Global Ship Lease, Inc. (GSL) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Global Ship Lease Second Quarter 2019 Earnings Conference Call. [Operator Instructions] I'd now like to introduce your host for today's conference, Mr. Ian Webber, Chief Executive Officer of Global Ship Lease. Sir, you may begin.

Thanks very much. Hello, everybody. Welcome to our second quarter 2019 earnings conference call. As normal, the slides that accompany today's presentation are available on our website. and in those, Slides 1 and 2 remind you that the call today may include forward-looking statements that are based on current expectations and assumptions and are by their nature inherently uncertain and outside of our 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 on Form 20-F, which is for 2018 and was filed with the SEC on March 29 this year. You can obtain this and all our other reports via our website or via the SEC's. All our statements are qualified by these and other disclosures in our reports filed with the SEC, and we don't want to take any duty to update forward-looking statements. For reconciliations of the non-GAAP financial measures, to which we will refer in this call, to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued earlier today. I'm joined today by our Executive Chairman, George Youroukos; our Chief Financial Officer, Tassos Psaropoulos; and our Chief Commercial Officer, Tom Lister. George will provide opening remarks about GSL and our strategy and the first half. Then, Tassos, Tom and I will take you through the quarterly results, our financials and the current market environment. After our prepared remarks, which will be concluded by George, we'll be delighted to take your questions. Turning to Slide 3, I'll now pass the call over to George.

Thank you. It is my pleasure to speak with you all today. While my colleagues will take you through the details of the market and the multiple ways that we have sought to unlock the full value of GSL, I would first like to put into perspective the extent of the Company's transformation so far in 2019. As we have been trying for some time, there is a longstanding and clear disconnect between the fundamental demand for mid-sized and small container ships on one hand and an almost total lack of new building orders for such vessels on the other. As this tension has increased, with continued demand growth, including carriers replacing larger mainly owned tonnage, they can also share risk to fit scrubbers ahead of IMO 2020 and a resurgence of scrubbing activity again ahead of IMO 2020, we have seen a dramatic improvement in the charter rates across the mid-sized vessel classes. This positive impact was initially seen for high-specification post Panamax's which have seen market saturates more than double since Q4 2018, and is now filtering out across all of the vessel classes that make up our fleet. In this environment, we have been able to make extensive use of our superior commercial management platform to secure long-term profitable employment for our fleet. In summary, in the first half of 2019, we have secured 15 new charters, of which nine have multi-year durations, 35 years aggregate additional contacted charter cover. $129 million of additional adjusted EBITDA over the life of those charters. And net expansion of nearly $100 million to $823 million of contracted revenue between December 31st 2018 and June 30th 2019. Despite the passage of six months which has eaten into the December 31 number, and an over 15% increase in our average charter cover over the same period to 2.9 years. We're simultaneously realizing cost savings having decreased our daily OpEx per ship from $6,242 per day in first half of 2018 to $6,042 per day in first half of 2019, as a result of the lower OpEx cost per day of the Poseidon fleet and the transition of the legacy GSL fleet to its new ship manager. At the same time, by growing our contract cover and delevering, we have substantially improved our forward visibility, credit profile and strategic position as we seek to refinance our 2020 maturities of favorable terms well in advance. Looking forward, we believe that there are exciting opportunities for us to utilize our improved financial standing and commercial capabilities to pursue accretive growth opportunities. Whether as a one-off ship acquisitions, en bloc purchases along the lines of the recent three 8,000 TEU ships purchased and chartered to Maersk Line, or corporate acquisitions via many transactions like the transformational combination of GSL and Poseidom. We have established GSL as a proven platform for growth. We will be prudent and highly selective in pursuing mid-size or smaller ships that meet our high standards for deployability operations, and financial returns, including immediate value accretion. Our continuous engagement across the market leads us to believe that such opportunities exist for an acquirer such as us with a financial, operational means to complete such transactions. Finally, as many of you will experience directly in recent months, we are taking actions to increase investor awareness of GSL by participating in conferences and non-deal roadshows on an ongoing global basis. We firmly hold the belief that our story is underappreciated and we're working very hard every day to not only strengthen that story, but to make sure that the investor community is aware of the opportunity that GSL presents. With that, I will turn the call back to the Ian. Thank you.

Thanks very much, George. If you could all turn to Slide 4, I'll quickly run through the highlights for the quarter and for the first half of the year. Operating revenues for the quarter were $63.1 million, generating net income of $8.8 million and adjusted EBITDA of $38.8 million. Operating revenue and hence adjusted EBITDA were a little down on the first quarter, mainly due to a number of vessels being off hire for important upgrading work to substantially increase effective reefer capacity on five vessels. Where it makes sense, given the upgrade work, we've also brought forward, with the approval of class, the standard regulatory dry docking work to be efficient. We will return to these upgrades later. As George mentioned, we've taken advantage of the strong market for high specification mid-sized vessels to lock in upside through multi-year charters, bringing contracted revenue to $823 million dollars and TEU weighted average forward charter cover to 2.9 years per ship. To briefly recap on our chartering activity since the beginning of the year across our fleet, all vessels, sizes and ages, we've agreed a three year charter for the 2015-built 9,100 TEU Al Khor with Hapag-Lloyd. This is expected to generate approximately $28 million of adjusted EBITDA. We have agreed a 30-month to 38-month charter for the 2000-built 5,900 TEU Tasman with Maersk Line, expected to generate approximately $5.3 million of adjusted EBITDA, and an additional $4.4 million of adjusted EBITDA, if a 12-month extension is exercised by the charterer. We've agreed a 21-month to 24-month charter for the 2000-built 5,936 TEU Dimitris Y and Ian H, both for ZIM. Each charter is expected to generate approximately $4.4 million of adjusted EBITDA. We've agreed five-year charters for the 2004-built and 2005-built now 8,700 TEU OOCL Qingdao and the GSL Tianjin with MSC. Each charter is expected to generate approximately $25.6 million of adjusted EBITDA. We've also agreed short-term charters and extensions for six of our smaller ships at prevailing market rates, ensuring full employment while maintaining exposure to the continuing strengthening of the charter market. Of particular note, we've grown -- we've purchased three 2004-built 7,849 TEU ships for an aggregate purchase price of $48.5 million secured against three-year and five-year charters to Maersk Line. These charters are expected to generate an aggregate adjusted EBITDA of $32 million and up to $47 million, if the two successive one-year options held by the charterer are exercised on each of the ships. We financed part of the purchase price, $37 million, which was very close to the scrap value of the ship at the time that we struck the deal. Thus, risk is minimized. We financed $37 million of the purchase price with new bank debt agreed on market terms. Beyond the highly attractive terms of this transaction and the high quality and good condition of the vessels themselves, we were pleased to have been able to capture this unique opportunity to participate in earnings and fleet growth with minimal residual value risk. Our balance sheet and relationships across the market put us in a position to act quickly to get this transaction agreed and completed, and the benefits that we enjoy from having done so is clear. Beyond buying vessels and re-chartering ships, we've also taken several opportunities to invest in our existing ships to improve in their ability to participate in the superior markets available to ships with highly competitive slot costs from low fuel consumption and high cargo carrying capacity, we'll return to this, and best-in-class reefer capacity, the ability to carry refrigerated cargo. Accordingly, we're upgrading the reefer capacity of six of our ships. Four have now been completed, one is work-in-progress and one is planned for the fourth quarter. As I mentioned earlier, this has contributed to elevated levels of off-hire in the second quarter. Further, as we previously mentioned on previous calls, we're committed to installing scrubbers on three ships in exchange for above-market charter terms. Where it makes sense and it does for all but two of these nine ships, we have or we will be bringing forward the regulatory dry-docking, and undertaking these upgrading improvements concurrently for no or negligible incremental off-hire days. Tassos will provide some more details later on the CapEx associated with these upgrades. Turning to Slide 5, you can see our fleet of 41 container ships, which range from, at the small end, 2,200 TEU, to the upper end, 11,000 TEU. This is what we refer to as mid-sized and smaller vessel classes. The dark blue bars illustrate the extent of the new chartering activity that we've achieved in the year-to-date, much of which has resulted in multi-year charter coverage at attractive rates. As you can see at the bottom of the chart, we have already fixed 98%of our fleet's annual adjusted EBITDA for 2019 and 86% for 2020. In addition to actively managing the commercial and operational aspects of the business, we're taking steps to strengthen our balance sheet. As you know, we've already extended the maturity date for one debt facility from mid-2020 into 2021, and we're now working hard on extending our other 2020 maturities to improve flexibility and potentially to lower cost. This reflects our systematic approach to unlocking increased shareholder value and maximizing our ability to benefit from our organization's capabilities, our strong balance sheet, our high quality in-demand fleet, and the supportive market environment currently prevailing. With that, I'll turn the call over to Tom for an update on the markets.

Thanks, Ian. As usual, let's start by taking a quick look at the broader backdrop. The tone of the IMF's latest macroeconomic outlook remains cautious with 3.2% global GDP growth forecast for 2019. However, the report also points to the apparent easing or at least non-escalation of tensions between the US and China with global GDP growth forecast to pick up to 3.5% in 2020, while trade growth is also expected to improve from around about 2.5% in 2019 to 3.7% in 2020. Emerging markets and developing economies are expected to continue to be important drivers of growth as they offer the trade served by mid-sized and smaller container ships, with the aggregate GDP expected to grow by 4.1% this year and 4.7% in 2020. Meantime, despite the negative macro sentiment that has hung over the year to date, supportive industry fundamentals for mid-sized and smaller containerships, particularly for post Panamax container ships providing the most competitive slot costs, have caused earnings in the charter market to strengthen significantly throughout the first half of 2019, as George has noted, with that strong positive momentum continuing into the third quarter. The next few slides provide our usual market analysis with recurring themes summarized at the top of Slide 7. Essentially, these are, one, despite headwinds to sentiment, industry fundamentals are supportive, with demand growth expected to strengthen into 2020. Two, the containership order book remains extremely modest, with zero ships on order in the five segments most relevant to us. Three, short-term negative sentiment is helpful to longer term industry fundamentals limiting new orders. Also, scrapping activity is picking up with demolitions through first-half 2019 already exceeding those in the full-year 2018 by a factor of over 1.3 times. Four, we see the impending industry-wide implementation of IMO 2020 emission control regulation as a positive development for the sector as a whole, with the added benefit that we expected to be a positive earnings catalyst for containership owners like us offering modern, fuel-efficient ships to the charter market. Scrubber retrofitting, which takes a vessel out of service for approximately six weeks to eight weeks, is causing the removal of capacity from the market during 2019 and beyond. Plus, as fuel prices are anticipated to rise materially in 2020, operators are expected to further slow steam ships, which will cause a reduction in effective supply. And five, and this is a point we've been focusing on for some time and that goes to the very heart of the GSL thesis and value proposition, we believe industry dynamics continue to be most attractive for smaller and particularly mid-sized ships, with GSL's low-slot cost ships well positioned to capitalize on the cascade. The chart from the lower half of the slide underlined the points I've just made. On the left, you can see a comparison of demand growth, the dot bars, and supply growth, pale bars. You can see demand growth exceeding supply growth in 2016 and '17, causing earnings in the short-term charter market to increase as reflected in the charter rate index, the red line. In 2018, overall supply for the global containership fleet outgrew demand partly due to new ship deliveries, the majority of which were very large containerships, but also importantly because scrapping slowed significantly as earnings and asset values firmed. As we move through 2019 and towards 2020, industry fundamentals, and as a result, vessel earnings in the charter market affirming once again. The lower right hand chart shows how the global fleet has evolved since 2007. Most significantly, you can see how the order book to fleet ratio, which was north of 60% in 2007 on the back of speculative orders largely out of the German KG market, had fallen to 12.3% by the end of last year, and by the end of the first half of this year, it had fallen further to 10.9%, a reduction of 5.5 times, which is pretty extraordinary. If you drill down, as we will on a later slide, the order book to fleet ratio for 2,000 TEU and up to 10,000 TEU ships, the mid-sized and smaller vessel segments we're focused on, is only 2.5% with nothing on order at all, absolutely zero between 4,000 TEU and 10000 TEU. Slide 8 focuses mainly on the demand side fundamentals. The pie chart at top left shows the composition of global containerized trade in 2018. Almost 30% of volumes were carried in the mainlane trades, by which we mean Asia-Europe, the Trans-Pacific, and the Trans-Atlantic. Much more relevant to us, however, is the fact that in aggregate, a little over 70% of global containerized trade volumes were carried in the non-mainlane intermediate and intra-regional trades, which tend to be served by mid-sized and smaller container ships of the sort provided by GSL. You can see from the chart at top right, that globally demand growth is forecast to accelerate from 2019 into 2020 and is expected to outstrip supply growth again in 2020. And from the bottom chart, you can see that the most robust growth is expected to be concentrated in the non-mainlane, intermediate and intra-regional trades. Turning to Slide 9; this slide looks at fleet composition and vessel deployment patterns. The pie chart at top left shows composition of the global fleet showing the proportion by number of ships of each sized segment. Significantly, 43% of the ships on the water today are 2,000 TEU or smaller. This is relevant in the context of the cascade, which we'll come back to later. The bar chart shows how the global fleet is deployed, dividing containerized trade into 20 or so groupings which arranged along the horizontal axis. Immediately below these, you will see the number of ships operated in each trade grouping. The bars in the chart show the maximum vessel size deployed per trade grouping, the pale blue bars, and the average vessel size, the dark blue. Clearly, the really big ships, a key to a handful of trades driven by search for unit cost efficiency, facilitated by high volumes, sophisticated port infrastructure and long trade lanes. Asia-Europe is the obvious example served by the largest ships on the water, maximum size north of 22,000 TEU, and with an average size around 15,000 TEU. On the flip side, as demonstrated by the area between the dotted red lines, ships of between 2,000 TEU and 10,000 TEU, in other words, those focused upon by GSL are core to most of the trade lanes. Furthermore, liner companies have observed the trade tensions between the US and China have forced their customers to reshape supply chains with goods previously sourced from China, increasingly being manufactured and sourced elsewhere, particularly in Southeast Asia. We expect this change in trade patterns to increase intra-regional trade and further strengthen demand for mid-sized and smaller ships over time. Slides 10 and 11 present the same data in a slightly different way on the basis that a picture tells a thousand words. Slide 10 shows the deployment of the big ships, those of over 10,000 TEU, during a 30-day period in the first quarter of 2019. As you can see, they're largely concentrated on the arterial East-West trades. Turning to Slide 11, on the other hand, you can see the deployment of mid-sized and smaller ships, which are pretty much everywhere. So the previous few slides demonstrate why we believe the demand side of the story for mid-sized and smaller ships is compelling. Now let's look at supply. Slide 12 shows that supply side fundamentals are also very favorable for the segments we're focused on. Top left, you can see that idle fleet capacity, the red line, although subject to the usual seasonal variations, has been trending down since 2016. At its worst, back in 2009, the idle fleet -- fleet peaked north of 12%. At the end of first-half 2019, it was 1.6%. Scrapping, which is the focus of the chart at top right, helped to reduce idle capacity during 2016 and '17. However, as you can see, strengthening in the market with rising charter market earnings and asset values meant that scrapping in 2018 was rather limited, around 100,000 TEU. The good news is that despite rising rates and rising asset values, scrapping activity is increasing in 2019 with almost 140,000 TEU scrapped in the first half alone. Bottom left is a chart showing the order book, which is significantly weighted towards the big ships and very low for the mid-sized and smaller ships. To reiterate, the overall order book to fleet ratio at the end of Q2 was 10.9%, which is already down by the way from 11.7% at the end of Q1. For vessels between 2,000 TEU and 10,000 TEU, it was 2.5%. And most notably, for the segments ranging from 4,000 TEU to just under 10,000 TEU, in other words, those representing roughly 80% of GSL fleet capacity, there is zero, I repeat, zero new capacity in the pipeline. Turning to slide 13, you can see that ship building capacity is contracting. The number of active yards has fallen by over 60% since the peak in 2008, and the number of yards actually taking orders has fallen by more than 90% over that same period. This is very good news for containership owners like us for two reasons. The first is that increased pricing discipline from the remaining yards, as you will see from the new building index on the next slide, is placing upward pressure on new building prices and ship replacement values. And secondly, bringing the order book into check going forward should significantly reduce volatility. Remember, we're in a highly cyclical industry in which, with the exception of 2009, demand has always grown from one year to the next. So the key to long-term profitability is to get the supply side under control, and that's what we're seeing at the moment. Slide 14 focuses on charter rates and asset values. Here, you can see how vessel earnings, short-term charter rates and asset values have evolved over the long term, which is the left hand chart, and since the beginning of the fundamentals-driven recovery a couple of years ago, which is the top right hand chart. As you can see, short-term charter rates, the red line, were under sustained downward pressure for a number of years until during the first quarter of 2017, they began to recover sharply. As you'd expect, asset values tend to correlate to earnings and sentiment and also began to firm significantly. This upward trajectory continued through first-half 2018, but faltered in the second half of the year as trade war rhetoric ramped up and sentiment turned negative. The usual industry low season, which tends to run from the fourth quarter through Chinese New Year and Q1 exacerbated this downward trend. However, in the last few months, as you can see clearly from the chart at bottom right, charter rate momentum has turned very strongly positive. This has been driven by post Panamax vessels of 5,500 TEU and up, so roughly 70% plus of GSL fleet capacity, where charter rates have more than doubled for the larger sizes since the fourth quarter of 2018. With the largest size segments largely sold out, the rate recovery, as George mentioned early -- earlier, is now beginning to lift rates for the smaller sizes too. We were able to capitalize on this combination of strong fundamentals overlaid by negative sentiment with our recent purchase of the three 8,000 TEU ships. Next couple of slides explain where we think the best value and upside potential lies within our established focus on smaller and mid-sized ships. So Slide 15 looks at slot costs. We've covered this before, but we wanted to remind you of this critically important metric, which is the principal driver for chartering decisions made by our customers, the liner companies. So slot cost is the daily cost to a liner company for the space that each loaded container occupies on a given ship. The equation of top right explains how slot costs are calculated. Daily fuel costs, daily charter hire divided by the number of loaded containers at an assumed standardize load of 14 metric tons per TEU on the ship. The greater the cargo carrying capacity and fuel efficiency of a ship, the lower the slot cost, and the lower the slot cost, the more attractive the ship to liner companies in the charter market. Fuel costs are a significant part of the calculation. As you can see from the chart at bottom right, at a constant operating speed, daily fuel cost per TEU decreases as ship size increases. If fuel costs climb as is anticipated with the implementation of IMO 2020, this relationship has an even greater economic impact. What this all means is that on any given trade, liner companies tend to deploy the largest possible vessel that can be supported by commercial considerations, by which I mean cargo volumes and service frequency and by physical limitations such as shore side infrastructure and vessel dimensions. Goes without saying that slot cost economies are only unlocked if a liner operator can fill the ship. So a ship size appropriate for one trade may not be a good fit for another. Slide 16 takes the slot cost concept and translates it into vessel earnings and upside potential shaping the strategic positioning of GSL. The bar chart looks at slot cost parity by charter rate and ship size, in other words, it shows the implied charter rates for different ship sizes which would result in the same all-in slot cost to the charterer. We've run this analysis using illustrative fuel costs of $400 per metric ton, the dark blue bars, and $600 per metric ton, the pale blue bars. As a baseline vessel, we've used a theoretical 4,250 TEU Panamax, which sits roughly in the middle of the size segments representing the liquid charter market. Assuming this baseline vessel is deployed at a charter rate of $10000 a day, which isn't far off the market rate for that vessel back in June, a modern 9,100 TEU vessel could be chartered at up to $55,000 per day with fuel at $400 per metric ton and this rises to almost $70,000 per day with fuel at $600 per metric ton, while still delivering slot cost parity for the charterer. At the other end of the scale, the implied charter rate for an 1,100 TEU vessel would need to be negative in order to achieve slot cost parity. You'll also notice red dots on the chart. These indicate short-term charter rates for each vessel size prevailing in the market as at the end of June and it's worth mentioning that rates have since risen during the course of July. Admittedly, this slot parity exercise is a little bit theoretical as it assumes perfect deployment efficiency and ignores both commercial and physical constraints. Nevertheless, it does imply the following. Number one, for larger ships, there is significant upside to prevailing market rates before they converge on implied slot cost parity rates. Number two, this upside potential should increase further if fuel prices climb. And number three, the GSL fleet is well positioned to capitalize on the cascade. Over 85% of our fleet is Panamax or larger, delivering the lowest slot costs in the charter market and even our smallest vessels of 2,200 TEU are well placed. You'll recall that 43% of ships on the water today globally are still 2,000 TEU or smaller. So, to wrap up this section, number one, despite some headwinds to sentiment, industry fundamentals are supportive, particularly in the non-mainlane trades. Two, the order book pipeline for mid-sized and smaller ships is extremely limited. Three, scrapping activity is picking up. Four, we see IMO 2020 as likely to be a positive catalyst to containership owners causing a reduction in effective supply and then uplift to charter market earnings going forward. Five, industry dynamics continue to be most attractive for mid-sized and smaller ships, which make up the GSL fleet for which we see attractive prospects in the cascade. And finally, six, with a clear eye on our customer's needs, namely well specified ships unlocking low slot costs, we're positioning GSL to capitalize on upside opportunities in the space over the short, medium and long term. With that, Tassos, over to you.

Thank you, Tom. Turning on to financials section now, on Slides 18, 19 and 20, you will find the Company's income statement, balance sheet and cash flow for the second quarter of 2019 respectively. Let me point out to you some key elements for this quarter. We generated revenue of $63.1 million and a net income of $8.8 million for the second quarter of 2019 versus $35 million revenue and $4 million net income for the same quarter in 2018. The $28 million increase in revenue is mainly due to the addition of the 19 Poseidon vessels. In this quarter, there were 174 days of scheduled offhire for dry-bookings, including upgrading works, 18 idle days as vessels transition between charterers and 19 days of unscheduled offhire resulting in an overall utilization of 94 %. As mentioned earlier, this increased offhire in the quarter primarily reflects our decision to undertake enhancements of several ships in order to reinforce the best-in-class specification that command premium rates in the market, in most cases, also bringing forward the regulatory dry-dockings to be undertaken concurrently for no additional offhire days. Finally, the average operating expenses per ownership day including management fees has reduced by 3.2% from $6,242 in first-half 2018 to $6,042 in first-half 2019. As a result of the lower OpEx costs per day of the Poseidon fleet and the transition of the legacy GSL fleet to its new ship manager. For the second quarter itself, daily OpEx is down by 2% to $5,959 from $6,078 in the same quarter in 2018. Now, on Slide 21, as Ian mentioned, we have provided updated information of dry-dockings and upgrade work to assist in modeling CapEx and offhire for the year. In terms of CapEx, we expect a standard regulatory dry-docking to cost on average around $1.1 million per ship and imply around 20 days offhire. The reefer upgrade is approximately $0.9 million per ship with 40 days offhire, and the scrubber installation approximately $4 million per ship for 45 days offhire. Note that these estimates of offhire just reflect the current congestion at shipyards due to scrubber installations ahead of the implementation of IMO 2020. Turning now to Slide 22, and in order to assist investors looking at GSL, we have included here an illustrative adjusted EBITDA calculator that can be used to see how different rate scenarios flow through our adjusted EBITDA, and we have also provided certain historical data for illustrative purposes. For example, if we apply the ten years historical average rates to the open days of 2019, we would generate adjusted EBITDA of $158 million [ph]. I should emphasize now that this is not a forecast. I would now like to turn the call back to George for the closing remarks.

Thank you, Tassos. Before opening up the call to your questions, allow me to offer a brief summary on Slide 24 of why we believe GSL to be a compelling investment opportunity. First, on even a highly conservative basis and across a number of valuation methodologies, our shares trade at a meaningful discount to our peers and to the broader leasing specialty finance sector. Notably, we trade at a couple of turns discount for public container leasing peers on an EV to adjusted EBITDA basis. Second, we're focused on mid-sized and smaller ships with well-established and supportive industry fundamentals where the order book for the entire 2,000 to 10,000 TEU fleet segment represents only 2.5% of standing capacity, despite clear and widespread demand for these vessels in trade lanes demonstrating resilient growth irrespective of ongoing trade tensions. Third, we are in an industry that offers great forward-looking fundamentals. In the year-to-date, scrubbing has already exceeded the levels for the whole of 2018 by over 1.3 times. Furthermore, we expect IMO 2020 to result in increased scrapping of older, less fuel efficient ships, and an additional reduction in effective supply of our ships slowed down in a higher fuel cost environment. Fourth, we pursue a balanced strategy that emphasizes substantial downside protection illustrated by our $823 million contacted revenue and average remaining charter term of 2.9 years, while also providing us the opportunity to participate in container market strengthening as we have done extensively throughout 2019. Fifth, we have highly marketable high specification vessels concentrated with fleet sizes with minimal order books. More than 80% of our ships are in segments with zero vessels on order. One third of our fleet is comprised of superior wide-beam eco ships where most of them have best-in-class reefer capacity. And more than 70% of our capacity is in segments where charter rates have as much as doubled versus Q4 2018 rates. A high specification of fleet offers great upside potential to shareholders, given the favorable industry fundamentals. Our ships provide extremely competitive slot costs, the most important metric -- the most important metric, I must say, for liner companies in selecting ships. And our fleet is in a competitive position to drive the cascade and displace smaller, less efficient vessels with GSL benefiting rather than falling victim to the unforgiving economic logic of the cascade. Sixth, while we pursue growth, at the same time, we remain highly focused on optimizing our balance sheet and reducing our cost of debt. We are delevering with debt reduced by $26.5 million during the first half and we are working to push out our 2020 debt maturities well in advance on when they mature. Seventh, we have engaged experienced and supportive cornerstone shareholders with aligned interests and our corporate governance is fully transparent. Eight, finally, GSL represents a proven platform for growth via both standard vessel acquisitions and broader corporate M&A Transactions as exemplified by both the recent en bloc vessel acquisition and Poseidon transaction late last year. We're focused on creating long-term shareholder value, and we will remain strictly focused on pursuing acquisition opportunities that meet our high standards, are immediately accretive and will result in increased value for our shareholders. As one last point before opening for questions, I would like to draw your attention to Slide 25, where we have tried to illustrate and quantify the extraordinary extent of the progress we've made in translating GSL's potential into tangible value. Tangible is a word. Specifically, since the end of October 2018, when the combination of GSL and Poseidon was announced, we have purchased 3 ships and added 25 new charters, 67 years of additional charter cover, and more than $330 million of implied contracted adjusted EBITDA. We are delivering on our promises by securing the charters, locking in upside, protecting the downside and delivering immediately accretive growth to our focus segments. While we have come a very long way in a short time, we maintain laser focused on unlocking the full value of GSL for the benefit of all shareholders. With that, I would like to open the call to your questions.

[Operator Instructions] And our first question comes from Howard Blum with UBS Financial Services. Your line is now open.

Good morning, nice report. With the increased activity in installing scrubbers and pushing forward dry-docking, should we be anticipating lower earnings in the next couple of quarters because of the unusual cap backs and dry-docking?

Well, I would -- I would answer to that -- that probably on the next quarter we will have a bit more of this pain of the scheduled dry-dockings. But after that, we will be all set, as you can see from the earnings report where we have tabled, when all our dry-dockings are due and which ships and so on and so forth. But that's something that will take us for the next five years without any expenditure on these specific ships.

Thank you.

Thank you. And our next question comes from J. Mintzmyer with Value Investor's Edge. Your line is now open.

Fantastic. Thank you, gentlemen, for taking my call. It's been really impressive to watch the transition of this company over the past few years. You know, I've followed you guys for six, seven years, you know, and the balance sheets were in a tight position. It was a tough market. And that transformative acquisition or merger last November was very impressive. So good job on that. I enjoyed the presentation. I did want to turn real quick to Slide 29 and look at some of your debt stuff. I know you mentioned kind of in passing that you're focusing on those 2020 maturities first, right, that's your number one focus. Is it reasonable or realistic to think that those can be refinanced in the next quarter? Or do you think it might be more of an early 2020 event?

I'll let our CFO answer to that together with Ian.

As I said J, thank you for your comments. We've enjoyed the ride and look forward to continuing to deliver value to all investors. We have pushed out one small facility, that was $80 million facility maturity into 2021 and we're focused on the remaining 2020 maturities. We're making good progress. We will obviously provide definitive updates when a deal is done, but we're reasonably confident of having something achieved during the remaining course of 2019.

Yes, fantastic, Ian, thank you. The reason I'm kind of asking that question is I'm leading into kind of the big [indiscernible] which is those first priority 2022 notes, I know, you got $340 million outstanding, it's almost 10% interest, you know, with interest rates falling back down, we got LIBOR at about 2.25% right now. So, you know, a major credit facility would probably be around equivalent to 5% to 6% versus that 10% there on the $340 million. So the savings there would be astronomical if you could refinance that. And it seems like your first priority, if I've heard you correctly, is to hit those 2020 maturities and then to focus on that $340 million priority note. Do you think that priority note is something that you could handle within the next six months? I know there's a call window coming up here in November.

Yes, you are right. We are focused on the nearer term maturities, the 2020 maturities. That gives us some -- if we can push those out by two or three years, then that gives us much more of a runway. You were also correct that the bond isn't callable until November this year and its final maturity date isn't until November 2022. So we've got a couple of years in hand. But your observation about the cost of this bond which has put in place in old GSL, not new GSL, is very high. And if we can refinance it 3 points lower, then that's $10 million of interest saved a year, which is material to our company. And it is absolutely a strategic imperative of ours to refinance than bond in the most efficient manner possible as soon as we can. Now, which is very difficult to speculate as to when that will be and how we will refinance, but it is towards the top of our list of things to do.

Thank you. [Operator Instructions] Our next question comes from Konstantin Chinarov with Aptior Capital. Your line is now open.

Thanks so much for taking my questions. I guess my question is about this transaction you've done sort of acquiring three vessels. Could you please confirm basically the sort of charter adjusted LTV for that transaction? And also can you remind us what was the cost of financing and the maturity of the loan that you attracted?

Tom, what would you like to refer to that?

Sure. Hi, Konstantin. Unfortunately, we haven't put out the charter adjusted value of those vessels. However, I can give you an overview of the other metrics. The purchase price was $48.5 million. The debt that was put in place was $37 million. And I think we've put out details of the pricing on that debt, which is L plus 390 basis points. And clearly, under the note -- I just took to round that out. Clearly, under the notes, we are precluded from putting on more than 70% LTV on the charter adjusted value of the vessel. So you can infer that the charter adjusted value of the vessels is north of that.

Right. And, can you remind us what's the latest sort of charter adjusted value of GSL as a whole?

I'm afraid we haven't put out charter adjusted values since December 31, 2018, Konstantin, and I would have to go back to the materials on that to double check that number. But that's the latest number we've put out.

But it sounds like, you know, this transaction at least going to -- on the charter-free basis, looks like kind of 75% LTV transaction. And if we take sort of charter adjustment, maybe it's kind of 70%. So ballpark is the same level as GSL as a whole and kind of echoing the previous comments. It feels like you managed to attract capital at LIBOR plus 390 in this case, which is call it 6.5% all-in cost for a five-year maturity and sort of 2022 bond has got sort of two-and-a-half year duration or something and you pay sort of almost 10%. So it feels like, you know, the market is offering much tighter terms at the moment versus what you're paying. So, yes, echoing sort of previous comments, I guess, you know, it might make sense to consider refinancing.

Sure, absolutely.

And I think just to add one more thing, Konstantin, I think now that we have significant charter cover, obviously LTV is one thing to consider. But I think almost more interesting is the relationship between enterprise value and EBITDA. And as George mentioned, we're trading at -- at least a couple of turns of EBITDA discount to our peers within the group. And the acquisition of these three vessels, if you back into the economics, delivers roughly five-and-a-half times purchase price to EBITDA multiple, which is more or less where we're trading today. So it's also supportive and potentially accretive to where we're trading.

Yes. So what we've been doing over the last six months is we've been adding substantial amounts of charter cover at decent rates to improve forward visibility on cash flows. Now that facilitates refinancing generally. So we're putting ourselves in a good position to be able to continue to strengthen the balance sheet.

Thanks so much for the comments.

Thank you.

[Operator Instructions] Our next question is a follow-up from J. Mintzmyer with Value Investor's Edge. Your line is now open.

Hi gentlemen, thanks again for getting me back on the queue here. I see that we had some questions about the debt and it kind of the next lead on is, as you mentioned, you're about two turns enterprise value to EBITDA lower than some of your peers. One of the big differentiator is just the dividend, right, you haven't been able to have a dividend at Global Ship Lease now for, I think, more than three years, and for good reason. But now that the -- you kind of turned the corner, you've got the new charter cover, you're looking at refinancing, my understanding is that as soon as January, per your covenants, you can begin starting dividends. First of all, is that correct? And then second of all, as part of that, if your valuation remains this far disconnected, has there been any thought or consideration to considering a share repurchase program or maybe even a tender offering?

Let me answer first to your first question, which is whether you're right? Yes, you're right. From January 2020, we are allowed to offer dividend. Now, obviously, for us to offer a dividend, we have to be sure that we can sustain offering a dividend. So we understand that the shareholders would like that and -- we have that in mind. But we need to change a few things before we can get there. As to repurchasing of shares, we believe that one of the reasons that the stock has not gone up to where it should is the free float of the company, so by repurchasing shares, we will shrink even further the free float and so hurt the stock. So that's why we have not this in our schedule or in our program, although we would love to buy stock either on a personal or a company level. We don't intend to do that as that is going to hurt the liquidity of the company and reduce the free float vis-à-vis the value. If, Ian, you wanted to say something, please do.

Just a second -- just a couple of add-ons. Currently we are unable to repurchase stock even if we thought it was the right thing to do because it's prohibited under the indenture. It's treated the same way as a dividend. It's a return of capital to shareholders, and we can't do that until next year. And just to clarify, unless -- we can pay dividends from 2020 based on 50% of 2019's consolidated net income. So we have to wait until we've produced audited financial statements for 2019. So, you know, sometime late in the first quarter would realistically be the earliest possible opportunity to pay a dividend subject, of course, to the caveats that George has already made.

Yes, that makes sense. I understand there's a bit of a lag there on the covenant kick-in versus the auditor report. So we understand that. It's a tough situation, right, with that small float and you're talking about repurchases or not. Mathematically, it makes excellent sense. I do understand you have a smaller free float there with all the insider holdings in the company. Have you seen any sort of possibilities for sort of consolidations similar to what you've already done with Poseidon, where you swap a fleet to say German KG ships in exchange for equity and then maybe enhance your float somehow that way?

There are plenty of such opportunities out there and we are constantly in discussions and evaluation. But as our fleet is quite unique, I would say, in the characteristics that we have, we have to find the right match, which would be ships of similar characteristics and of similar leverage. And if that would be the case, we would very seriously look at such an acquisition vis-à-vis ship process. But I think that for this to happen also, our stock has to grow closer to the NAV value to be realistic, such a possible transaction, I would say.

Yes, that makes sense, and it's kind of a handicap at the moment. You know, I calculate you're at more than a 50% discount and I'm sure you can have your own numbers there as well, but more than 50% discount to charter adjusted values. But anyways, we've been long on the company since May and very happy. And, you know, there's kind of a 1, 2, 3 punch coming. You're going to refinance the 2020 debt, you're going to tackle that 2022 term bond, and then you're going to raise the dividend at some point. So excellent work, gentlemen, and thanks again for taking my questions.

Thank you.

Thank you.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ian Webber for any closing remarks.

Thank you for everybody. Thanks for listening to us. Thank you for your questions. We look forward to providing further updates on GSL after the third quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone, have a wonderful day.