Global Ship Lease, Inc. (GSL) Q2 2015 Earnings Report, Transcript and Summary

Thank you very much. Good morning, everybody, and thanks for joining us this morning. I hope that you’ve been able to look at the earnings release that we issued earlier today, along with the press release announcing our first acquisition and also been able to access the slides that accompany this call. As usual, the first two slides remind you that the call may include forward-looking statements that are based on current expectations and assumptions and are, by their nature, inherently uncertain and outside of the company’s control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation. We also draw your attention to the Risk Factors section of our most recent Annual Report filed on Form 20-F, which is for 2014 and was filed with the SEC on April 21, 2015. You can obtain this via the SEC website or via our own website. All of our statements today are qualified by these and other disclosures included in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP, please refer to the earnings release that we issued this morning; this release is also available on our website. I’ll start today’s call by brief reviewing the second quarter and subsequent highlights, followed by an overview of our fleet and path forward for GSL. After some comments on the container shipping industry and vessel acquisition environment, I’ll turn the call over to Susan for her comments on our financial statement. Then, after some brief concluding remarks, I’d be pleased to take your questions. Slide 3 shows our highlights for the second quarter. The headline clearly is the initiation of the dividend for our Class A common shareholders, representing a major milestone for Global Ship Lease, I'll review the dividend in more detail in a moment. But first, returning to the underlying business, let me say that our fleet continue to operate at a high level through the second quarter, earning stable predictable cash flows from long-term fixed-rate charters with top quality charters. During the quarter, we generated $41 million in revenues, net income of a shade under $3 million and adjusted EBITDA of almost $27 million. The high level of operating performance in addition to the first full quarter of actual, rather than pro forma contribution for the Qingdao, which was delivered to us in March this year supplementing the contribution from the OOCL Tianjin, which arrived in that fleet in October last year has led us to exceed the 2.25 times fixed charge coverage ratio threshold that we’ve been targeting for some time. This unlocks our dividend paying capacity and puts us in a position to initiate the dividend. Subsequent to the quarter end and as announced earlier today we’re delighted to have really reached further agreement with OOCL to purchase an immediately charter-back a first 8000 TEU vessel the 2004 built OOCL Ningbo for a purchase price of $53.6 million and a charter rate of $34,500 a day for between 36 and 39 months at charter's option, essentially on the same terms as our two previous sale and leaseback transactions with OOCL. OOCL Ningbo is scheduled to deliver to us by late September and will add a further $9.4 million or more to our run rate EBITDA, which taking into account our previous two acquisitions raises our run rate EBITDA level by approximately 35% in less than a year. We greatly value our expanding relationship with OOCL who we see as a top class counter party. Finally, as I have said we announced today the initiation of a regular quarterly dividend, which our board has declared for the second quarter as an initial level of $0.10 per Class A for the quarter. Given the acquisition of the Ningbo, the board intends to raise the dividend to $0.125 per share or $0.50 annualized for the fourth quarter, when all things equal we would've enjoyed a full quarters contribution from the Ningbo. Turning to Slide 4, you can see outlined the various hurdles that we’ve cleared to enable us to initiate the dividends. As many of you are aware, we embarked on our current growth path in earnest with our refinancing in early 2014, which allowed us to check restricted maintenance covenants notably loan-to-value, restrictions on capital allocation, and mandatory debt amortization via full cash suite. So since that time, we’ve increased the full fleet charter coverage including maintaining employment to that two spot vessels and what has been until recently a difficult spot market. We’ve diversified our charter portfolio with top tier charters we’ve accessed multiple sources of capital to fund growth at a lower cost and to strengthen our balance sheet. We’ve accretively expanded our fleet, our contracted revenue and our EBITDA. And we’ve passed the 2.25 fixed charge coverage ratio set out in our debt agreements, which has enabled us to initiate a dividend. We believe that further acquisition opportunities exist, that will provide additional support for our dividend. In the near-term, we add OOCL Ningbo to the fleet with increased cash flow facilitating the increase in the dividend that I have just mentioned. Turning to slide five, we have now initiated the meaningful and sustainable dividend that we've been discussing for several months now, several quarters indeed, with a clear path to near-term growth. We’ve passed that fixed charge coverage ratio by virtue of improved operational results for Q2 2015, we’re focused on controlling cost very closely. We dropped a relatively poor quarter two 2014 from the last 12 months record and it’s the 12 month record that drives the calculation of that ratio. That quarter in 2014 was negatively affected by idle time and repositioning costs for our two spot vessels Orion and Aquarius, both of which were without employment for some of that quarter. We've also benefited from the actual rather than pro forma results of the two new vessels – of the two vessels new to our fleet; Tianjin and Qingdao, where actually we’ve earned a little bit more than the $9.4 million annualized EBITDA that we’ve discussed previously. So in summary, in the second quarter we earned $13.3 million of cash available for distribution, as before reserves for vessel acquisitions, the actual costs of any dry-docking there weren’t any Q2, before scheduled amortization of debts, before the tender offer is required under the most annual receipt for anything that we know we may need to incur. As our initial dividend payment level of $0.10 per Class A common share, dividend coverage for the quarter was 2.8 times. I’ll just note that the Class B shares which were $7.4 million are currently not eligible for dividend payment, the subordination feature that we included in those shares has worked hard to support the Class A shares. Because our chartering strategy is based on long-term fixed-rate charters with high quality counterparties, we have a great deal of forward visibility on our ability to sustain the dividends, with 5.5 years weighted average remaining charter length and $870 million in contracted revenue spread over that period that includes both, with only two vessels I with charters that expire before late 2017. This allows the board to take a clear view on sustainability of the dividend in the short and medium-term. Furthermore, we believe that our current dividend payout level and the intended payout level provides considerable value to our shareholders, while also enabling us to pursue additional accretive acquisitions to reinforce and expand our cash flows, which in turn should increase our ability to support a growing dividend. We use the Ningbo as an example with the full quarter's earnings contribution from that vessel in the fourth quarter, we believe that will sustainably support a 25% increase in that quarterly reporting dividend level to $0.125 per share, $0.50 a year on an annualized basis. Turning to Slide 5, sorry Slide 6, you’ve seen this slide before you can see the high degree of consistency in both our operational and financial performance over the years. Our operational proficiency and our focus on long-term fixed-rate charters allows us to remain stable and insulated from volatility in the overall market, which is illustrated on the contrast between the top of the slide the red line of the volatile stock charter market and the bottom of the slide, which is our financial performance. And in the most recent reports you can see the significant earnings impact of our vessel acquisitions and leaseback's to OOCL, with the second acquisition the Qingdao only fully contributing in the second quarter of this year. Just to note our two recent successful recharterings of Ville d'Aquarius and the Ville d'Orion has significantly higher rates from previously, only came into effect at the end of the second quarter and in July respectively, so the impact of these higher earnings will only be evident in the Q3 numbers. Before moving on from this slides I’d like to point out the consistently high level of our vessel utilization, which was 99.9% for this quarter with any two days of unplanned offhire across the entire fleet of 19 vessels. This level of operational performance we think is a key component of realizing maximized value from our long-term charters. Offhire means revenue, minimum offhire means maximum revenue. Again, just to note we have no further regulatory drydocking scheduled for this current year. Moving on to Slide 7, we show our fleet and charter portfolio including the new vessel, which is scheduled to deliver and immediately commences charter back to OOCL in late September of this year. As of June 30, the quarter end, the weighted average age of our fleet was approximately 11.2 years, out of an economic life of 30 years. Our weighted average remaining contract term is five and a half years excluding the two 4100 TEU vessels Orion and Aquarius, which operates on short-term contracts. Our contracted revenue stream was approximately $835 million that doesn’t include the Ningbo, she adds another $38 million to $41 million for her 36 to 39 months charter. Aside from Aquarius and Orion, which are in the spot markets and were recently rechartered at rate increases of 28% and 38% respectively, around about $11,000 per day mark, were insulated from the rechartering risk and volatility in the charter market, up until late 2017 when the first of our longer term charters come up for renew. And beyond that point, out charter expiration is staggered over a number of years with our largest and highest earning vessel, the CMA CGM Thalassa charted out through 2025. These long-term contracted cash flows enable us to confidently continue to execute on our growth strategy, which is outlined on slide eight. First, we look to maintain strong contract coverage for our fleet with high quality counter parties, primarily on longer term fixed rate charters. As we expand our fleet, we’re focus on acquisition targets that have charters of this nature attached and are thus immediately cash generative. Second, we continue to seek out opportunities to diversify our portfolio of top-tier charterers to complement our strong and long-term founding relationship with CMA CGM. We have progressed substantially on this front by chartering a total of five vessels to Sea Consortium and OOCL. We believe that there is further value in diversification with other high quality charters, particularly in the sale and leaseback situation while vessel values and returns remain attractive. First, we continue to evaluate opportunities that exist to enhance our capital structure, we’ve attached number of non-dilutive sources, non-diluted to equity sources of capital to fund our immediately accretive growth, most recently establishing $35 million credit facility secured by the OOCL Tianjin with DVB Bank, which has assisted our purchase of the Ningbo. Recent financings; this credit facility with DVB and the revolver which we put in place alongside the issuance of the high-yield debt back in March 2014 draw down of that, these have been the lower cost than our enabling issue of high-yield notes back in March last year and thus reducing our overall run rate cost of capital. And we believe in particularly with the reinstatement of the dividend that there should be a number of possibilities available to us in the near and the midterm by which we can actively manage our capital structure and pursue a lower cost of capital overall. Finally on Slide 8, the addition of the Tianjin and the Qingdao to the fleet supplemented with the first vessel acquisition in the OOCL Ningbo will bring our EBITDA generation capacity up to around 135% of this level a year ago. The contribution from these vessels and our focus on day-to-day operating performance has put us in a position where we can pursue a value maximizing dividend payment and also fleet growth. Opportunities continue to exist in the market for the addition midsize and smaller tonnage and we view accretive acquisitions not as an alternate to dividend payment, but rather as a method by which we will both support and potentially expand the capacity to pay the dividend. Turning to Slide 9; we’ve outlined the three vessel acquisitions from OOCL essentially on identical terms for what amount to effectively three sister vessels, a slight adjustments in purchase price of their relative ages purchase prices ranging from $53.5 million to $55 million or on 36 to 39 month charters back all at a gross rate of $34,500 a day, adding in total $113 million to $123 million to our contracted revenue, spread out over approximately three years. These vessels have contributed to the increase in our run rate EBITDA of over a third in the past year generating an unlevered free cash flow yield of some 17%. Each of these delivers has been immediately accretive and each has represented a significant milestone for GSL. As I said, we believe there are further accretive and attractive acquisitions available to us in the market, and we’re fully focused on seeking to acquire further vessels on obtaining terms. Slide 10, we’ve shown before shows how the deployment of midsized ships, which includes the 8,000 TEU class has evolved over the past several years, giving us comforts on the attractiveness of the asset class given its increasingly flexible deployment throughout the global container trading system, and thus supporting rechartering opportunities at the end of the current charters. Slide 11 gives an update on supply and demand fundamentals, which continue to be encouraging. The excess of fleet growth, supply – supply growth, demand growth in 2014 and projective of 2015 is normal, all things equal, as supply needs to grow a little bit more quickly than demand. However, our 2016 projections continue to show demand significantly outstripping supply growth, which is really good news and should support a firmer charter market, particularly if you take the recent strengthening in the charter market as an indication that supply demand balance is just about intention. As last time, it’s worth nothing that shipyards are broadly full into 2017, not just with containerships, but with all types of maritime assets. So there isn’t really a great dealer scope from the supply side numbers for 2015, 2016 to change materially. In parting the order book to fleet ratio of containerships continues to hover, but around 20% and it’s been about for quite some time, compare just to remind you to the peaks in 2009 of 60%. Slide 12, we continue to include, it’s important to us because it does illustrate the differences between the main east-west trades, notably Asia to Europe and the Transpacific, and the smaller trades, the Intra-regional phase, notably the Intra-Asia trade and the north-south trades, North America South America for example. It shows that the medium size and smaller trades represents 70% or so in aggregate of global container trade, so a clear majority. And this is where medium size and smaller ships tend to be deployed. And as we observed before, the order book for these vessels is very small. Indeed taking scrapping levels into account, even though these have eased recently with improved near-term earnings power for spot vessels, it could be that some segments of the small and medium sized fleet will contract over the next couple of years or so. So control supply growth combined with reasonable demand growth should and indeed has introduced pricing tension into the dynamic for spot charter vessels, which has directly benefited us from the renewal of significantly high rates for our two spot vessels and reinforces our view for a cyclical recovery and charter rates in the medium term, to continue recovering charter rates in the medium term. Turning to Slide 13, despite the improvement in charter rates, our freight rates as we know from reading the papers remain under considerable pressure, albeit they are spot market freight rates, not contracted rates, which represents a good chunk of carriers business. These freight rates are under pressure. However the quick pro quo is that carriers financial performance is being supported by considerably lower bunker prices than even a year ago. Slide 14 shows with the recovery in short-term charter rates that second hand asset values have edged up to, nevertheless we continue to believe that there are good investment opportunities for Global Ship Lease, particularly as we look to sale and leaseback transactions and structured transactions which are in a different market to the asset value shown on this slide. And it may be that the liner sector, under some financial pressure, look to increase the frequency of sale and leaseback transactions as they to manage their balance sheet and build liquidity. Let me now hand over to Susan for her comments on our financials.

Thanks, Ian. Please turn to Slide 16 for a summary of our financial results for the three months ended June 30, 2015. We generated revenue of $41 million during the second quarter, up approximately $7.5 million from revenue of $33.5 million in the comparative 2014 period. This increase in revenue is mainly due to the addition of OOCL Tianjin from October last year and from March this year the Qingdao, each at a daily charter rate of $34,500. With two days offhire in the three months ended June 30, 2015, both of which were unplanned, utilization was 99.9%. In the comparable quarter of 2014 there was one day of unscheduled offhire and 48 days idle time better charters for two vessels, giving a utilization of 96.8%. Our vessel operating expenses were $12.7 million for the three months period, up slightly from the prior year period, primarily due to the addition of the Tianjin and the Qingdao to our fleet, partially offset by reduced insurance costs and lower bunker costs related to idle days and vessel repositioning during the 2014 period. Our average cost per ownership day in the second quarter of 2015 was $7,327 compared to $7,853 for the same period in 2014, down $526. And this reflects the addition of 182 ownership days in the quarter. Interest expense for the three months ended June 30, 2015 was $11.8 million and this includes interest on the notes and our drawings under the $40 million revolving credit facility, plus amortization of the original issue discount on the notes and deferred financing costs. Net income available to common shareholders for the second quarter was $2.9 million. Normalized net income adjusted for non-cash items for the three months ended June 30, 2015 was $2.9 million, the same as the reported net income available for common shareholders for the quarter. The normalized net income for the comparable prior year period was a loss of $2.3 million. Moving on to the balance sheet, which is shown on Slide 17, the TI terms as of the end of the second quarter 2015 include cash of $41.4 million, total assets of $927 million, of which $869.4 million is vessels, including our latest additions to the fleet, from the end of October and early March. Long term debt at $454.9 million including the $40 million drawn under our revolving credit facility during the first quarter this year, and shareholders’ equity of $441.1 million. The next slide, Slide 18, shows our cash flows. The main items to mention here, our net cash provided by operating activities was $25.4 million in the second quarter and cash used in investing activities was $1.2 million and this was primarily for drydockings. I would now like to turn the call back to Ian for closing remarks.

Thank you, Susan. Before taking your questions I’d like to briefly summarize on Slide 19. But before I go through that slide, let me just reiterate, we have done what we said we were going to do following the refinancing by the issuance of the high yield notes in March last year. We’ve deployed our capital successfully, we made two and have one more in the pipeline accretive acquisitions, we've built the business, we’ve passed the fixed coverage ratio, we've initiated a dividend on our common shares and we’ve pointed a path to increase that dividend when the third vessels comes into our fleet or after the third vessel comes into our fleet in September. Specifically, we’ve increased our contracted revenue by $113 million to $123 million through the three acquisitions, on leaseback transactions with OOCL in under a year. We've expanded our EBITDA generation capacity by more than $28 million, which is an increase of over a third from the third quarter 2014 run rate. Secondly, excluding the two 4100 TEU vessels that operate in the spot market and which we have successfully kept in employments through the difficult times over the last couple of years. Our fleet is fully contracted through until late 2017 with contracted revenue of $835 million at June 30 and pro forma for the OOCL Ningbo $870 million or so, with a weighted-average remaining contract duration of five and half years. This substantial forward visibility on cash flows enables us to support the regular payment of the dividend, whilst also confidently continuing to pursue our growth strategy. Third, particularly now that we've exceeded the fixed charge coverage ratio related to our debt our strong stable capital structure supports our strategic goals with no scheduled refinancings until 2019. We also have opportunities to actively manage our capital structure as we've done in the past and to pursue reduction in our overall cost of capital. Finally, for all of these reasons we believe we are well-positioned to pursue additional acquisitions of midsized and smaller vessels under a charter attached basis, while assets overall remain at cyclical lows. We have established a clear path to earnings and cash flow expansion. There are more opportunities to be seized on in the market. At the same time, we've established a strong foundation for the payment of a dividend, which we’ve consistently targeted and are delighted to have initiated today. The expected full quarters contribution of the OOCL Ningbo in the fourth quarter will bring us to a place where we can confidently expand our dividend to an annualized rate of $0.50 per share, which is 25% off on the starting dividend of $0.40 per share annually. With that I’d now like to hand the call over to the operator for Q&A.

[Operator Instructions] Our first question or comment comes from Mark Suarez from Euro Pacific Capital. Your line is open.

Hi good morning Ian and Susan, and congratulations on reaching the dividend milestone here.

Thank you.

Well, maybe you can just start the latest acquisition of the OOCL ship, what sort of target leverage you will be thinking about and should we expect the full year to fully draw the DVB bank debt to finance it?

Yes we will fully draw with DVB finance index to finance that acquisition. The new credit facility is secured on the Tianjin, and if you’re looking at leverage it’s a $35 million facility on a purchase price than $55 million, so that’s 64%. So it’s sort of consistent with what we’re seeing in the market of – other than brand new vessels and long term charters 65% to 70% leverage is available.

Right. That makes sense. And just turning on to the sister ships of the OOCL, are there more sister OOCL vessel target that you can go after under sort of similar terms to potentially add a fourth sister ship here? And I guess, you just answered the leverage question, presumably you’ll also be targeting sort of the same, this 60% to 70% target range, right?

Taking your second question first, we’ve demonstrated clearly with Tianjin and the new facility. Answer to lesser extent the $40 million revolver which we drew down against the Qingdao to facilitate the purchase of that vessel. We’ve demonstrate the source of leverage, percentages at least that we think were available for these types of assets. In terms of – further vessels with OOCL clearly there are significant liner company and they have a large fleet, I would never want to comment specifically on individual opportunities. And they all are very delighted to have a very strong good relationship with them, as we do with CMA CGM. There are other liner companies out there in the marketplace as well, and we keep our minds open to every opportunity providing the economics are appropriate.

Okay. And just touching on the secondhand tonnage market out there, are you still finding vital opportunities [indiscernible]? And are these mostly charter free opportunities, I mean you talked about, like charter attach opportunities, have you seen more charter free opportunities vis-a-vis the traditional sales defect types of transactions you have done in the past? And will you consider such an option outside of that sales leaseback, historical transactions like you have with OOCL?

It’s really tough to be sort of quantitative about this, but our feeling is that the level of sale and purchase activity or these opportunity has remained reasonably constant over the last couple of years. In terms of the relative number charter attached versus charter free opportunities, that’s probably also consistent. We focus however, as we've explained previously and I mentioned in the prepared remarks, we focus on charter attached opportunities. They are the ones that will and have demonstrably driven the GSL business forward and has allowed us to, to be able to pay the dividend. And we continue to look at those immediately cash accretive sale leaseback charter transactions with three maybe four years’ worth of charter coverage to avoid excessive exposure to the short-term charter market, which were low as much firmer than it was remains volatile.

Got it. So should we say that your preference then will be to go out other liner companies and sort of struck similar sales leaseback transactions as you have done with OOCL, would that be your, that will be preference? Is that right?

In a nutshell yes, but we would also look at charter attached transactions, so that they’re not sale and leaseback and they’re purchasing if ships out there today that already have a charter in place, and we effectively by the pre-existing charter. So we define them as sort of smartly structured transactions rather than spot market transactions.

Got it. And then maybe turning on to the balance sheet and as we look into the first half is [indiscernible]. What are your thoughts in terms of refinancing of your five year credit facility via that call option that I think you have coming up in April, have you had any discussions with the existing lenders, other lenders regarding an alternative to that five year credit facility, if you are in fact to go after than call option to call that bond? What are your thoughts regarding that?

Sure. The bonds is callable April 2016 at 105, so we have considerable control at that stage. We keep a very open minds to refinancing opportunities. It’s our firm desire to refinance that debt on more favorable terms both economic and detailed structure. But we have to be realistic, so we’ll see what market opportunities are, there are at the time. And I hope as you'd expect, we have begun to think about how we could approach the refinancing.

Right. And as you put those refinancing alternatives, are you beginning to find, giving your contracted revenues and distributable cash flow potential, maybe you could in fact eliminate if not significantly, in respect of covenant test, so that you don’t have to be able to – be with them as you’ve done in the past?

I think it’s a little too early to speculate on that Mark.

Okay. And then I guess, just finally on the dividends obviously you initiated dividends. I’m wondering if you can give us a view of your dividend policy from your board. I know, obviously this question was to board, but should we think about as you increase your distributable cash flow and earnings capacity that your dividend should in fact increase in line with that, how should we view that dividend policy going forward?

The first thing I’d like to say is that we’ve banged on about maintainable, sorry a meaningful and sustainable dividend and the sustainable bid is really important to us. And we want to fluctuate in terms of dividend level from quarter to quarter. So we're very comfortable with the $0.10 right now and we’re very comfortable with the $0.125 per quarter for Q4 and beyond. In terms of the dividend policy, we've avoided putting in the published material any sort of payout ratios or anything like that, we don’t feel right now that the stage of GSL, we want to be tied to the payout ratios. But we've given you an idea about how the board is thinking on dividends by announcing the intent to increase when we’ve got a full quarters contribution from an acquisition. Come the day with further acquisitions and further distributable cash flow, we would look very closely at the competing uses of that capital, can we redeploy it to the business, what’s the appropriate share of increased cash flow between reinvestments and return to shareholders.

Okay. Well thanks for the color here Ian, as always been. Thanks for your time.

Welcome.

Our next question or comment comes from the line of Charles Rupinski from Seaport Global. Please go ahead with your question.

Thank you and congratulations on the quarter Ian.

Thank you.

I had just a couple of questions, sort of a follow-up to what you discussed about charter arrangements and what you’re looking do when you make acquisitions. Would it be fair to say that 3 to 4 years is sort of the sweet spot in terms of charter coverage or is that just what is mainly available, this is not a new bill that you really can’t go out much further than that in terms of your buying or something in the secondhand market? Would you potentially go longer, could you go longer from what you're seeing in the marketplace?

There is no sort of strict rule here, Charles. Clearly the three transaction with OOCL, are all sort of three, three and a quarter years’ worth of charter. We’re certainly not uncomfortable with that. There are other sale-leaseback transactions out there which have shorter duration, there are others that have longer duration. If you’re buying into a charter attach transaction, it could be a three year old vessel that’s got nine years of its 12 year charter to go. So it does vary. What we would look – we would look at every single situation on its merits. We would look at the counterparty, we would look at the asset, we would look at the residual value of that asset, its deployments in the market, we’ll be comfortable buying an asset that was going to become open in two years’ time or in five years’ time, what do the economics look like, and we would make a decision project by project.

That make sense, very good. The other questions I just had is, you know just in terms of, I saw that you did extend charters on the vessels of the Sea Consortium, these are sort of shorter term charters, any idea about what we could think about as far as the long-term deployment of those vessels, you know how you’re going to think about deployment? I might have missed something, as a matter of keeping them in the same type of arrangement or potentially getting them on longer-term deployment?

Yes. We were pleased to renew both of the charters with Sea Consortium at significant higher rates, as I mention 30% 40%, up on prior rates, relatively short periods of time four to seven months or so taking it through to the end of the year. And that relatively short fixing would be typical in a market where there is a degree of uncertainty about which direction rates are going to go. We were very happy for those durations. As ever with the ships forecasting a longer term view is very difficult. We’ll wait and see what happens to the charter market, narrow renewal dates and we continue to have options to renew with Sea Consortium to find another charter or if the economics don’t work for us then we can dispose the vessels. We’re also mindful of course turning back to the overall supply demand projections for the industry. 2015, as I said in my remarks too bad, 2016 actually top-down with a 6% forecast demand growth and only a 5% forecast in the fleet of the growth and none or very little of that fleet growth in the medium size and smaller. We’re mindful that, that could lead to very strong charter rate environment for Panamax tonnage going forward.

So I have to ask this because I mean this is sort of a contradictory thing that I – from my philosophy, seeing the philosophy. Clearly, you prefer the long term charters, but just on an opportunistic basis, you know given your view of the market, just on a one or two vessel type arrangement, is there any conceivable way that you would say look here is one vessel split value right here, we have a 18 to 24 months view. We’re going to try and do it short term and then lock on with new vessels or is it really going to be any new vessel that you acquire is going to have at least three or four years on it?

Well we’ll look at every situation on its merit. It’s very difficult to be definitive.

Okay. But it sounds like there could be, it sounds like, if you do have a conviction on a strengthening market and the opportunity arose then you would be open to doing something short or buying something that is not locked in potentially?

If we were very confident about near term prospects, very improving charter rates then yes. The key to our business model is predictability. And as we grow the business, we have room in our portfolio for more short term exposure. But it’s absolutely crucial to us that we have got a decent forward view on our revenue and therefore cash flow streams.

Right. I would believe that should this happen it would be something that’s incremental, not a change of strategy. Okay, well congratulations again on the quarter. Thanks.

Thank you.

Thank you. Our next question or comment comes from the line of Jim Marrone from Singular Research. Your line is open.

Thank you. Good morning, Ian.

Hello.

Very well done on the quarter, and you have done everything that you set out to do as far as the turnaround plan, acquisitions growing, future cash flows and initiating dividends, so congratulations on that. So, my question is really, as a result of all these actions when is it going to resonate with investors because it’s really the stock has been trading in the $5 to $6 range, since really changing very [indiscernible] this year. And it’s had recent dips down to $5.20 with a lot of volatility just since past week, so have – is there a wake period do you believe that will resonate share price or are investors looking for something else with respect to corporate action, plus maybe you can maybe provide some insight with respect to that.

Well bearing in mind some of our investors are on the call, I’d better be polite, doesn’t I. We’ve seen before periods of volatility before earnings. Yesterday's price action was more extreme than perhaps we’ve seen before. And I have no idea what drives this sort of stuff. Stock can trade [indiscernible], occasionally there are days where volumes are very firm. But the crucial thing now is that we have a dividend in place and we’ve stated the intention to increase that dividend to an annualized rate of $0.50 a share, that’s providing a return to shareholders, which they have not seen for the past few years. So all things equal, that should provide a floor if you want to look at it that way, a floor to the stock price, and we’ll have to see how the stock response. I think we’re in a very different place now from the 4th of August 2015 with that dividends and having demonstrated spectacular growth I would argue over the past 12 months than we've been in before today's date.

Yes. That’s all I have.

Thank you.

Thank you. [Operator Instruction]. Our next question or comment comes from the line of Zack Pancratz from DePrince, Race & Zollo. Your line is open.

Good afternoon and congratulations. We’ve been waiting for this for a while, I’d like to first congratulate you.

Thank you.

As you can see by today’s stock price that, as we’ve talked about in the past, best way to create value for yourself and for shareholders is through the dividend, not through growing the fleet for growth sake. So good to see we've reached our first step here and we can move forward. So just first off on the Ningbo acquisition, you guys gave clarity on what your current distributable cash flow is, how much will the Ningbo add to that $13.3 million that you have through June 30?

We’ve put out there, the run rate EBITDA for this vessel of $9.4 million, which is the same as the other two. And we’ve indicated that it G is partly being financed by $35 million of this new credit facility, which is priced, that’s help us to $275 million, so call it 3%, just to keep the math easy. 3% on $35 million is $1 million, so incremental cash flow before drydocking and all the rest of it is – sorry is $8.3 million, that's ignoring amortization.

So we’re looking at a full distributable cash flow annualized once this ship is delivered of – was that $0.45 a quarter, so we’re looking at – about $1.80 in distributable cash flow, you guys will have with this vessel?

Yes.

So I looked at your stock today, trading up about 14%, 15% and yet it still yield at about 8.5%, your peers are yielding closer to 7%, you’re at about a ton discount from an EBITDA standpoint to your peers and your dividend coverage ratio will be over 2.5 to closer to 3 times versus your peers at 1.8 times. Is it fair to say even with this coverage ratio that you guys would still be looking to grow this dividend, even if suite growth were not to occur?

Well that’s a hypothetical, so we fully expect to be able to continue to grow the fleets and share incremental earnings growth with shareholders retaining some say reinvest in the business as I explained, depending on what’s exactly happening in the market at the time, what the opportunities are and what alternate uses of our cash would be.

Okay. The faster we can grow the dividend as you can see shareholders will be rewarded as will. So that’s clearly what drive charter.

We appreciate that.

And then lastly, what your current liquidity looks like, I know you saw the unencumbered vessel that you can draw on, what type of purchasing power do you guys have currently?

It’s probably much the same as we have before committed on both. So feel right, that vessel is unencumbered, so prima facie we could raise $35 million on her together with cash that we’ve got would mean that we should be able to make another investment of $50 million or $60 million in the relative near term. We have to bear in mind as you know that our cash flow is lumpy we’ve got the tender offer on our shares, sorry on our notes in early next year, by the end of April, we have interest payments as well that we need to take account of. But prima facie, we have capacity today we levered off Ningbo to buy another similar sized acquisition.

Can we expect when you guys purchase an additional vessel that – in conjunction with that you would also announce the dividend increasing? Seeing that it would be accretive to both cash flow and the dividend?

That’s what we did today.

Okay. That’s all I have and congratulations.

Thank you.

Thank you. I’m showing no additional questions in the queue at this time. I’d like to turn the conference back over to Mr. Ian Webber for any closing remarks.