this year has slowed down considerably compared to the first half of last year. During the first three months of 2017, million deadweight of [indiscernible] down by around 17% year-on-year. About 59% of this total in deadweight terms has been Capesize vessel. Scrapping of Cape is currently estimated to reach 8.8 million deadweight in full year 2017. Fortunately, however, our carrier deliveries are expected to slow to 30 million deadweight during 2017 as a whole. These are projected to decrease further in 2018. It is worth noting that according to Banchero Costa, 11% of the Panamax fleet are 20 or more years old. All these ships are prime scrapping candidates, going forward. The increase in scrapping have partly anticipated with introduction of the Ballast Water Management regulations act, according to Braemar ACM Shipbroking, been anticipated by the weak harmonization of IOPP certification. This means that most owners will have the auction in one way or another to exempt their reference from BWM until 2022. Coking coal. According to Clarksons, total shipments of coking coal are expected to increase by 2% this year and reach 255 million pounds. Demand is expected to come mainly from Asia, where China and India are expected to import about 187 million tons. On thermal coal, according to Clarksons, global seaborne steam coal shipments are expected to increase by 1% compared to last year and reach 902 million tons. This increase is underpinned by Chinese imports, which are expected to increase by 5% compared to 2016. Unfortunately, Chinese coal consumption in 2017 is expected to fall on the back of increasingly stringent environmental regulations and a shift towards greater consumption of cleaner fuels. This trend, if it continues, will certainly have an adverse effects on coal imports going forward. Total Asian imports are expected to reach 713 million tons this year. On steel production. Now according to Clarksons, Chinese steel production started the year on a positive note, increasing by 6% to 128.8 million tons during the first two months of the year. If this trend continues, it will certainly help absorb the large stockpiles of iron ore at all the 41 major Chinese ports. Iron ore. The total iron ore imports are projected to increase 5% compared to last year to reach 1.5 billion tons in 2017, the third growth in iron ore imports into China during the first quarter of this year underpinned by increased stockpiling activity helps imports reached a 134 million tons up to the beginning of March of this year. For the year as a whole, Clarksons estimates that 1.081 billion tons of iron ore will be imported by China, with China taking advantage of competitively price and high-quality iron ore in Australia and Brazil. Turning to grain now. Global wheat and cost grain trade is projected by Clarksons to contract 1% during the 2017, 2018 [indiscernible]. Due to China focusing on domestic production this year, total grain imports into China are expected to contract by 4% during the fourth time grainy season. On new-building orders. According to Clarksons, during the first quarter of 2017, new bulk carrier orders we down 79% year-on-year on an annualized basis and just 11 resins of about 700,000 deadweight were reportedly coal. On supply now. According to Clarksons, at the end of March, the bulk carrier order book called 66.9 million deadweight, represented 8% of the existing fleet. There are 52.3 million deadweight of Capes on order, representing 10% of the increase in fleet. These statistics include new- building models were large stakes as over 200,000 deadweight as well as the VLOC. As regards Panamax, the order books stood at 11.4 million deadweight at the end of March, equivalent to only 6% of the existing fleet. This new-building capacity on order represented the smallest size since 2003. About 50% of the total bulk carrier order book is currently due to delivery by the end of 2017. It is interesting to note that during the first quarter of 2017, a total of 35 Capes were delivered and 13 ships scrapped. In tonnage terms, this was 2.6 million deadweight, considerably less in the 7.5 million deadweight sold for demolition during the same time last year. During the first quarter of 2017, 52 Panamaxes were delivered and only 10 scrapped. According to banchero costa, [indiscernible] from the current [indiscernible] has assuming decrease demolition activity for the rest of the year and in 2018 as well at around 25% to 30% slippage. The Panamax and Post-Panamax fleet may increase by 2% this year and remain constant in 2018. Within these figures, we have projected shortfalls of the Panamax fleet of about 7% this year and 6% in 2018. These statistics also includes increases from the expansion of fleet of around 30% for this year and 5% in 2018. According to Braemar, in Capesize fleet, we expected to increase by 1.7% in 2017 and by the same percentage approximately in 2018. This scrapping inflicted their functions are similar to those referred as above. Banchero costa expected to see an increase by 2% this year and by only 1% in 2018. The differences are smaller and probably due to different assumptions made on scrapping and slippage during this years and next. Turning to the outlook now for our industry. According to Braemar, as soon as above 15 we scrapped one fleet in 20 years between now and 2020. [Indiscernible] will be removed from the fleet is roughly balance against what is already removed. However, as soon as enough projects materialize, in 2017, there will be room for nearly 9 million deadweight of total deliveries. This is somewhat comforting considering the huge oversupply of tonnage we witnessed over the last few years. One of the major concerns in the shipping community according to Braemar is that a recovery in rates might lead to accepting ordering of new ships, leading to a repeat for the oversupply of reaching over the next few years. At least, thus far, this year, there have been very few new existing order rates, most important of which was an order for 482,000 tonnage made by charcoal shipping, the Jing Lu shipyard in China. It is worth mentioning that according to Braemar, as a result of the tragic loss of the 264,000 deadweight bunker, the Stellar Daisy, the long-term future of all the ex VLCC conversions to VLOC back in 2008 is very much in doubts. It is because the loss appears to have been caused by 10 opening in the hall, which has put in fractional integrity of most of the 49 attached conversions, which are still trading in doubt. Their gradual removal will certainly create a supply shortage in the market for large bunkers even if account has taken for a large order of Valemax ships discussed in the past. We agree with the view expressed by Clarksons that Panamax' fleet growth is expected to remain limited in the coming years and this could allow even slightly more positive demand trend to support a gradual improvement in the fundamental balance in this sector. As for Capes, Clarksons believe that here again, fleet growth is expected to be limited over the next two years, unless demolition slows even further than it has so far this year. While there are challenges to the outlook, continued positive demand trend could support an improved market environment at least in the short to medium-term. So in conclusion, at long last, there appears to be some real-time, well supported improvement in the earnings of bulk carrier vessels. Now as time goes by and there are no adverse developments affecting the earnings of bulk carrier vessels, we can cautiously assume that the sector may have reached a balance between supply and demand and that from now on, any favorable development affecting supply and demand should be reflected in the medium to long-term earnings of bulk carrier vessels. The policy followed-through diligently over the years by the senior management of Diana Shipping Inc. under the leadership of our Chairman and CEO, it is beginning to bear fruit. The policy of increasing leverage in this down cycles have developed the company's balance sheet exactly as management has planned all along. That means as the high percentage of leverage appears with time and the downsizing frankly can bring the maximum future benefit to shareholders result, running the risk and driving the company into forced and highly-dilutive equity issues. Even though the company might take a bit longer to materialize than we had originally anticipated, the current strength of the balance sheet will ensure that any sustained improvement in earnings and asset values translate into the maximum direct benefit in shareholder valuations. On this positive note, I would like to pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the first quarter of this year. Thank you.

Thank you, Stasi, and good morning. I'm pleased to be discussing today with you Diana's operational results for the three months ended March 31, 2017. Net loss and net loss attributed to common stockholders amounted to $26.5 million and $27.9 million respectively, plus the common share was $0.34. Time charter revenues increased to $31.3 million compared to $30.8 million in the first quarter of 2015, and the increase was due to the increased average time charter rates that we achieved through our vessels during the quarter and revenues derived from the addition to our fleet of the vessel Selina and Ismene delivered in March 2016; Maera delivered in May 2016 in San Francisco; and Newport News delivered in January 2017. Ownership days were 4,313 in the first quarter of 2017 compared to 3,931 in the same quarter of 2016. Fleet utilization was 98.2% compared to 99.1% for the same quarter of 2016. And the daily time charter equivalent rate was $7,059 compared to $6,195 for the same quarter of 2016. Voyage expenses were $1.1 million for the quarter compared to $6.8 million for the same quarter 2016. The decrease in voyage expenses was mainly due to gain on bunkers of $0.6 million in the quarter compared to a loss of $5.1 million in the same quarter last year. Vessel operating expenses amounted to $21.3 million compared to $21.9 million for the first quarter of 2015 and decreased by 3%, despite the 10% increase in ownership days resulting from the enlargement of the fleet. The decrease was a result of the company's efforts to minimize costs without compromising the vessels operations and safety and achieve reductions in all operating expense categories, except for taxes and other operating expenses. Daily operating expenses were $4,942 for the first quarter 2017 compared to $5,582 for the same quarter 2016, representing a decrease of 11%. Depreciation and amortization of deferred charges amounted to $21.1 million. General and administrative expenses were $5.8 million compared to $6.3 million for the same quarter last year. The decrease was mainly due to decreased payroll costs due to the reduction in a number of shore-based employees and decreased legal fees. Management fees to related party were $0.4 million, the same as last year. Interest and finance costs amounted to $6.4 million compared to $5 million in the same quarter 2015. This increase was attributable to increased average debt and average interest rates in the quarter compared to the same quarter of 2016. Interest and other income amounted to $0.6 million for the same as last year. Loss from equity investments amounted to $2.3 million compared to $2.2 million for the same quarter of 2015. The loss was due to a loss in our investment in Diana Containerships Inc., partially offset by a gain in our investments in Diana Wilhelmsen. Thank you for your attention. We would be pleased to response to your questions. And I will turn the call to the operator, who will instruct you as to the procedure for asking questions. Thank you.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Gregory Lewis with Credit Suisse. Please state your question.

Thank you and good morning, good afternoon. It’s actually Joe Nelson on the line for Greg today and thank you for taking my questions.

Hi. Hi, good morning.

Just a couple maybe a couple of the recent vessel acquisitions. It’s been and the Kamsarmax Post-Panamax glass, was the decision on these three ships, was it more of a evaluation call on where ship values are today? Or was it maybe more of a strategic decision on perhaps where you see maybe the most optionality under recovery scenario?

Hi, this is Ioannis Zafirakis speaking. We have stated many times before that we consider the market to be rather efficient and the price of each vessel, the it’s prices include all the factors that make this a vessel better or worse than any other type. So in other words, it is not a decision, strategic decision, to buy these Kamsarmax. We have said that we are interested in buying anything above Panamax, including Panamaxes. We have particular fleet. Of course, we are considering having the necessary critical mark in all the time. But it’s not agree to anyone as we speak around the world today knows that it is better to buy a Capesize rather than a Kamsarmax, or a Post-Panamax rather than a new Kamsarmax. Everything is included in the price.

Great, thank you. And then maybe just one follow-up. I mean, you mentioned in the commentary maybe the market looks like we’re kind of reaching that supply/demand balance. Is that being reflected in today’s asset prices? Or do you still see maybe there’s still some value to be picked up at today’s prices?

The work we are saying is that we think that we have recent balance [ph] between supply and demand. And for us, that means that despite we do or you do the calculation about the forecasted demand and forecasted supply and you come up with a positive or negative difference, whatever that is. Then being that the balancing stage today, it will have an effect because the previous years, we were saying that we were not in balance. An incremental change was not making any difference. So basically, we don’t know. We think by doing the calculation of demand and supply based on what Mr. Margaronis already said, we think that there’s going to be a positive change as regard demand and supply the next year. Demand is going to be higher than – increasing demand is going to be higher than the increasing supply. And therefore, being at the balancing stage, today, this is bound to have a positive effect in the charter rates. And by having a positive effect in the charter rate, eventually, you’re going to have a positive effect on the prices as well. In other words, we are considering, based on what we know and what we expect about the market for their recent – for the next few months, let’s say, we expect the market to improve.

Great. Thank you very much guys. Appreciate the time today.

You’re welcome. Thank you.

Thank you. Our next question comes from the line of Noah Parquette with J.P. Morgan. Please state your question.

Thanks. I wanted to ask, you guys do a job of laying out the market. You’ve touched on this. But [indiscernible] come about a little bit, we haven’t seen a lot of new builds order. But how do you assess that risk going forward? It just seems like sentiments cold a little bit. But you think that is a real risk to recovery? Just would love your thoughts.

Everything is included in what we have said earlier. Mr. Margaronis said and what I said earlier. Everything is included in the same equation about projected supply and progressive demand. Of course, nobody can be set in 100%, but this has always been the case. You calculate the potential new buildings that you are going to have. You calculate – you try to calculate the sentiments. You put all of this ingredient into one equation and you come up with an incremental positive or negative change in the future in order to try and see what the market is going to do. The previous years, we fail, everybody fail except us, I guess, I have to say, to forecast what was going to happen simply because they didn’t pay attention to the fact that we were not in balance before we do this type of calculation. So if you ask about new buildings, risk for new buildings, that is the same question about scrapping. What is scrapping going to be. And then there is a question of financing and then there is the question of private money, public money. But everything is included in the forecast assumptions that you are using.

Yes, I understand the real factors, but there are all have separate things influencing behind the scenes. So with new builds, the issue is a lot of shipyards and the availability of capital. Do you guys see that risks?

Nobody is going to order based on the number of shipyards. People are going to order based on their expectation about the future being positive. Usually, will have any...

Based on price, right? And the price…

No, it’s not based on price. No, no, no. The price is four after people are ordering and after they have a specific sentiment. The price is not the reason why someone is ordering a vessel. It’s exactly the opposite. The price is determined based on expectations about the future. Nobody’s going to order a vessel because it is cheap. He’s going to order a vessel because the things that is the right time to enter the market. You cannot order a vessel and start losing money and do not expect – if you do not expect that the market is going to improve. What usually happens in the market is the [indiscernible]. You have the market improving. There is a large of assets following that improvements. And then there is a question whether this improvement is sustainable. People are not going to get convinced at the beginning of this is sustainable and the market is going to continue being strong. And from the moment they are convinced that this is sustainable, there’s going to be plenty of new building orders. There’s going to be less scrapping and then the market slowly is going to start to deteriorate, provided that there is no synchronization of other markets being at a good stage and it is being octopi producing other type of vessels. So this is cyclicality. This is the cyclical nature of our business and this is how it usually works. We cannot say that the cyclicality is not there anymore because of the number of new the yards that exist around us or the money that they float around us. If we accept that the cyclicality is always going to be there in our industry, then it’s going to happen the way we describe. Otherwise, if you are persuaded of the cyclicality, it’s not going to be there anymore because of the new building capacity, then we are at the wrong industry.

Okay. That’s all I have. Thanks.

Thank you.

Thank you. Our next question comes from the line of Jon Chappell with Evercore. Please state your question.

Thank you. Good afternoon.

Good afternoon.

I’m going to start with Andreas. I’m going to let Ioannis go down a little bit. So Andreas, post the transaction both the equity deal and the three purchases, assuming the delivery of this last ship by the end of this month. What’s the pro forma cash balance and liquidity for the company?

Well, since we are still getting the deliveries of the vessel, I cannot give you what you can dop the cancellation on your own. We got the green shoes that was exercise, so taking the proceeds of the offering or $18 million, then you deduct the ships with the announced prices and you add on to the cash. So you should get spot-on on the model with that.

Did you ever disclose the cost of the three ships? Can you give that?

Yes, yes, of course, in the perspective supplement.

The recent development part of the prospectus.

You can see it. It’s…

Okay. So $80 million in equity proceeds after the show. I assume there are some fees associated to that.

It’s 22 250 for the two vessels, the Post-Panamax vessels and 22 500 – 32 750 for the – sorry for the Kamsarmax.

Got it, perfect. Okay, so in that combined transaction you’ve effectively put result in a much better position now. How many, I assume those three ships you’re buying with all equity, are there any other unencumbered ships in the fleet or is it just those three?

Yes, there is motor vessel Seattle that is unencumbered. So that we’ll make four vessels that are unencumbered in the fleet.

And is there any plans to add leverage to those four ships at this point or would you want to wait a little bit?

At this point, no, we -- at this point, no, there’s always availability of finance if we wish to. But we decided that, that is going to relief those vessels be pure revenue generators.

Okay. So then, if we laid out Stasi’s outlook and on his view on cyclicality and we think about the next steps for Diana, what does the amount of liquidity that you have today that you would feel comfortable using to acquire ships?

I think, at the moment we are in a period, where we are going to with the stage of our balance sheet pause and wait to see whether market goes before acquiring the ships or continuing on our acquisition, let’s say a…

We invested already $77 million. We never invest a lot of our money at one point in the cycle. We have to wait a bit and see what we are going to do.

But you always say that you try to – you never try to tie the bottoms. You’re always kind of in their buying to the downturn and then to the upturn. So does the pause mean no more…

No, no, we are not buying at the upper part of the cycle. On the upper part of the cycle, we do as little acquisitions are possible to renew the fleet. And what we pay dividend at the upper part of the cycle. We don’t grow the upper part of the cycle.

Right. I misspoke. I meant coming out of the bottom of the cycle. So anyway, any like ones or two these, when you mean pausing, no more three year four vessel in black transactions or you completely pausing no more one or two ships at this point.

We just bought, as Ioannis said, three ships. So we’re not going to buy for the next few months. We don’t have any plans to buying ships in the next few months.

Okay, that’s very helpful, Andreas, thank you. Thank you, Ioannis.

Welcome.

Thanks.

Thank you. Your next question comes from the line of Ben Nolan with Stifel. Please state your question.

Yes, thanks. I wanted to follow up little bit on, what you guys have been talking about in terms of the balance of the market and how we’re finally, approached a point where supply and demand relatively equal. How tight given your sort of outlook on those factors of supply and demand, how tight do you think it could become? Are we in a stage of the market where things could really become, in your view, pretty robust and very tight? Or is it just sort of a relatively loose in balance and supply/demand where your upside is relatively modest?

Well, we forecast as we said before, the market, just give our impression of where we are in the cycle with the various data that we have at our disposal to form a view. So what we can say now is that we are not able to tell you whether we’re going to see another 2007, 2008 market developing. All we are saying is that it appears that we are at a point of balance between supply and demand. And depending on the strength already factors affecting this balance, the market is going to move rather up or down. We hope it will not go down, but it might. The chances are that unless something totally unpredictable takes place, it will move gradually upwards. So that’s all we can say at this point. We are just watching the market quarter after quarter. And this might be the first quarter where we can say with a degree of certainty that we are at the point where demand and supply have reached balance.

Ben, this is very, very important. It is one of the most important developments we’ve had the last seven years or so that we are in a position to say with a certain degree of certainty that we are in a balancing stage. This is very important because the previous years, a lot of time was wasted trying to see what the next period is going to be by calculating forecasted demand and supply, coming up with a number, which had no effect whatsoever or even the opposite effect than anticipated simply because we were not in a balancing stage and we kept saying that. I don’t want to repeat myself. But we were at the stage that we had, let’s say, exaggerating, 1,000 extra vessels. And people were talking about a positive effect of 50 vessels. And they were expecting the market to improve from 1,000 to 950 extra, the market to improve. You know that this never is going to happen. But if we can say with certainty that we are in a balancing stage, then the forecast, if they are correct, that will have an effect. This is what we are saying.

Okay. Yes, I follow you with there. So given sort of that view, how does that impact your chartering strategy? I mean – is it almost everything that you’ve done has been sort of in the roughly one-year context. Is there any appetite to go longer than that yet? Or you’re just waiting to see if things tighten first?

Well, I think that the one year strategy is quite sufficient to have a staggering manner of fixing your seats. But if I may add, what we have preached back in March 2005, we have said simply that we are entering the capital markets because we want to somehow manage the effect of an unknown, which we could never really gauge, which is the freight market whether it’s going up or down. And the reason we enter the capital markets was simply because we wanted so iron out the peaks and the lows on this [indiscernible]. That’s what we have been preaching all along. And I think that we have proven correct all those 12 years. The effect of the market whether it’s high or low has less effect on our company than on other companies who are not using the capital markets the way we use of the capital market.

Yes, I agree with you. Although I would say that the increasing capital markets actually seems like it has also increased the volatility of the trade as a function of access to capital for supply?

Not the volatility. The frequency of this Seattle market, yes. Not the volatility. The volatility will be almost the same. But the frequency of the curve, yes, which is what you want in order for someone to make money. We like volatility, we like what is happening.

Great. Okay, that does for my questions. Thanks.

Thank you. Our next question comes from the line of Fotis Giannakoulis with Morgan Stanley. Please state your question.

Yes. Hi, gentlemen and thank you for the opportunity. Simeon, I want to ask you about the recent accident for the VLOC. I asked some other owners and they seem to have the opinion that this is a major event for the dry bulk market. I wanted to have your opinion if you think that this 50 VLOCs, they are about to leave the market. And if this departure of this VLOCs from the market in a short period of time can have an impact on supply/demand dynamics.

Well, I think that Stasi has given you a flavor of what is going to happen on this, you mean, conversions to VLOC from tankers. I think they’re about to go away. But at the same time, they will be almost substituted by the order of value for the very last ore carriers of the 400,000 tonnage. So there, I think the one will counterbalance the other.

Okay. The other question I want to ask is about the purchasing activity. You addressed it very thoroughly. I want to ask about opportunities for fleet acquisitions, for MMAs. We saw some efforts in the tanker space for business combinations. We haven’t seen anything like that in dry bulk. Is this possible in today’s environment to see more than one company joining forces?

I think everything is possible. But we are trying to avoid to commit ourselves at one particular moment in the cycle. We will try to avoid that.

Okay. Thank you very much, gentlemen.

Well, thank you.

Thank you. Our next question comes from the line of Michael Webber with Wells Fargo. Please state your question.

Hey, good morning, guys. How are you?

Hi, very well.

How are you Mike?

Good. First one actually, I want to congratulate Stasi. This is the first time in 10 years, I think you guys been able to give a positive market overview. So you can make sure it’s getting down maybe. Most of – so you just touched on the VLOC question, which seems like it’s particularly pertinent. But maybe, Ioannis, I think you touched on this earlier. But if I look at this – maybe I look at DSX strategy over a 10 or 12-year period. You made a very smart decision and a very thoughtful decision, 7 to 10 years ago, to cut the distribution, to build cash. And you’re kind of coming to the end of that period with the past couple of quarters. As we think about asset values, inching higher you’re talking about potential rate improvement back into this year, as it ways out. But maybe can you start to lay out how you think about kind of making that, maybe there was cyclical decision maybe some time in 2018 or later and how you think about that kind of transitioning Diana back towards some sort of payout vehicle?

So thank you for your kind words. This is 100% correct. We have managed to buy at the lowest – the lower part of the cycle as many vessels as possible. We have managed to leverage up the company to the maximum without having to restructure. And if the market improves as we expect the market to improve from now onwards, all the benefit of that is going to go to our shareholders and not to anybody else and especially not to those people that they offered a restructuring to the companies, of course, taking most of the upside of the market. So what we expect to happen is that if and when we end up at the upper part of the cycle, the company most probably will – we will reintroduce a dividend and we will renew the flip, getting rid of the older tonnage. And most probably, we are going to continue exactly the same strategy as we’ve done in the upper part of the previous cycle and remunerating and rewarding our shareholders for having invested in our company. We do not deviate from that. You know that very well. But I am – the others, most probably are going to be buying vessels and are going to be leveraging up the companies. We are not going to do that.

Right. So – and again, I know it’s early. And no one is expecting this overnight. But are you at a point now where there are particular metrics you’re looking at on a forward one-year or two-year basis that are really going to be kind of key to that decision. I know you want to do liquidity with John, obviously. That’s kind of the first and foremost. But longer-term, how should we attempt to measure that or think about that?

I think you should look at the market, as we said many times, to be stabilized. At the moment, we feel that we are in that stage with a little volatility, as we said many times before, and we should see that stabilization going towards the upper part rather than going back down again. So when we will see that everybody will understand that. I think – and you and other analysts will understand it before anybody anyway. So it’s difficult to have a specific metric like when the Baltic keeps so much then that’s it we change gears with little bit dividends and we go on with the second part of the strategy.

You understand that there is the sentiment also and there is also the, what Andreas calls the stabilization, the third, sustainability – is the sustainability of the earnings that is going to make us enter into that phase and reintroduce a dividend. But in our case, we have the added value and the added benefit of having certain transparent company and our model is very, very simple. And clearly, it can be seen the ability of the company to pay dividend clearly is going to be there to be seen. And by having no restrictions from the banks to that respect, you understand that our shareholders should expect to benefit from something like this.

Right. Okay, thank you guys, very much. I appreciate your time.

Thank you.

Thank you. [Operator Instructions] I am showing no further questions. That does conclude our question-and-answer session. I will now turn it back to management for closing remarks.

Thank you again for your interest and support of Diana Shipping. We look forward to speaking with you in the months ahead. Thank you.

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