Q2 2021 Global Ship Lease Inc Earnings Call
Please continue to standby. Thank you for your patience.
[music].
Good day and thank you for standing by welcome to the global ship lease second quarter 2021 earnings Conference call and please be advised that today's conference is being recorded at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.
During that session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero. It is my pleasure to hand, the conference over to Ian Webber Chief Executive Officer. Please go ahead.
Thank you very much. Thank you good third coupon and good afternoon, everybody and welcome to the GSL second quarter 2021 earnings Conference call.
The slides that accompany the presentation of available for our website at Ww don't global ship lease Dot com.
As usual slides to them for you remind you that the call. Today may include forward looking statements for the based on current expectations and assumptions and all by the nature inherently uncertain non outside of the company's control.
Actual results may differ materially from these forward looking statements due to the many factors, including those described in the Safe Harbor section of the slide presentation.
We also draw your attention to the risk factors section in the most recent annual report on form 20-F, which is for 2020 of them was filed with the SEC.
Most of the 19th this year.
You can obtain this for our websites or via the SEC's.
All of our statements of qualified by these and other disclosures in our reports filed with the SEC and we don't undertake any duty to update forward looking statements.
For reconciliations of the non-GAAP financial measures to which we will refer during this call for the most directly comparable measures calculated and presented in accordance with GAAP. Please refer to the earnings release that we issued this morning.
That's also available on our website.
I'm joined as usual by our executive Chairman George the rig costs, our Chief Financial Officer, Castoffs, The Rockwell US Chief Commercial Officer, Tom Lister.
George will begin the call with some high level commentary and update on our current areas of focus and then Tassos terminal I will take you through our recent achievements quarterly results of the financials and the current market environment.
So that will be pleased to take your questions.
So turning now to slide for I'll pass the call to George.
Thank you Ian and good morning or afternoon, the all of you joining us today.
After an excellent first quarter the second quarter of 2021 has seen the container shipping industry and GSL in particular, continuing to reach new heights in ways that will benefit us for many years to come.
We're currently in the midst of Red Hot freight and south of the markets based upon highly supportive fundamentals and exacerbated by poor congestion and then all of the beds in supply chain that have proven to be longing long at the features of the market.
That was initially expected.
In this environment.
We have been very active year to date of agreeing to acquire of 23 ships 19 of which have been delivered for approximately half a billion dollars and securing 40, new charters representing $900 million of revenue.
This has been achieved with only modest equity dilution for more capital raise in January.
The 23 ships, our specified and of the midsized and smaller vessel classes, which continues to be of focus with attached charters that minimize downside or residual risk.
As a result, we have grown our fleet by over 50%. This year driven or are the things that might be higher to record levels in the sustainable manner and initiated a quarterly dividend of 25 per share.
More than twice that was originally expected.
We have also refinanced the vast majority of our 2022 maturity of debt, including the expenses of 9.8.75 senior secured notes.
Can they frequently at reducing our cost of capital.
The rating agencies have acknowledged our improved credit quality.
Both Moody's and S&P upgraded us in Q1.
And Moody's has upgraded us again share.
Share rating today.
B B plus stable and be 1 stable.
Now from this materially improved strategic position, we are positioned to continue executing our proven growth strategy and seizing additional immediately accretive opportunities ahead of us while maintaining the discipline and high standards that have said the show well in getting us for this point.
Now if you turn to slide 5 I'll describe the big picture for the industry at this moment.
Well the second half of 2020 demonstrated the resilience of containerized trade and snapping back rapidly. Despite the COVID-19 driven widespread lockdowns and diverse global challenges.
'twenty, 1 set of show demand growth significantly higher than that seen in recent years at nearly 7%.
And current projections for 2022.
For demand to once again be meaningfully above recent levels.
Nearly 6%.
Against such robust demand growth the very.
The underlying supply growth in the mid size of smaller classes supplemented by the global fleet speeding up the increase effective capacity has led to rates in Nevada of charter charter terms getting better and better for owners such as GSL.
Beyond the earnings and asset value of improvements for GSL. The fundamentals driven recovery has seen a line of company customers guiding to record earnings for the year and taken major steps towards improving the balance sheets.
It has been reported that the market strength has caused an uptick of new vessel orders.
But it is important to understand for things.
Here.
First of.
This has been the case for many years now.
These new orders are heavily weighted towards the largest vessels, which do not and often cannot participate in the non main trade.
The main lane trades, where all the vessels operate.
Second because of the majority of the current order book is recently contracted and shipyard face capacity limitations. In addition to the length of the construction times themselves.
They're still very little capacity the scheduled to be delivered until at least late 'twenty 3 early 'twenty for.
With demand growth in the interim expected to significantly outpace supply growth.
And with the lately.
That can be done to augment that supply in the interim.
Third.
When we talk about new orders in container shipping comparisons I inevitably made to the situation of 22008.2009.
When the order book hit the peak of 60% of standing capacity.
Let the space this compulsion head on.
The order book.
Has obviously grown so far this year in response to a clear instances of on the supply.
It is meant to.
But the difference here is not only that the current size of the order book is a fraction of that from 2008.2009, which does in fact, but also that the combination of lessons learned and the uncertainty about the green fuels of the future.
Capped the willingness of owners and the lenders to engage in the kind of speculative ordering that characterized.
And supercharge that order book before the financial crisis.
There's a clear distinction between on the 1 hand, the recent increase vessel loading due to a real and current shortage of capacity.
And on the other hand, the extreme speculative ordering syn <unk>.
Up to 2008, driven in part by an apparently infinite supply of cheap capital often from Germany.
The fourth point that I would like to make.
Is that on the integration imperative of the book of 2 debt Decarbonize.
With the EU, the I am more and a growing number of regulatory bodies and governments are looking to encourage.
From January 2023, 1 such important regulation is set to come into effect known as E X sight.
Under this more stringent but for months emissions requirement much of the global fleet of container ships will only be able to achieve compliance by reducing its speed to reduce fuel but to reduce.
C O 2 of missions.
It's just we're not average reduction of speed equates to an effective reduction in global fleet capacity of 5% to 6%.
This is a hugely impactful regulation that we have of profound effect on the supply demand balance in the business potential.
Potentially.
Just went slightly elevated levels of new buildings being delivered.
1 final point of that we'd like to make here is that we still believe that there's a great deal of potential for consolidation.
The containership owner of sector remains highly fragmented with dozens of subscale players who are unable to benefit from the scale advantages mainly extra capital of.
The sizable and publicly listed platform such as GSL.
Moreover, the exodus of more of some of the financial players who end of the sector, often a decade or more ago offers a range of additional acquisition opportunities as we have proven.
In summary, we are in excellent position and we see much to be optimistic about in the coming quarters and years.
With that I will turn the call to you.
Thank you George.
Let's turn to slide 6.
If you apology of Melville, probably already be familiar with the 23 ships that we've acquired this year.
Come to them shortly.
Spend a few moments first on the additional value that we continue to generate for my preexisting fleet.
On the slide we share those vessels, which were part of the GSL fleet.
At the beginning of the year less of the electrical which we sold at the end of June This year don't dream of the associates in fact.
We've indicated in dark blue those charters that have been agreed year to date.
And you'll notice that for nearly all of these right now for multiple years and the rates that the maturity of both of those.
Kind of before and the number of instances quite dramatically above.
Let me highlight for you the very first vessel on the list of the 18 year old 2200 Teu Quito.
Which for a transition in the fourth quarter of this year from a current day rate of $9400 per day.
The new rate of $25000 per day, all the way through 2025, when should it become towards the 2 years old.
Similarly further down the list for 2000 and true belt 6800, Teu GSL nicoletta.
Currently earning $13500 a day.
In short or with the the earnings of $35750 per day.
For 2020 for when she true will be towards the 2 years old.
And just to remind you that the operating leverage inherent in our business means the 100 per cent of any revenue increase the strike.
For our bottom line, earning.
The earnings and cash.
Because of that cost of fixed operating costs are largely fixed.
By the way it can take some time to negotiate the new charter and.
And some time for that transferred to become public.
Some of the fixtures we're announcing today in the are included in this chart, we're settled for a while ago when rates and the market will flow.
Yeah.
What does all of this activity of mounting.
The 14th chances of age.
Year to date for our existing fleet.
Total some $441 million of contracted revenue.
23 ships the quad in 2021 year to date on the next page, which will come true.
A further $465 million of contracted revenue for total.
The contract cover.
The long the central point of emphasis for GSL of nearly $1.4 billion over a weighted average remaining duration of 2 and a half years.
Furthermore across the entirety of our fleet.
11 ships scheduled to come off of their current charters during the rest of this year or in 2000 tons..2 all of which are present here on the rates for logos available in the market in most cases materially site.
So, let's turn to slide 7.
We will finish our fleet overview with the 23 vessels that we've agreed to buy.
For this year 2020 of them for an aggregate purchase price of just under $500 million.
With growth of our fleet to 65 ships and the increase of more of a 50% on the year end position.
As we speak 19 of these vessels have been delivered on of generating revenue and cash flow for the business.
The remaining for against we delivered in the next few months.
All of these acquisitions are immediately accretive with an estimated purchase price to average annual adjusted EBIT ratio in the range of 364 times.
The 4 zero times.
As you can see these acquisitions, particularly in those larger vessels, making up the bottom half of the table generally have long remaining charter durations.
The currency rates, which ensure the GSL payback period is largely or even the accounted for the.
<unk> or eliminating the downside risk in the purchase.
For the smaller vessels in the upper half of the table.
Also structure of the acquisitions to ensure that our risk profile is skewed to the upside.
With the.
Certain amounts of near term charter market exposure.
As you can see from the Red bars, which illustrate charters signed subsequent to our agreement to acquire the vessels the strategy of Larry and the measure of the amounts of the charter market exposure kind of stuff.
For paid off handsomely with 3 of those vessels, having having secured for charters at rates.
Approximately 2 to more than 3 times that current rates with those durations extending out for late 2020 for 2025.
Between the growth provided by the 23, new vessels and the chances that you see here on page 7 on the new charters that we have secured year to date on our existing fleet on page 6 we have for this year already added.
Approximately $660 million total adjusted EBITDA based on contracted revenue.
Slide 8 is a new slide.
Given both on the substantial growth for acquisition and the signing of new chances for existing ships, we thought that it would be helpful to illustrate the earnings the earnings impact of of all that we've done.
Across 3 different scenarios.
The base of takes into account the actual or anticipated delivery of ships.
Delivery dates of the 23, new ships and the expected dates for changes in the effective charter rates for the existing fleet.
To be very clear.
None of these all or should be considered a forecast for <unk>.
Slide simply summarizes the mathematical results for 2021 of 2 instruments to the.
Plugging in different charter rates through our usual EBIT for all calculator, which we show on page 21 in the appendix.
We've run 3 scenarios firstly re chartering in the next 18 months estimated market rates of July of this year, so kind of current market rates for multi year charters.
Mario true for.
15 year historic average rates.
Scenario 310 year historic average rates.
As market rates for July of this year or so much stronger than the historic averages.
Revenue in 2022 for example is the $132 million.
Of those July rates compared to 57 or $48 million. The 15.10 of your historic rates.
Respectively.
The difference in spot revenue between the scenarios explains exactly as I've mentioned before the different because of our operating leverage.
The difference in free cash flow.
Overall, you'll see the extent of the step change that we're experiencing here in terms of our contracted revenue and adjusted EBITDA between 2021, and 'twenty to 'twenty 2 as a result of growth and the.
Charter renewals, but the substantially higher rates on the full year of impacts of those in 2022.
For context revenue adjusted EBITDA range.
19 of 20.
The 2 full years following our merger with Poseidon late in 2018 was around $160 million.
Okay.
Whilst on the slides.
I'm sorry for all of this data, but please note that even if you do not include anything for spot revenue.
In 2021 in terms of towards to taking 100 percentage of the operating cost of the vessels.
You assume no income on our spot ships, but all of the costs.
All right the contracted revenue.
There's more than ample of expected adjusted EBITDA.
The debt service and Capex as well as dividends on a per foot and on our common stock at current rates.
Numerically working out the numbers zero spot revenue in 2022 gigs adjusted EBITDA of some $290 million of op.
<unk> cash flow off the debt service of Capex, which you can get from page 21 of $68 million.
Aggregate preferred and common dividends at todays share count is approximately $44 million, leaving 22 millions of dollars of net cash flow.
And remember that's not including any revenue at all from our spot ships.
Every dollar of of that revenue will increase net cash flow by the same amount.
Moving on to slide 9 this describes the slowed stunted our growth strategy.
We covered this on our last call.
With an additional 16 ships out of it since then we should definitely revisit value accretive price strategy.
We focus on the existing ships with charters attached or put in place as part of the purchase.
Trips and chances, which are immediately accretive to cash flow as opposed to new buildings for which that can be of 2 or 3 years.
Before they come online during which time of the R&R has all of the funding costs.
The 23 ships that we will ads from our activity year to date of the purchase price as I mentioned of just under $500 million on the <unk>.
Charter contracts are expected to generate some $332 million of adjusted EBITDA.
We're disciplines, where the risk of us we look for decent returns on assets with low economic depreciation limited residual value risk for down good downside cover including scrap value and compelling upside potential.
The turnkey 3 ships of mainly multiyear contract cover.
Purchase price to EBITDA multiple of between 3.6 and 4 times.
The increase overall adjusted EBITDA net income on the earnings per share for the business significantly.
Okay.
We look to align the ESG and economic strength of our strategy aiming to take a full lifecycle approach to the carbon footprints of the chips.
It means taking into account for the building and recycling of ships as well as operating them through their economic losses.
It seems to us that he doesn't even make sense to build new ships when we collectively the industry as a whole, though with more certainty what the fuel of the future will be.
Until then we think it's preferable to optimize and maximize the economic life of existing ships.
Finally, we want to stay nimble.
I, even for attractive investment returns within 5 years or less.
This allows us to adjust our strategy to the evolving decarbonization of environment.
We want to position GSL to the legacy problem free.
With a strong cash position to be able to capitalize on the next generation of Green technologies is the proven out of mature already let's say of the coming decades.
With that I'll turn the call over to the castle.
Talk you through our financials.
Yeah.
Thank you Ian as you know the first half of the year has been very active with a significant number of moving pieces in the financials. So we have summarized the key points for you on slide 10.
Revenue for the first the golf was $155.9 million up from $142.3 million in the first half of 2020 'twenty.
Similarly, adjusted EBITDA was $96.2 million up from $82.6 million only the first half of last year.
Normalized net income, which adjust for the 1 off items was up from $24.4 million to $41.5 million I would like to spend a moment on the 1 off items now in the second quarter. We completed the refinancing of all the material 2022 debt maturities, which will commence in the first quarter, we incurred prepayment.
Fees of $1.4 million in relation to this refinancing. In addition, we sold our 2200 <unk> 2001 built simple atul recording a net gain of 7.8 million.
Moving to the balance sheet items, there are a variety of points to highlight our cash position at June 32021 was $165.5 million.
I have mentioned of both in the quarter, we have successfully the refinance of our last my T. The 2022 maturity debt, we have refinanced the 3 tranches of $143.8 million of visa credit facility with new facilities with Deutsche <unk> Agricole and C. N V P of pushing those maturities out to 2026.
For the first 2 and 2028 for the third 1 reducing also annual debt service by about $11.1 million and bringing down our margin from 4.8% to 3.2%.
Meantime, we have raised in the second quarter under our ATM program $7.6 million of our 2020 for notes and $23.6 million of our perpetual preferred further increasing our flexibility.
Additional fans have been raised since the quarter end.
Regarding the acquisitions for the 7 post Panamax ships, we contracted to purchase in February for aggregating $116 million, we have of raise financing of $78.9 million of which we have drawn down $68.2 million and gives the 6 seats. They leave it by June 32021 the.
The final delivery of drawdown took place end of July.
In addition, as of the quarter end, we had made deposits of $25.1 million for the acquisition of new vessels that while the borealis ships and the last of the 7 post Panamax ships will be contracted to purchase and as mentioned before we sold the lotto for net proceeds of $16.5 million.
Our detailed financial statements appearing for on slides 11 through 13.
Also our strong current performance and coughing and as for the future has allowed the board declared a dividend of 25 cents per common share for the second quarter to be paid on September 30 to shareholders of record on August 23.
Now turning to slide 14, we have summarized some of the measure of positive impacts on our capital structure now and moving forward as you can see in the upper left of total debt outstanding is set to increase through the end of the year in line with the deliveries of the vessels that we have agreed to purchase but he's event scheduled for.
Amortize significantly thereafter by about 300 million through year end 2023 the.
Of this aggressive schedule leave significant upside on low levered assets.
Of that they'll be taking the end 2021, and 2022 debt numbers from this slide in the adjusted EBITDA from slide 8 illustrative earnings the debt and its gross before net of cash to adjusted EBITDA is for 4 to 4.5 times for 2021, which is not the full year of earnings from the new seats and.
2.2 to 2.7 times for 2000 of intended to.
At the same time, you can see in the upper right chart, but we can have very significantly reduced our average cost of debt from 7.7% at the end of 2018 to now being on track to fall below 5% at the end of this year.
On the lower the left you will see that the trading liquidity in our stock once quite the scene has increased dramatically as our business has developed as we have continued to actively and transparently engage with the market and there's a free float has increased following our equity offering earlier. This year and then again I'll sort of allowed to the legacy sort of hold the castle.
For the portion of all of their holdings into the market from 3 million amount of a year ago. The 100 times. This amount of just over 300 million in June our stock has clearly become much more accessible for investors.
In the lower right is the current split of GSL common stockholder and the ship with 71% of freely traded by the public and the remainder held by the board and management of the CMA CGM and cash.
Finally on the appendix you can find us all the base, our EBITDA and cash flow calculator of slide 21, which is intended to help you with your modeling and the slide 22, we give the guidance on cap ex spend.
With that I will turn it over to Tom.
Hello, everyone.
Let's move to slide 15, which is intended to highlight the ship sizes on which were part of cost which will help put it in context. The subsequent slides.
We're focused on the midsize and smaller ships, which is shorthand for the ships ranging from about 2000 Teu to 10000 Teu.
The the map on the left shows the deployment of quote unquote.
The size of the ship.
The ships under 10000, Teu and emphasizes the operational flexibility.
As you can see the deployed everywhere.
Of the map shows where the big ships larger than 10000 Teu of deployed which tends to be on the east West main lane trades, where the cargo volumes and show upside infrastructure can support.
And it's important to note the roughly 70% of global Containerized trade volumes all moved outside the main lanes and other words in the north South regional and intermediate trades, so quite ships like ours.
Okay.
The 16 shows supply side trends that tend to be a barometer of health of the sector.
Total chart shows idle capacity, which at the end of June with 0.8%, which is pretty much full employment and explains 1 of the minor onshore operations have had little choice, but the speed up the ships to try to generate additional effective capacity to accommodate demand.
The bottom chart till the similar story.
Recycling of scrapping has been almost nonexistent for container ships. This year why because of the charter market as George said of the out.
Has been Red Hot so why scrap of ship. If you can squeeze a few more millions of EBIT dollar out of them.
So that's the baseline full fleet employment.
Which sets us up nicely for the next slide slide 17.
Here you can see on the left how the various food price segments of greater than over the last few years the <unk>.
We're focused on the sitting in the Red box, let's see negligible or even negative fleet growth diesel underinvestment.
The same phenomenon carries through to the chart on the right share that you'll have the pipeline scheduled for delivery from 2020 for.
Again, the fleet segments of the Red box.
The segments of minimum order books.
As you can infer from the chance.
Ordering activity you have read about has been heavily focused on the big ships above 10000, Teu and actually frankly about 15000 Teu north of a sector in which we compete.
This explains why the order book to fleet ratios for all focus on core segments of 5.2% and 3.8% respectively. While left for the order book of the whole as the little over 20%.
So what are the oldest on for earnings in the containership charter market.
The answer to that please turn to the next slide slide Slide 18.
In the past, we provide a great data on the slide 6 to 12 month charters. The showed the direction of travel of the market well enough of the dollar values of the rates themselves will be coming up for unrepresentative.
And the reason for this is the.
Charter market is bifurcated over recent months into challenges for very short periods of very high rates.
And charterers for multiple years still is incredibly attractive rates, which is where we're focused.
Today, we provide of charter index based on a basket of ships items, which paints a clear picture of how the market is the holding together with the table on the right hand side, showing where rates for multi year charters or for at least well because the rates keep moving out in July.
As you can see the charter rate index is up by a multiple of 5 times since the trough in <unk> of 2020.
And of more than doubled during the first half of 2021.
Any way you look at it a truly fantastic markets.
On that high note I'll turn the call back to George too.
Things up.
George Thank you, Tom Yeah think of them.
The variable for summarize and then we would be happy to take your questions through growth and success, which of the chartering we of buildup of almost $1.4 billion of contracted revenue and average contract cover of 2.5 years across our fleet importantly.
Through the at least 2022, all of our debt service Capex and dividends of fully covered by contracted cash flows of <unk>.
So what we're excited and very confident about the re chartering exposure and related upside of half.
Over the next 18 months, we're in no way of reliant upon it.
The balance it is very strong with $166 million of cash.
Our credit ratings have been upgraded to be plus stable and to be on stable and nearly all of our 2022 debt has already been successfully refinanced while both our leverage ratios and our cost of debt of trading strongly in the right direction.
We believe that the fleet represents the sweetest sweet spot in the market.
As of mid sized post panamax and smaller container ships with high reefer capacity are not only doing extremely well during the retrofit market, but look set to remain in high demand for many years to come as they continue to be significantly under represented in the order book Despite the clear.
The cult workhorse role that they play in the market.
With the onset of new environmental regulations in 2023, we expect that the effect of capacity of these vessel classes may in fact shrink from slower stemming to reduce emissions to comply with the new regulations.
How should we have said the free.
Great and chart the market demand is very hot and our line of customers have also been delivering outstanding results. So far this year.
Relative to the lows in the second quarter of 2020 market charter rates are up approximately 5 times and the up to 2 times versus the beginning of this year.
In terms of us of digit priorities. The most fundamental is the safety and welfare of our personnel, let's see and I'm sure. We'll have worked hard in challenging conditions throughout the last 18 months to consistently deliver an excellent performance and in so doing helping to keep the global economy moving.
I cannot emphasize strongly enough that we appreciate the crucial contribution.
In addition, we're strongly focused on delivering further growth that's given additional support for our recently implemented quarterly dividend.
We've grown the fleet by over 50% in the year to date, I think 606 of $2 million of contracted adjusted EBITDA in the process.
Along with charter renewals on the existing fleet and we believe that there are still of lot of exciting opportunities out there of the GSL is uniquely well positioned the cheese.
With that we would be happy to take your questions.
Thank you and as a reminder to ask a question simply press star 1 on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Our first question comes from Randy given its width of Jefferies.
Oh, the gentlemen, how's it going.
2 of them right.
You've kind of discussed throughout the press release through the presentation, you have been pretty aggressive in acquiring tonnage obviously most of the charters attached.
At this point do you look to continue on that path or maybe look the other direction right in terms of selling some older vessels and then what of your thoughts on possible dividend increases or share repurchases at the discounted levels.
I will start the blended with the first part and then I'll pass it onto the yen.
Great.
There are deals still out there for us.
We do not go in the mainstream transactions we have.
Our sources for transactions at the mainly of market like the ones we have executed.
We haven't done any market, there's really we always do deals of the market and then there's a great the stream of deals come in and out of direction.
So the assets to the first part is yes, we are looking at the accretive growth.
The cause of opportunities to grow the company, but very selectively and very carefully and I stress the word carefully.
We're not out there to do deals just for the sake of doing this we only do deals that make a lot of sense and they're very accretive to our balance sheet.
And do you want to take the test.
Sure.
Uh huh.
We've owned the pace 1 dividend sorry, Paul.
That was twice what we indicated because we actually took delivery of of chips.
A little earlier than we were expecting in charter rates moved up a little faster than we were expecting with just about the part of our second dividend.
I'm not sure if you look at the yields Randy and I'm sure you do.
We're pretty well up there compared to other players in the sector.
Well, we think dividend levels under review, but the as George has just said.
Our focus at the moment is deploying capital on the accretive on the accretive growth as we've done so successfully.
And that's our base case, but as I say, we keep everything on the reviewed and as the.
The.
The situation of changes if it does.
And then our capital allocation changes as well.
Got it Sir.
And then looking at your chartering right average containership rates of increase for what kind of around 60 weeks in a row now.
I guess 2 parts of that 1 is just your outlook on the market and what and when do you think of those.
Of those increases will end of what will cause that kind of turning over of rates and then in the meantime will you continue to forward fix those 11 vessels that come available in the next 12 months or are you wanting to kind of wait until closer to expiry to kind of maybe book some short term charters or see what the market is at that time.
Yeah.
They try to start with the question and then Tom also kind of help me with this.
What I think is.
On the on the.
What does it kind of the market for the for the future. We believe that the fundamentals of this market apart from the fact that you know the market kind of go in some some cases crazily up because you see the short term fixtures at that instead of aesthetic numbers. This is because as you know all of these problems.
The COVID-19 related.
Gesture and such and so forth so as long as Covid is out there and I think that the consensus is at the core of it theres not going to go away anytime soon.
My personal opinion, the full 2022 is going to be not COVID-19 free for the world. So as long as Covid is out there in the these disruptions in the supply chain and everything we will continue to see these type of static rates for the short term periods, whilst at the same time the.
Longer periods, where you see the 3 to 5 year charters of more based on fundamentals I mean, Atlanta company doesn't need to fix the shape of 3 to 5 years unless they see the fundamentals going forward. They could simply off of I don't know of 400000 barrels per day for 3 months and get get on with it.
So I believe that the market will be on the more long term rates more sustainable and I would say 'twenty 'twenty 2 in my personal opinion will be of Goodyear and possibly even further but this is purely my own personal opinion.
But the but yeah.
But.
If don't want to talk a bit more about.
What we see.
The laser stuff is it going forward for us.
Sure sure.
First of all of you know I agree with everything George said.
If you look of the data the supply side fundamentals for the sciences that we're focused on.
Remain extraordinarily supportive, which is great news bumps our business model is a conservative 1 and which has been a conservative 1 and that served us well.
During the downs as 1 of the ops of the cyclical business, so, although often being equal the supply side fundamentals are great as we've learned.
1 of the World it's months.
You can be taken by surprise by big macro events of which no 1 has any control.
And no 1 has any look forward visibility. So we continue to believe that fixing loan.
And where possible forward fixing non makes sense in terms of the risk return profile of the where we're seeking.
Got it.
Good day, Alright, that's it for me keep up the great work. Thank you.
Thank you.
Thanks Randy.
Our next question comes from fraud, more kind of all with Clarksons <unk> Securities.
Yes. Thank you.
Hi, guys.
Looking at the.
EBITDA chart you had.
Very interesting.
If you add on the.
Prevailing market.
So youre looking at more than 400 and then.
EBITDA on it yet.
Which is I guess, approximately the 300 million net income.
Yeah.
And the more than $8 per share.
That's huge right. So that's the first question is really.
How quickly can you start chartering out.
That open capacity next year.
So, let's say by the end of this year how much of the open capacity do you expect to have cash.
So to speak.
At the prevailing rates.
Yeah.
If I may try to answer that is.
Usually you know the short term we've come to the open position the higher the rates, we can get and the the more prompt the vessel at least the high of the charter market South of it you can get.
Obviously this is it is.
There's a balance between risk and reward so.
We see the market and as we see the market.
We we can.
Predictor of let's say.
With the safety for ourselves.
That's it for 6 months.
With quite accurately so we tend to try and fix forward anything between 3 to 6 to 9 months.
So I would say that we're looking at all the maturities of the exploration of the charters.
You could imagine that all things being equal and if the market continues to be as it is today.
Without an upward or downward.
You know trend.
And we would be fixing in advance anything between 3 months to 9 months ahead.
That would be my.
January in response to your question I wouldn't be able to tell us more specifically because you know if we see the the market trending upwards. We go for the 3 months.
The let's say extension, if we see the market.
Flat, we'd go for the 6 months of the semi cap going down we might go for the 9 months.
Let's say like that or something to give you a bit of of field.
Of how we view of things.
And if you if you look at pages 6 if you look at pages 6 and 7.
The eyeball willing at all of the of all of the ships that come out for neighborhood.
Between.
The 'twenty, 1 'twenty to 'twenty 2.
The latest open paradigm and I know this is amit just quarter by quarter.
The the charters the latest but any existing charter runs to the end of Q2 next year.
Cost of the chips come open end of this year or end of Q1 next year, so consistent with what George has said by year items.
And certainly by the time, we have for Q for coal.
There's a good chance that we'll have most of this tonnage wrapped up.
Yeah.
And that's great news I guess.
The message from the line of the companies the past few weeks.
I expect that the market, which the strong at least.
The end of this year since the date of the message so.
For me that's a good chance that you actually can capture a lot of those.
That 400 million EBITDA is actually quite reach.
That's my personal opinion.
But it also means that your cash.
Hello would be quite substantial right.
Even after the Capex.
The maintenance Capex and the debt repayments.
The $400 million should translate the probably the 200 million.
Cash build.
So there's like.
Have a lot of liquidity.
Yeah.
I guess you the over the answer the Heartland and the first question.
Hi, Randy.
What are you going to do with the oldest liquidity at the.
I mean, you've been very active I guess, the most active buyers.
The steps.
The line of the companies themselves.
You have been buying a lot of ships the past 18 months or so.
The attractive.
Alright, that's all what do you think about this helped the clinically.
At the moment.
Given the quite steep appreciation of the scene in the ship.
Shipment is just over the past month Microsoft.
Yeah.
While it's difficult to say any more than we've already said.
We still believe that there are genuine opportunities to invest in growth on the accretive basis, we spoke.
We want the cytosorb existing ships.
I think that's the right thing to do.
While sort of so much uncertainty about the propulsion technologies and of course, we price you got to run this cash I mean, it does it does look pretty solid.
Nevertheless, we've got 2 of them it he's got sort of hey, sorry by the council of it accumulates over time, it's not as if.
We got over $200 million, if thats the right number.
On the first of January for the cash position of builds over time.
We'd expect to invest.
Overtime now come in the body, if we're unable to investors already implied before.
Would we.
We would look at modifying our capital allocation for <unk>.
The kind of mindful of the regulatory changes that are coming out.
In 2020 free.
Ex on all of the rest of it we're mindful of the massive uncertainties.
Around the Covid still we're mindful of the huge uncertainties around the clock amortization.
And 2.
To ensure flexibility for.
For us and survivability and the legacy problem free.
Over the next few years, maybe sitting on cash is not such a bad thing.
Yeah.
If I may add the floods something that.
It is simple and video of this.
We don't think I'm sure you guys are thinking what is going to look like in 2023 and.
'twenty to 'twenty 2 we all feel more of less happy about what is going to look for into the 3 how is it going to look into 'twenty for.
And then there are free scenarios I guess for everybody scenario, 1 is gonna be equal to the date, so we're gonna be making the money.
Money hand over fist.
Easy to solve this problem.
We will obviously.
We're going to have to increase our dividend.
If the market go Sky high and continues to be Sky high.
We're not going to grow the comment of how 2000 of ships.
Scenario of 2 leaves the market. These are amid the market in that case, and we keep on making money.
We're not making.
The crazy minded, we're making the day, but we're making very good money and then obviously.
The investments are more easy to make and so we can combine the 2.
We can you know.
The new investing and the and probably look at also sharing dividends for the shareholders. Then you have the third scenario, where the market is low.
And in that scenario, where what we want to be we're gonna be in the very strong position very little debt. We have very very strong debt maturities of where we're paying down debt very fast. So we're not worried about the scenario at all.
And we want to be in this scenario of cash rich show that we can do what we normally no well to do which is buy cheap vessels.
And which later became cash cows like the ships we have the de fleet. This is what we've been doing.
Over the past years very successfully now in all 3 scenarios mind you.
We always do sale and leaseback transactions, which are not really market related cause. These days got no market risk as we're bang in assets together with the charter switch very calculated.
For the transaction and we don't usually do it on on shapes up half of highest value risk at the end of the fixed charter period. So we always have the ability to.
And flow deploy capital Accretively, regardless of where the market is high or low on the sale and leaseback.
And we deploy a lot of money on the on the low market or the market. We believe is going to rise in the.
The foreseeable future.
Okay.
Great makes sense. Thank you very much.
Thank you. Our next question comes from Liam Burke with B Riley.
Thank you how is everybody today.
Super Duper anyway.
With this market [laughter], it's kind of tough to ask any questions, but George.
In the vessel classes that you see the opportunities do you have any preference within your fleets within your fleet, if any particular vessel class that you find more attractive than others now.
Well, we always.
Felt.
In the in the past years that the sweet spot is on vessels that offer low slot costs and those ships have been the.
The post Panamaxes that was our first choice and that's where our core businesses.
We heard the.
Various arguments over the over the years and also we like of course of the.
Let's call it smaller feeder vessels.
But with special characteristics.
The good ones.
We heard arguments over the years that none of those were being built.
So maybe we were wrong.
And what they were not being built because they were not needed.
But we were very focused on our analysis.
And we don't go by the what if scenarios, we only focus on what we know and what we know best is the container shipping.
We load ships every day, we know what the guide was that we know what the requirements are we do not rely on what the.
The general analysis comes in we know more than that from the business shall we start we stuck to our model, which now proved the dividends where the ships we have out of the ones that are in the highest demand and they make a killing.
So going forward, we will continue to focus on these ships as we believe that these are the ships that will be the workhorse and that has proven now.
The.
Ideally, we would love to have more more more post panamaxes.
High reefer containers like with buying or.
Specialized the smaller ships.
At the very much depends on what the actual deal will be a we look at each transaction on its own merits.
But if you for.
If it wasn't an ideal world then you ask me what steps I want to buy at the right price, obviously post panamaxes as the for me.
The answer.
And I know that you on your acquisition of very niche oriented in terms of how you buy are you seeing any competition for assets at all as you start evaluating your opportunities.
Well the the main competitors in this market for prompt vessels for ships that are going to be charter free the next 3 to 6 months.
The other line of companies.
These.
We of the third.
That said largest buyer after the first in the second being a lot of companies.
In the market.
So we have seen the competition coming from a lot of companies, but Atlantic components are not competing on sale and leaseback transactions as you can imagine.
And of course, it's not over the interest and they're not competing on the ships which have.
Cover of charter extending more than 9 months.
They want the ship right now to deploy and make money for that rate.
We have a different approach obviously, we make money from fixing of the ship chartering the ship for with that that's how we managed to navigate through the competition of Atlanta companies apart from the line of companies the competition from a fellow ship owners, it's not as strong as the.
Atlanta companies.
Got it.
Great. Thank you George.
Our next question comes from a J means Meyer with value investor's edge.
Hi, good morning, gentlemen, congrats on an excellent quarter.
Okay.
So lots of good questions. This morning, the labor this too much just east of question here you dispose the bill of 2 where you sold it for almost $70 million I don't read too much into that but you have of sister ship. The M&A that comes up Q4 that you Havent chartered yet and you also have 2 very similar vessels also 2002 built the older ships same size.
And then also come up Q4, all of those 3 ships potentially on the sales block or do you plan on re chartering those.
And you want to explain why we chose the latter.
Sure I mean, the short answer to your question is we keep everything under review all of the time.
Kind of we made the decision to monetize lateral along the go to.
To help finance the purchase of <unk>.
Sure some of the tourists.
And all of the Lady.
We sold her and renew the fleet broke down the average age.
Not averse to doing that so on the on the.
For the tactical basis, but strategically have we made the decision to.
Deliberately exits.
Our older tonnage no no we haven't.
So it's very much of a case by case basis.
Yeah.
That's 1 of them.
Furthermore, lots of of how the charter that was coming out in the market wasn't of the sources.
It is now et cetera et cetera. So.
The dynamic.
The circumstances.
Yes.
And if I can add to that Jay This is Tom.
Yeah.
We wanted to to make the acquisition of the the highway for ships without issuing any additional dilution of equity.
So we have to book of financing mix that made sense, so I've been sort of.
I think the scribbling down. These these numbers as of the end has been talking but if you look at the the Judy.
Which is the system to the tool we fixed.
The ratio of roughly $20000 a day for.
For 2 years or so back when we were looking at this transaction we were assuming roughly a 20 dollar of day rate on the the tool if you remove 5% of commissions assume roughly 6000 of Opex.
The results in an annualized EBITDA of about $4.6 million.
Now if you divide the purchase price of $16.75, sorry of the sale price of $16.75 million by $4.6 million.
Price the EBITDA multiple of 3.6 times, so that's pretty much identical.
Multiple for the for high Reefer, most ships with the difference being as Ian has said.
The the half the age of the Mana the much higher specification the mana.
The best feature.
Because of that younger ships on the high specification on the money and they can support as a result of higher leverage and generate higher returns than the.
On Monday, so that was really of thinking when deciding whether or not to.
Selectively sell 1 of our assets to we monetize and the investment of what we saw was even better assets generating higher returns.
I hope that's helpful.
Yes, it's very helpful. Thanks, all for the comprehensive answers I guess the reason I was looking at though is obviously the values of went up and you mentioned it was $20000 of day for 2 years. When you sold the vessel, but now you can get 25 or 30000 for 3 or 4 years right. So those are the.
For now I realized you told us before but at the same time you could also sell those vessels now I would imagine for maybe $25 million or 30 million of piece. So if you sold those 3 vessels that are coming up for $75.8 million in block per seats and you re lever that you could do another big block deal I guess, that's what I'm getting out of it.
Can you can you rinse wash repeat is the it's a room for more deals like that.
Yes.
Possibly selectively but we would look at it case by case.
Definitely last question for you the.
Sure.
I have improved nicely year over year, but over the past few months, you've lagged the market a lot price to NAV. Its always the debatable, depending on how much of a charter discount you put in there, but I have you guys somewhere between 40% $55.60 per cent are priced in the app. So it's the sizable sizable discount I know you care about liquidity, it's clear on slide.
In your appendix there you mentioned the liquidity has improved however, you also have Kelso large block there.
71% public float, which is great is the room for some sort of a repurchase or tender offer either to take out cost take out that overhead or do you simply arbitrage youre share price because there's a huge just kind of going on here.
Oh, yes, the the there is I mean, we.
We kind of agree with you however.
I'll go back to what I was saying earlier about using cash for growth.
And of that is for a preference on that is what we hear from investors not all the investors, but the majority of your expression of opinion support us continuing to grow the business for long term value creation now as I've said.
I'm not sure.
Sure of the growth opportunities not be apparent.
Then we will revise our capital allocation.
Our strategy of policy call. It what you will and we know we review it.
Hence the fleet.
From time to time and it is always open to US the review of every board meeting which happened closely.
Certainly thank you gentlemen, habit of have a great day and keep up the good work.
Thank you.
Okay. Thank you and we have a question from the line of Joe Kaplan with White for capital.
Yes, Hi, gentlemen.
Congratulations on the execution of.
Several accretive vessel acquisitions.
Thank you for particularly for the additional disclosures in particular, the illicit of earnings on page 8 of the presentation.
EBITDA calculator, including through 2023 on each of <unk>.
1 of the presentation, which shows the.
Pro forma free cash generation of the fleet the used in the July 2021 long.
Long term 3 of 5 year re charter rates I have a couple of questions and then a couple of comments the questions on the July 2021 sort of rates and the students.
On the right column of page 21 of the presentation.
As you are aware of the heart that index is up 37% even in the month of July alone and so do these rates reflect the beginning of July the end of July with the middle of July relative to the most recent index rates that we have.
I would say hi, Jerry.
This is Tom.
I would say that the.
Average rates for July.
Okay. So.
If we were to.
Mark that to market to the current spot rates and the understanding that you don't necessarily.
Get those.
<unk>.
But given that the.
The majority of your of your opening charters will.
<unk> come off of charter in the fourth quarter of this year and the per script next year it.
It would seem that there is potentially even some room above.
Well the sort of burning scenario of 424 million EBITDA for 2022 on page 8 the.
They're just sort of mathematical modeling perspective.
Potentially of them, however, I would sorry.
I was going to say potentially joke, but 1 thing I would caution you is and I think Ian mentioned this in the prepared remarks.
Negotiations on new charters take time.
So the fact that you have of charter, but as announced today for example, it doesn't necessarily mean, it's going to have been fixed on rates available in the market today.
Inevitably there's going to be let's call. It of 4 to 6 week lag between when heads of terms of agreed.
And when the charges are actually documented in the announced so I would just encourage you to keep that in mind as well.
Sure it particularly in the rising.
My second question in terms of the pro forma weighted average fleet age based on the new vessel acquisitions, we calculate that to be approximately 18 years on the weighted average basis.
Net debt ballpark correct.
Good question I had the first in the whole field in mind, I mean may be mistaken.
Putting this in context, it might be quite useful to look at slide 28.
Of the the presentation. So if you go to the appendix in slide 28.
You can see how the.
The fleet's age profile of the global fleet.
<unk> is composed by size segment and there are some useful sort of reference points in there and you can see the bond launched the midsize and smaller segments because they have been underinvested over the course of the last few years they tend to be materially older. So whenever you sort of assess the age of our fleet.
It's important that you assess it against the age of the corresponding peer group and hopefully the day show on Slide 28 is helpful in that regard.
Understand and then just a couple of comments going back to some of the earlier questions on the call regarding.
The capital allocation.
When we run the.
The spot we charter assumptions through the <unk>.
EBITDA calculator on page 21 for 2022 and 'twenty 3.
Get somewhere between 125, and 450 million of EBITDA for 2022.
Just the pull through of those full year re charters into 2023 mathematically get to in excess of 500 million for 2023.
On a pro forma T E D of the company of the current stock price of $18 implies approximately 1 billion 7 that implies the effectively you would earn the.
For the entire.
Enterprise value of the company and free cash flow over a little more than 3 years of George alluded.
The average contract public today sort of half years, and the re chartering of new ships for 3 to 5 years out so that implies.
Effectively.
Scribing zero value to the residual life of the fleet and these are 25 years.
Useful life assets and the average life is something like what have you.
And between $13.5 for 15 years for the implied effectively an extra 10 plus years.
Not be imputed into the the.
The valuation at all and so when we look at it just just in terms of.
Back of the envelope range of evaluations on the forward the charter basis.
Even in extremely punitive scenario of the liquidation scenario and I'm not saying that's net debt.
That's anywhere.
For the company is going given the growth and earnings trajectory, but if you just assumed you just ran up the triggers through 2022, and we're going to scrap the shifts based on the scrap values of 500 plus dollars per lightweight ton that you have on page 28.
That in itself is kind of back of 10% gets you to the current stock price of $18 per share approximately in the.
Many of you.
Even to conservatively assume the mean reversion to the 15 year average.
Charter rates for 2023, and beyond which imply the 75% discounts of the current corporate index.
And you discount that back of 10% that gets you to sort of the mid <unk> per share stock price and then as George alluded the significant incremental upside to the charters if rates stay higher for longer.
The fixed operating leverage in the business.
Both the calls the order.
Order book the fleet ratio in the mid and small price segment is still quite low and because of the impact potential.
Potential beneficial impact of IMO 2023 going into 'twenty 3 so.
A couple of the comments from prior callers in terms of the capital allocation.
<unk>.
<unk>.
Capital return to shareholders.
A couple of takeaways the first is the.
On that range of values. It does seem conservatively the your current stock price reflects.
At least the 50% discount to what is largely contract with the navy going forward.
And so the takeaways we have from that is 1 we would not want to see any primary equity stock issuance.
At the at the level.
To the extent that there is accretive solution to tender for the remaining cash.
So shares we would be supportive of that.
With regard to evaluating any new ship vessel purchases.
And the accretive impact of that.
The supportive with the caveat debt that should be weighted against the returns of capital to shareholders either in the form of dividends or accretive repurchases.
And in terms of the dividend payout ratio.
Which you alluded to the approximately $1 per share, which is a 6% dividend yield which is high but as a payout ratio of 2022 implies only approximately 20% of.
2022 free cash flow was quite low and suggests substantial room for potentially increasing that dividend and if you had concerns about the variability of earnings even though they are largely contracted over the next few years, you could potentially target a variable.
Dividend targeting a percentage payout of.
Free cash flow.
Or a combination of the base dividend plus the variable dividend and then the last point is just in terms of your debt stack, which is approximately $1 billion pro forma for.
The acquisitions, given the levels of free cash flow over the next couple of years, which of contracted you will have the ability to pay down.
Very significant portion of that debt stack of very rapidly and so the ability to either refinance that debt stack at lower rates, which is accretive for potentially get additional flexibility in the capital structure.
By issuing in the baby bond market or like.
Cumulative preferred market, we would be supportive of that as well.
Thank you.
That's true.
And this concludes our Q&A session for today I would like to turn the call back to Ian whether for closing remarks.
Thanks, everybody. Thanks. Thank you so much for your engagement and Kew and I am for comments.
We look forward to giving further updates on the business.
For Q3, which will be.
In about 3 months, thank you very much.
And with that we conclude today's conference call. Thank you for your participation and you may now disconnect.
[music].
[music].
[music].
[music].
Thank you very much. Thank you could think of only good afternoon, everybody and we'll keep the.
The GSL of second quarter 2021 earnings conference call the slow.
For the company of the presentation of available for our website at Ww don't global ship lease Dot com.
As usual slides 2 and 3 reminds you that coal the value.
Moving forward looking statements of the based on current expectations and assumptions and all of them by their nature inherently uncertain non outside of the company's control.
Actual results may differ materially for these forward looking statements Street in many factors, including those described in the Safe Harbor section of the slide presentation.
We also draw your attention to the risk factors section in the most recent annual report on form 20-F, which is for 2020 of them was filed with the SEC all of them.
Most of the marketing this year.
You can obtain this part of our websites of are bought by the FCC.
1 of my statements of qualified by these and other disclosures in our reports filed with the SEC and we don't undertake any duty to update forward looking statements.
The reconciliations of the non-GAAP financial measures to which we will refer during this cold sort.
The most directly comparable measures calculated and presented in accordance with GAAP. Please refer to the earnings release that we issued this morning.
That's also available on the website.
I'm joined as usual by the executive Chairman, Joe as you recall, the Chief Financial Officer, just off the.
I'm, the Chief commercial Officer, Tom Lister.
George will begin the call with some high level commentary.
An update on our commentaries of focus and then Tassos, Tom and I will take you through our recent achievements quarterly results of the financials and the current market environment. After the batch will be pleased to take your questions.
So turning now to slide for I'll pass the call to George.
Thank you Ian and good morning, or good afternoon to all of you joining us today.
I sort of an excellent first quarter. The second quarter of 2021 has seen the container shipping industry and GSL in particular, continuing to reach new heights in ways that will benefit us for many years to come.
We're currently in the midst of Red Hot faith, and south of the markets based upon highly supportive fundamentals and the exacerbated by poor congestion and then all of the bed in the supply chain that have proven to be longing long at the features of the market.
That was initially expected.
In this environment.
We have been very active year to date of agreeing to acquire of 23 ships 19 of which have been delivered for approximately half a billion dollars and securing 40, new charters, representing 900 millions of dollars of revenue.
This has been achieved with only modest equity dilution for more capital raise in January.
The 23 ships, our specified and of the midsized and smaller vessel classes, which continues to be of focus with debt, that's charters that minimize downside or residual risk.
As a result, we have.
<unk> grown our fleet by over 50% this year.
Our earnings dramatically higher to record levels in the sustainable manner and initiated a quarterly dividend of 25 cents per share more than twice that was originally expected.
We have also refinanced the vast majority of about 20 to 22 maturity of debt, including the expenses of 9.8, 75, senior secured notes and significantly reducing our cost of capital.
The only thing agencies have acknowledged our improved credit quality.
Both Moody's and S&P upgraded us in Q1, and Moody's has upgraded us again.
So our rating to date.
B B plus stable and be 1 stable.
Now from this materially improved strategic position, we are positioned to continue executing our proven growth strategy and seizing additional immediately accretive opportunities ahead of us while maintaining the discipline and high standards that have said the show well and getting enough for this point.
Now if you turn to slide 5 I'll describe the big picture for the industry at this moment.
Well the second half of 'twenty 'twenty demonstrate that the resilience of containerized trade in snapping back rapidly. Despite the COVID-19 driven widespread lockdowns and diverse global challenges 2021 set of show demand growth significantly higher than that seen in recent years.
At nearly 7%.
Current projections for 'twenty 'twenty 2 for demand for once again be meaningfully above recent levels at NAV.
6%.
Against such robust demand growth the very lean.
The underlying supply growth in the mid size of smaller classes supplemented by the global fleet speeding up the increase effective capacity has led to rates and nobody the charter charter terms getting better and better for owners Saturday of GSL.
Beyond the earnings and nausea, the value of improvements for GSL. The fundamentals driven recovery has seen a liner company cash the less guiding to record earnings for the year and have taken major steps towards improving the balance sheets.
It has been reported that the market strength has caused an uptick of new vessel all of this.
But it is important to understand for things.
Yeah.
First of.
This has been the case for many years now.
These new orders are heavily weighted towards the largest vessels, which do not and often cannot participate in the non main trade.
The main lane trades, where all the vessels operate.
Second because of the majority of 2 of the current order book is recently contracted and shipyard for face capacity limitations. In addition to the length of construction times themselves.
There's still very little capacity the scheduled to be the leave that until at least late 'twenty 3 early 'twenty for.
With demand growth in the interim expected to significantly outpace supply growth.
And with the little that kind of be done to augment that supply in the interim.
Third.
When we talk about new orders in container shipping comparisons I inevitably made to the situation of twin 2008.2009.
When the order book hit the peak of 60% of standing capacity.
Let us face these compassionate head on.
The order book.
Has obviously grown so far this year in response to a clear instance, sort of on the supply.
It is meant to.
But the difference here is not only that the guidance size of the order book is a fraction of that from 2008.2009, which of these in fact, but also that the combination of lessons learned and the uncertainty about the green fuel of the future have capped the willing national boldness and the lenders the.
Engage in the kind of speculative ordering the direct eyes.
And supercharge that order book before the financial crisis.
There is a clear distinction between on the 1 hand, the recent increase the vessel ordering due to a real and current shortage of capacity.
And on the other hand, the extreme speculative ordering syn <unk>.
Up to 2008, driven in part by an apparently infinite supply of cheap capital often from Germany.
The fourth point that I would like to make here is that all of the integration embed at the of the book of 2 debt Decarbonize.
With the EU, the I M O and a growing number of regulatory bodies and governments are looking to encourage.
From January of 2023, 1 such important regulation is set to come into effect known as E X sight.
Under this more stringent the for months emissions requirement much of the global fleet of container ships will only be able to achieve compliance by reducing its speed to reduce fuel burn to reduce.
C O 2 emissions.
It's just we're not evidence of reduction of speed equates to an effective reduction in global fleet capacity of 5% to 6%.
This is a hugely impactful regulation that we have the profound effect on the supply demand balance in the business.
Potentially.
Just went slightly elevated levels of your buildings are being delivered.
1 final point of it I would like to make here is that we still believe that there's a great deal of potential for consolidation. The containership owner of sector remains highly fragmented with dozens of subscale players who are unable to benefit from the scale advantages mainly extra capital.
The sizable untapped Elisa platform SaaS as DSL.
Moreover, the extra day sort of more of some of the financial players when does the sector often a decade or more ago offers a range of additional acquisition opportunities as we have proven.
In summary, we are in excellent position and we see much to be optimistic about in the coming quarters and years.
With that I will turn the call to you.
Alright, Thank you George.
Let's turn the slide 6.
If you apology of mountain Youll, probably already be familiar with the 23 ships that we've acquired this year.
I'm sure you want to spend a few moments first on the additional value that we can continue to generate for my preexisting fleet.
On the slide we share those vessels, which were part of the GSL fleet is that the.
The beginning of the year less of the electrical which we sold at the end of June this year due to the surge in fact.
We've indicated in dark blue those charters that have been agreed year to date.
You'll notice that for nearly all of these right now for multiple years and the rates to the maturity of above those of kind of before and the number of instances quite dramatically above.
Let me highlight for you the various special on the list the 18 year old 2200 Teu Pizza.
Which for the transition in the fourth quarter of this year from a current day rates of $9400 per day.
The new rates of $25000 per day, all the way through trying to you're trying to you're fine when should it become 2 years old.
Similarly further down the list for 2000 and true belts 6 towers in the 800 Teu GSL nicoletta.
Currently earning $13500 of day.
In short order to the earnings $35750 per day.
The 'twenty 'twenty for when sheets true will be 2 years old.
And just to remind you of the operating leverage inherent in our business means the 100% of any revenue increase of straight to our bottom line.
Earnings and cash.
Because of that cost of the fixed operating costs are largely fixed.
By the way it can take some time to negotiate the new charter and.
And some time for that transferred to become public.
Some of the fixtures we're announcing today in the are included in this chart, we're settled for a while ago when rates and the market will flow.
What does all of this activity of mounting.
The 14th chances are the age.
Year to date to our existing fleet.
Sorry for some $441 million of contracted revenue.
The 23 ships the quad in 2021 year to date on the next page, which will come true.
Bring a further $465 million of contracted revenue for <unk>.
The contract cover.
The long the central point of emphasis for GSL of nearly $1.4 billion over a weighted average remaining duration of 2 and a half years.
Furthermore across the entirety of our fleet, we have 11 ships scheduled to come off of their current charters. During the rest of this year or in 2022, all of which are present here on the rates for low rise.
Billable in the market in most cases materiality site.
So, let's turn to slide 7 we will finish out fleets overview with the 23 vessels that we've agreed to buy.
So far this year 2020 of them for an aggregate purchase price of just under $500 million.
This growth of our fleet to 65 ships, an increase of more than 50% of.
On the year end position.
As we speak 19 of these restaurants have been deliberate kind of generating revenue and cash flow for the business the reman.
Mining for against we delivered in the next few months.
All of these acquisitions are immediately accretive with an estimated purchase price to average annual adjusted EBITDA.
Ratio in the range 364 times.
The 4.0 times.
As you can see these acquisitions, particularly in the larger vessels, making up the bottom half of the table generally have long remaining charter durations.
At attractive rates, which ensure the GSL payback period is largely or even the accounted for <unk>.
A limiting or eliminating downside risk in the purchase.
For the smaller vessels in the upper half of the table.
Also structure of the acquisitions to ensure that the risk profile is skewed to the upside.
With a certain amount of near term charter market exposure.
As you can see from the red bars, which illustrate chances on subsequent to our agreement to acquire the vessels the strategy of Larry and the measure of the amounts of the charter market exposure.
For paid off handsomely with 3 of those vessels, having having secured for charters at rates.
From approximately 2 to more than 3 times, the current rates with those durations extending out the late 2020 for.
25.
Between the growth provided by the 23, new vessels and the chances that you see here on page 7 and the new charters that we've secured year to date on our existing fleet on page 6 we have 50 of already added.
For at least $660 million total adjusted EBITDA based on contracted revenue.
Slide 8 is a new slide.
Given both the substantial growth of our acquisition and are finding of new chances for existing ships, we thought that it would be helpful to illustrate the earnings impact of of all that we've done.
Across 3 different scenarios.
The day to takes into account the actual or anticipated delivery of ships.
Delivery dates of the 23, new ships and the expected dates for changes in the effective charter rates.
For the existing fleet.
To be very clear.
None of these all or should be considered a forecast for <unk>.
Slide simply summarizes the mathematical results for 2021 of the joint strength to our plugging in different charter rates through our usual EBIT fell calculator, which we show on page 21 in the appendix.
We've run scenarios firstly re chartering in the next 18 months estimated market rates of July this year, so kind of current market rates for multi year charters.
Mario to the 15 year historic average rates and scenario 3.
10 year historic average rates.
As market rates for of July this year, especially the much stronger than the historic averages.
Support revenue in 2022 for example is the $132 million.
Of those July rates compared to 57 or $48 million at the 15 tend to your historic rates.
With respect to me.
The difference in the spot revenue between the scenario of explains exactly as I've mentioned before the different because of our operating leverage.
The difference in free cash flow.
Overall, you'll see the extent of the step change that we're experiencing here in terms of our contracted revenue and adjusted EBITDA of between 2021 and 2.
The 22 as a result of growth and.
Charter renewals.
Substantially higher rates and the full year impact of those and trying to change too.
For context around annual adjusted EBITDA and <unk>.
19 of 20.
The 2 full years following our merger with Poseidon late in 2018 was around $160 million.
Yeah.
Whilst on the slides.
I'm sorry for all of this data.
Please note that even if you do not include anything for spot revenue.
In 2021 in terms of trips to taking 100 percentage of the operating costs of the vessels.
Assume no income on our spot ships, but all of the costs are already contracted revenue drives more than ample of the expected adjusted EBITDA of couple of debt service and Capex as well as dividends on a per foot.
And on a common stock at current rates.
Numerically working out the numbers zero spot revenue in 2022 gigs adjusted EBITDA of some $290 million.
The operating cash flow off the debt service of Capex, which you can get from page 21 of <unk>.
$68 million.
Aggregate preferred and common dividends at todays share count is approximately $44 million, leaving traces to millions of all of the net cash flow.
Remember, that's not including any revenue at all from our spot ships on every dollar of that revenue will increase net cash flow by the same amount.
Moving on to slide 9.
Describes the slowed our growth strategy.
We covered this on our last call, but with an additional 16 ships out of it. Since then we should definitely revisit our value accretive price strategy.
We focus on existing ships with charters attached hope for it.
In place as part of the purchase.
Chips, some chances, which are immediately accretive to cash flow as opposed to new buildings for which that can be of 2 or 3 of your words.
Before they come online during which time the area now has all of the funding costs.
The trends of 3 ships that we will ads from our activity year to date of the purchase price as I mentioned of just under $500 million and the charter contracts are expected to generates some $332 million of adjusted EBITDA.
We're disciplines, where the risk of us we look for decent returns on assets with low economic depreciation limited residual value risk for down good downside cover including scrap value and compelling upside potential.
But thank you for your ships have mainly multiyear contract cover.
Share of purchase price to EBITDA multiple of between 3.6 and 4 times.
The increase overall in the adjusted EBITDA net income and earnings per share for the business significantly.
Yeah.
We look to the line the ESG and economic strength of our strategy aiming to take a full lifecycle approach to the carbon footprints of the chips.
This means taking into account the building and the recycling of ships as well as operating them through their economic life.
It seems to us that it doesn't even make sense to build new ships when we collectively the industry as a whole now with more certainty what the fuel of the future will be.
Until then we think it's preferable to optimize and maximize the <unk>.
On the likes of existing ships.
Finally, we want to stay nimble.
We aim for attractive investment returns within 5 years or less this allows us to adjust our strategy to the evolving decarbonization of environment.
We want to position GSL to be legacy problem free.
With a strong cash position to be able to capitalize on the next generation of Green technologies is the proven out of mature.
Zero rate, let's say of the coming decades.
With that I'll turn the call over the past of talk you through our financials.
Thank you Ann as you know the first half of the year has been very active with the significant number of moving pieces in the financials. So we have summarized the key points for you on slide 10.
Revenue for the first half was $155.9 million up from $142.3 million in the first half of 2020 'twenty.
Similarly, adjusted EBITDA was $96.2 million up from $82.6 million only the first half of last year.
Normalized net income we said that for the 1 off items was up from $24.4 million to $41.5 million.
I'd like to spend a moment on the 1 off items now.
In the second quarter, we completed the refinancing of all material 2022 debt maturities, which will commence in the first quarter, we incurred prepayment fees of $1.4 million in relation to this refinancing.
In addition, we sold our 2200 Teu. This 2001 Bill Chappell of tool recording a net gain of 7.8 million.
Moving to the balance sheet items, there of volume points to highlight our cash position at June 32021 was $165.5 million.
As I have mentioned of both in the quarter. We have successfully refinanced last material 2022 maturity debt. We have refinanced the 3 tranches of $143.8 million of visa credit facility with new facilities with Deutsche Bank credit Agricole, and CNBC of pushing those maturities out to 2002.
<unk> 6 for the first 2 and 2028 for the third 1.
Using also annual debt service by about 11 point, the $1 million and bringing down our module for 4.8% to 3.2 per cent me.
Meantime, we have raised in the second quarter under our ATM program $7.6 million of our 2020 for notes and $23.6 million of our perpetual preferred further increasing our flexibility.
Additionally, the fans have been raised since the quarter end.
Regarding acquisitions for the 7 post Panamax ships, we contracted to purchase in February for aggregating $116 million, we have arranged financing of $78.9 million of which we have drawn down $68.2 million and gives the 6 seats delivered by June 32021 the.
The final delivery of drawdown took place end of July.
In addition, as of quarter end, we had made deposits of $25.1 million for the acquisition of new vessels that well the borealis ships and the last 1 for the 7 post Panamax ships will be contracted purchase and as mentioned before we sold the Lotto for net proceeds of $16.5 million.
Our detailed financial statements appear in full on slides 11 through 13.
Also our strong current performance in coffee and that's for the future has allowed the board declared a dividend of 25 per common share for the second quarter to be paid on September 32 share holders of record on August 23.
Now turning to slide 14, we have summarized some of the major of positive impacts on our capital structure now and moving forward as you can see in the upper left our total debt outstanding is set to increase through the end of the year in line with the deliveries of the vessels that we have agreed to purchase but he's event scheduled for.
Amortize significantly thereafter by about 300 million through year end 2023.
This aggressive schedule leave significant upside on low level of assets.
Today I'll be taking the end 2021, and 2022 debt numbers from this slide in the adjusted EBITDA from Slide 8 illustrative earnings the debt and at the gross before net of cash to adjusted EBITDA is for 4 to 4.5 times for 2021, which is not the full year of earnings from the new seats.
2.2 to 2.7 times for 2022.
At the same time, you can see in the upper right chart, but the weekend have very significantly reduced our average cost of debt from 7.7% at the end of 2018 to now being on track to fall below 5% at the end of this year.
On the lower the left you will see that the trading liquidity in our stock once quite the scene has increased dramatically as the business has developed as we have continued to actively and transparently engage with the market and there is a free float has increased following our equity offering earlier. This year and then again I'll sort of allowed the legacy sort of hold the castle.
For the portion of all of their holdings into the market from 3 million of the month year ago to 100 times. This amount of just over the 300 million in June our stock has clearly become much more accessible for investors.
In the lower right is the kind of speed of GSL common stockholder and the simple with 71% of freely traded by the public and the remainder held by the board and management of the CMA CGM and cash.
Finally on the appendix you can find us all the base, our EBITDA and cash flow calculator Slide 21, which is intended to help you with your modeling and the slide 22, we give the guidance on cap ex spend.
With that I will turn it over to Tom.
Hello, everyone.
Let's move to slide 15, which is intended to highlight the ship sizes on which were focused which will help put it in context. The subsequent slides.
We're focused on midsize and smaller ships, which is shorthand for the ships ranging from about 2000 Teu up to 10000 Teu.
The the top map on the left shows the deployment of quote unquote.
The size of the ship.
The ships under 10000, Teu and emphasizes the operational flexibility.
As you can see the deployed everywhere.
The map shows of the big ships, the larger than 10000 Teu of deployed which tends to be on the east West main lane trades, where the cargo volumes and show upside infrastructure can support.
And it's important to note the roughly 70% global containerized trade volumes all moved outside the main names in other words in the north South regional and intermediate trades, so quite ships like ours.
Slide 16 shows the supply side trends the tend to be a barometer of help for the sector.
Chart shows idle capacity, which at the end of June was 0.8%, which is pretty much full employment and explains 1 of the minor onshore operations have had little choice, but the speed up the ships to try to generate additional effective capacity to accommodate demand.
The bottom charts tell the similar story.
Recycling for scrapping has been almost nonexistent for container ships. This year why because of the charter market as George said of the outset has been red Hot So why scrap of ship. If you can squeeze a few more millions of EBIT dollar of house.
So that's the baseline for fleet employment.
Which sets us up nicely for the next slide slide 17.
Many of you can see on the left how the various food price segments of greater than over the last few years the segue.
We're focused on the sitting in the white box, let's see negligible or even negative fleet growth Gisela underinvested.
The same phenomenon carries through to the chart on the right share pipeline scheduled have been the briefs from 2020 for.
Again, the segments of the Red box.
The segments of minimum order books.
As you can infer from the chance of.
Activity you have read about has been heavily focused on the big ships of about 10000, Teu and actually frankly about 15000 Teu most of the sector in which we compete.
This explains why the order book to fleet ratios for all focus on core segments of 5.2% and 3.8% respectively. While net for the order book of the whole as the little labor 20 per cent.
So what are the room based on for earnings in the containership charter market and.
For the answer to that please turn to the next slide slide 8 slide 18.
In the past you provided rate base on the slide 6 to 12 months of charges. The showed the direction of travel of the market well enough of the dollar values of the rates themselves were becoming of unrepresentative.
And the reason for this is.
The charter market is bifurcated over recent months into challenges for very short periods of very high rates and.
Charles it's for multiple years still is incredibly attractive rates, which is why we're focused.
So today, we provide of charter index based on the basket of ships items, which paints a clear picture of how the market is the holding together with the table on the right hand side, showing where rates for multi year charters or for.
Well because the rates keep moving out in July.
As you can see the charter rate index is up by a multiple of 5 times since the trough in <unk> of 2020.
And has more than doubled during the first half of 2021.
Any way you look at it of truly fantastic markets.
On that high note I'll turn the call back to George too.
Things up.
Thank you Tom Yeah think of them out.
Variable for summarize and then we would be happy to take your questions for.
The growth and success with sort of chartering we of buildup of almost $1.4 billion of contracted revenue and average contract cover of 2.5 years across our fleet importantly.
Through the at least 2022, all of our debt service Capex and dividends of fully covered by contact free cash flows of Sam told you.
So while we're excited and very confident about the re chartering exposure and related upside that we have.
Over the next 18 months, we're in no way of reliant upon it.
The balance sheet is very strong with the hunter $66 million of cash or cash.
Net ratings have been upgraded to leap last table and to be on stable and nearly all of our 2022 debt has already been successfully refinanced while both our leverage ratios and our cost of debt of trading strongly in the right direction will.
We believe that the fleet represents the suites sweet spot in the market.
As the midsized post panamax and smaller container ships with high reefer capacity and not only doing extremely well do it at this red Hot market, but look set to remain in high demand for many years to come as the.
The continued to be significantly under represented in the order book Despite the critical workflows ruled the day.
Play in the market.
With the onset of new environmental regulations in 2023, we expect that the effect of capacity of these vessel classes may in fact shrink from slower stemming to reduce emissions to comply with the new regulations.
As we have said the freight and chart the market demand is very hot and our line of cash. So much have also been delivering outstanding results. So far this year.
And that is of the lows in the second quarter of 2020 market charter rates are up approximately 5 times.
And then up to 2 times versus the beginning of this year.
In terms of us of physics priorities. The most fundamental is the safety and welfare of our personnel, let's see and I'm sure he'll have worked hard in challenging conditions throughout the last 18 months to consistently deliver an excellent performance and in so doing helping to keep the global economy moving.
We cannot emphasize strongly enough that we appreciate the crucial contribution.
In addition, we're strongly focused on delivering further accretive growth that's given additional support to our recently implemented quarterly dividend.
We've grown the fleet by over 50% in the year to date, I think 606 of $2 million of contracted adjusted EBITDA in the process along with charter renewals on the existing fleet and we believe that there are still of lot of exciting opportunities out there of the GSL is uniquely well positioned the space with that.
We would be happy to take your questions.
Thank you.
Reminder, to ask a question simply press star 1 on your telephone to withdraw your question press the pound or Husky. Please standby, while we compile the Q&A roster.
Our first question comes from Randy <unk> with Jefferies.
The gentlemen, how's it going.
2 of.
All right.
You've kind of discussed throughout the press release through the presentation, you've been pretty aggressive in acquiring tonnage. Obviously most of the charters attached at this point do you look to continue on that path or maybe look the other direction right in terms of selling some older vessels and then what of your thoughts on possible dividend increases or share repurchases.
The discounted levels.
I will start the blended with the first part and then I'll pass it onto 2 yeah great.
Great.
There are deals still out there for us.
We do not go in the mainstream transactions we have.
Our sources for transactions that the mainly of market like the ones we have executed.
We haven't done any market deals really we always do deals of the market and there are great. The stream of deals coming in out of direction.
So the assets to the first part is yes, we are looking at the collective growth.
The accretive opportunities to grow the company, but very selectively and very carefully and I stress the word carefully.
We're not out debt to do deals just for the sake of doing deals. We only do deals that make a lot of sense and they are very accretive to our balance sheet.
And do you want to take the test.
Sure.
Uh huh.
We run the pay 1 dividend so Paul.
That was twice what we indicated because we actually took delivery of ships.
A little earlier than we were expecting in charter rates moved up a little faster than we were expecting with just about as part of our second dividend.
<unk>.
And actually if you look at our yields Randy and I'm sure you do but we're pretty well off the back when compared to other players in the sector.
But we keep the dividend levels under review, but the GA as Jeff said.
Our focus of the moment is deploying capital on the creative on the accretive growth as we've done so successfully year to date on that side of base case, but as I say, we keep everything under review and as the.
The.
As the situation changes if it does.
And then our capital allocation changes as well.
Got it Sir.
And then looking at your chartering right average containership rates have increased for what kind of around 60 weeks in a row now.
I guess 2 parts of that 1 is just your outlook on the market and what and when do you think of.
Those increases will end of what will cause that kind of turning over of rates.
And then in the meantime will you continue to forward fix those 11 vessels that come available in the next 12 months.
Or are you wanting to kind of wait until closer to expiry to kind of maybe book some short term charters or see what the market is at that time.
Yeah.
Let me try to start.
Start with the question and then Tom also can help me with this 1.
What I think is up.
On the on the.
Or does it kind of the market for the for the future. We believe that the fundamentals of this market apart from the fact that you know that the market kind of go in some cases crazily up because you see the short term fixtures at that instead of aesthetic numbers. This is because as you know all of these <unk>.
Problems of the Covid related the you know of congestion Shan Shan so forth. So as long as Covid is out there and I think that the consensus is that the COVID-19 theres not going to go away anytime soon.
My personal opinion, the full 2022 is going to be not COVID-19 free for the world. So as long as Covid is out there in the these disruptions in the end up in the supply chain and everything we will continue to see these south of the stake rates for the short term periods, whilst at the same time.
The longer periods, where you see the 3 to 5 year charters are more based on fundamentals I mean, the liner company doesn't need to fix of say 3 to 5 years unless they see the fundamentals going forward. They could simply off of I don't know 400000 doses of day for 3 months and get get on with it.
So I believe that the market will be on the more long term rates more sustainable and I would say 2022, and my personal opinion will be a good year and possibly even further but this is purely my own personal opinion.
But the but yeah, and you know but.
The if Tom wants to talk a bit more about.
What what we.
Lots of studies going forward for us.
Sure sure.
First of all of you know I agree with everything George said.
If you look of the data the supply side fundamentals for the sizes that we're focused on.
Remain extraordinarily supportive which is great news bumps all business model is a conservative 1 and with has been the conservative 1 of them that served us well.
During the down 1 of the ops of the cyclical business, so, although often being equal the supply side fundamentals are great as we've learned.
1 of the World it's months.
You can be taken by surprise by big macro events over which no 1 has any control.
And no 1 has any of them forward visibility. So we continue to believe that fixing loan.
And where possible forward fixing non makes sense in terms of the risk return profile of that where we're seeking.
Got it.
Good day, all right. That's it for me keep up the great work. Thank you.
Thank you.
Thanks Randy.
Our next question comes from fraud, and more kind of all with Clarksons <unk> Securities.
Yes. Thank you.
Hi, guys.
Looking at the.
EBITDA chart you had.
Very interesting.
If you add on the.
The prevailing market.
So youre looking at the border pour on them and then.
EBITDA for next year.
Which is I guess, approximately the 300 million net income.
Yeah.
And the more than $8 per share.
That's huge right. So the first question is really.
How quickly can the stock chartering out.
The open capacity next year.
So, let's say by the end of this year, how much of the Oakland capacity do you expect to have covered so to speak.
At prevailing rates.
Yeah and.
If I may try to answer that is.
Usually you know the short term we come to the open position the higher the rate, we can get and the the more prompt the vessel is the higher the charter market. The charter that you can get.
Obviously this is it is the balance between risk and reward so.
We see the market and as we see the market.
We we can.
Predict for let's say.
With the safety for ourselves.
That's it for 6 months.
With quite accurately so we tend to try and fix forward anything between 3 to 6 to 9 months.
So I would say that we're looking at the other maturities of the expiration of the charters.
Hey, you could imagine that all things being equal and if the market continues to be as it is today.
Without an upward or downward to debt.
You know trend.
And we would be fixing the in advance anything between 3 months to 9 months ahead.
That would be my.
Jamie in response to your question.
I wouldn't be able to tell us more specifically because you know if we see the the market trending upwards. We go for the 3 months.
Let's say extension, if we see the market.
Flat, we'd go for the 6 months of the semi cap going down we might go for the 9 months.
Let's say like that or something to give you a bit of of failure.
Of how we view of things.
And if you if you look at pages 6 if you look at pages 6 and 7.
For the eyeballing it all of the all of the ships that come out of the neighborhood.
Between.
Turning to 'twenty, 1 'twenty 2.
The latest open paradigm I know this is amit just quarter by quarter, but the.
The the chances the latest of any existing charter runs to the end of Q2 of your next year.
Most of the chips come open end of this year or end of Q1 next year, so consistent with what George has said by year items.
And certainly by the time, we have for Q for coal.
There's a good chance that we'll have most of this tonnage wrapped up.
Yeah.
And that's great news I guess.
The message from the line of companies of the past few week as the debt.
They expect that the <unk>.
With the.
Strong at least.
At the end of the year.
Message so yes.
I mean does it has a good chance that you actually can capture a lot of the.
That's 400 million EBITDA is actually quite reach.
That's my personal opinion.
But it also means that your cash.
Hello would be quite substantial right.
Even after the Capex.
The maintenance Capex and the debt repayments.
The $400 million should translate with probably the 200 million.
Cash flow.
So there's like the.
A lot of liquidity.
I guess, you're already the answer the partner and the first question.
Around the impact.
What are you going to do with all of its the credit deal right.
I mean, you've been very active I guess, the most active buyers.
The debt.
The line of couple of minutes themselves.
<unk>.
<unk> been buying a lot of ships.
The 18 months or so.
The attractive.
Alright, that's all what do you think about this helped the clinically.
At the moment, given the quite steep appreciation of the C N N.
Ship values just over the past month month of herself.
Okay.
While it's difficult to say any more than we.
We've already said.
We still believe of their all genuine opportunities to invest in growth on the accretive basis, we said that we want to fix the existing ships.
We think that's the right thing to do.
While sort of so much uncertainty about the propulsion technologies and of course, we price you got to run this cash I mean, it does it does look pretty solid but nevertheless, we've got 2 of them. It has got sort of hit that by counting it accumulates over time, it's more of is it.
Oh $200 million, if thats the right number.
On the first of January for the cash position builds over time, and we would expect to invest.
Over time now kind of goodbye, if we're unable to invest of already implied before.
Would we would look at modifying our capital allocation for it will start kind of mindful of the regulatory changes that are coming up.
And Tony Tony Free.
The IX and all of the rest of it we're mindful of the massive uncertainties.
Around Covid still we're mindful of the huge uncertainties around the clock amortization.
And.
To ensure flexibility for us and survivability and the legacy problem free.
Over the next few years, maybe sitting on cash is not such a bad thing.
Yes.
If I may add the floods something that.
The simple in video of this.
We don't think I'm sure you guys are thinking.
What is going to look like in 2023.
'twenty to 'twenty 2 we all feel more of less happy about what is going to look into the 3 how is it kind of looked into 'twenty for.
And then the aficionados I guess for everybody scenario, 1 is gonna be equal to the day, So we're gonna be making the.
The money hand over fist.
Easy to solve this problem.
We will obviously.
Gonna have to increase our dividend.
If the market goes Sky high and continues to be Sky high when we're not going to grow the comment of how 2000 of ships.
Scenario of 2 leaves the market may do market in that case, and we keep on making money.
We're not making.
The crazy minded, we're making the day, but we're making very good money and then obviously.
The investments are more easy to make and so we can combine the 2.
While we can.
We continue investing in the and probably look at the also sharing dividends for the shareholders. Then you have the third scenario, where the market is low.
And in that scenario, what we want to be we're gonna be in the very strong position very little debt. We have very very strong debt maturities of where we're paying down debt very fast. So we're not worried about the scenario at all.
And we want to be in this scenario of cash rich.
So that we can do what we normally know well to do which is buy cheap vessels and which later become cash cows like the ships. We have today in our fleet. This is what we've been doing.
Over the past years very successfully now in all 3 scenarios mind you.
We always do sale and leaseback transactions, which are not really market related because of these deals kind of no market risk as we're buying it and assets together with the charter switch very calculated.
The transaction and we don't usually do it on on shapes of half of highest value of risk at the end of the fixed charter period. So we always have the ability to.
Flow deploy capital Accretively, regardless of whether the market is high or low on the sale and leaseback.
And we deploy a lot of money on the low market or the market. We believe is going to rise in the foreseeable future.
Yeah.
Great makes sense. Thank you very much.
Thank you. Our next question comes from Liam Burke with B Riley.
Thank you how is everybody today.
Super Duper, Hey, the world.
With this market [laughter] kind of tough to ask any questions, but George.
In the vessel classes that you see the opportunities do you have any preference within your fleets within your fleet, if any particular vessel class that you find more attractive than others now.
Well, we always felt.
In the in the past years that the sweet spot as on vessels that offer low slot costs and those ships have been the.
The post Panamaxes that was our first choice and that's where our core businesses.
We had the.
You know various arguments over the over the years and also we like of course of the.
Let's call it smaller feeder vessels.
But with special characteristics.
The good ones.
We heard arguments over the years that none of those were being built.
So maybe we were wrong and what they were not being built because they were not needed.
But we were very focused on our analysis.
And we don't go by the what if scenarios, we only focus on what we know and what we know best is container shipping.
We load ships every day, we know what the guide was that we know what the requirements are we do not rely on a lot of.
The general analysis comes in we know more than that and from the business shows that we stuck to our model, which now proved the dividends where the ships we have out of the ones that are in the highest demand and they make a killing.
So going forward, we will continue to focus on these ships as we believe that these are the shapes that will be the workhorse.
And that has proven now.
The.
Ideally, we would love to have more more more post panamaxes.
High reefer containers likely buying.
Or.
Specialized the smaller ships.
It very much depends on what the actual deal will be.
We look at the each transaction on its own merits.
<unk>.
But if you for.
If it wasn't an ideal world then you're asking me what's it for so I want to buy at the right price, obviously post panamax is of the intermediate answer.
And I know that you on your acquisition of very niche oriented in terms of how you buy are you seeing any competition for assets at all as you start evaluating your opportunities.
Well the the main competitors in this market for prompt vessels for chipset that going to be charter free the next 3 to 6 months of.
Of the liner companies.
We have the we have.
The third.
Third largest buyer after the first and second being line of companies.
In the market.
So we have seen the competition coming from land company, but Atlantic components are not competing on the sale and leaseback transactions as you can imagine.
Of course, it's not over the interest and they're not competing on the ships which have.
Carver of charter extending more than 9 months.
Because they want the ship right now to deploy and make money for that rate.
Have a different approach obviously, we make money from fixing of the ship chartering the ship for with <unk>.
That's how we managed to navigate through the competition of Atlanta companies apart from the line of companies the competition from fellow ship owners, it's not as strong as the Atlanta companies.
Got it great.
Great. Thank you George.
Our next question comes from a J means Meyer with value investor's edge.
Hi, good morning, gentlemen, congrats on an excellent quarter.
Great strength.
So lots of good questions. This morning, the labor this too much just east of question here you you dispose of the Bill of 2 where you sold it for almost $70 million I don't read too much into that but you have of sister ship. The M&A that comes up Q4 that you Havent chartered yet and you also have 2 very similar vessels also 2002 built the older ship the same size.
And then also kind of Q4 of those 3 ships potentially on the sales block or do you plan on re chartering.
Yeah.
Andy you want to explain why we chose the latter.
Sure I mean.
The short answer to your question is.
We keep everything under review all of the time.
Kind of we made the decision to monetize lateral a while ago to help.
Finance the purchase of.
Newer ships some of the tourists.
And all of the Lady.
We sold her and renewed the fleets brought down the average age.
We're not averse to very nice on the on a sort of tactical basis, but strategically we made the decision to deliver.
Deliberately exits.
Our older tonnage no no we haven't.
So it's very much of a case by case basis.
Yeah.
Yes.
Furthermore, lots of of how the charter that was coming out of prime and the market wasn't the sources.
It is now et cetera et cetera. So.
Dynamic.
The circumstances.
Yes.
And if I can add to that Jay This is Tom.
Yeah.
We wanted to to make the acquisition of the the highway for ships without issuing any additional items of equity.
So we had to book of financing mix that made sense, so I've been sort of under the SKU.
Ripping down these these numbers as of the <unk> been talking but if you look at the the Judy.
Which is the assistant to the the tool we fixed huh.
The ratio of roughly $20000 a day for.
For 2 years of let's say so back when we were looking at this transaction, we were assuming roughly a $20000 of day rates on the the tool if you remove 5% of commissions assume roughly 6000 of Opex.
That results in an annualized EBITDA of about $4.6 million.
Now if you divide the purchase price of $16.75, sorry of the sale price of 67.5 million by $4.6 million.
Price the EBITDA multiple of 3.6 times, so that's pretty much identical.
Multiple for the for high Reefer, most ships with the different speeding is at the end of said.
The the half the age of the M&A the much higher specification the money.
They have a best of future.
Because of that younger ships on the highest specification on the money and they can support as a result, higher leverage and generate higher returns than the.
On Monday, so that was really our thinking when deciding whether or not to.
Selectively sell 1 of our assets to we monetize and the investment of what we saw was even better assets generating higher returns.
I hope that's helpful.
Yes, it's very helpful. Thanks, all for the comprehensive answers I guess the reason I was look at though is obviously the values of went out and you mentioned it was $20000 of day for 2 years. When you sold the vessel, but now you can get 25 or 30000 for 3 or 4 years right adjusted that.
For now I realize you told us before but at the same time you could also sell those vessels now I would imagine for maybe $25 million or 30 million of piece. So if you sold those 3 vessels that are coming up for $75 million to $80 million and block for seeds and you re lever that you could do in other big block deal I guess, that's what I'm getting out of the thank you can you rinse wash repeat is the is a room for more.
Sales like that.
Yeah.
Part of it may selectively, but we would look at it case by case.
The last question for you.
Sure.
I have improved nicely year over year, but over the past few months, you've lagged the market a lot price NAV, it's always the debatable depending on how much of a charter discount you put in there, but have you guys somewhere between 40% $55, 60% price to NAV. So sizable sizable discount I know you care about liquidity, it's clear on slide.
In your appendix there you mentioned the liquidity has improved.
All of a Kelso large block there.
71% public float, which is great is the room for some sort of a repurchase of our a tender offer of either to take out cost take out that overhead or to simply arbitrage youre share price because there's a huge discount going on here.
Oh, yes the.
There is.
We kind of agree with you however.
I'll go back to say, what I was saying earlier, Jay about using cash for growth.
And of that is for a preference on that is what we hear from investors not all the investors, but the majority of your questions of the opinion support us continuing to grow the business for long term value creation now as I've said.
I'm not sure.
Sure of the growth opportunity is not be apparent.
Then we will revise our capital allocation.
Our strategy policy for what.
You will and we know we review it.
Comprehensively.
From time to time, and it's always open for US to review of every boat or anything we're tracking closely.
Certainly thank you gentlemen have a great day and keep up the good work.
Thank you.
Okay. Thank you and we have a question from the line of Joe Kaplan with wide for the capital.
Yes, Hi, gentlemen, <unk>.
Congratulations on the execution of.
Several accretive vessel acquisitions.
And particularly for the additional disclosures in particular, the illicit of earnings on page 8 of the presentation and the EBITDA calculator, including through 2023 on each 1 of the presentation, which shows the.
Pro forma free cash generation of the fleet based on the July 2021.
Long term 3 of 5 year charter rates I have a couple of questions and then a couple of comments the questions on the July 2021 sort of the routes misdeed.
On the right column on page 21 of the presentation.
As you are aware the heart that index is.
Up.
37%, even in the month of July alone and so do these rates reflects the beginning of July the end of July with the middle of July relative to the most recent index rates that we have.
I would say hi, Jerry since some of this is Tom.
I would say that the average.
Average rates for July.
If we were to.
Mark debt to market TV current spot rates and the understanding that you don't necessarily.
Get those.
<unk>.
But given that the.
The majority of your of your opening charters will.
The come off of charter in the fourth quarter of this year and the per script next year it.
It would seem that there is potentially even some room above.
The illustrate the burning scenario of 424 million EBITDA for 2022 on page 8 the.
They're just sort of mathematical modeling perspective.
Potentially on the horizon.
I would sorry.
I was going to say potentially Joe, but 1 thing I would caution you is and I think Ian mentioned this in the prepared remarks.
Negotiations on new charters take time.
So the.
The fact that you have of charter, but as announced today for example doesn't necessarily mean, it's going to be fixed on rates available in the market today.
Inevitably there is going to the let's call it of 4 to 6 week lag between when heads of terms of agreed.
And when the charters are actually documented in the announced so I would just encourage you to keep that in mind as well.
Sure it, particularly in a rising.
My second question in terms of the pro forma weighted average fleet age based on the new vessel acquisitions, we calculate that to be approximately 15 years on a weighted average basis.
Net is that ballpark correct.
Good question I had for us even in the whole field in mind, I mean may be mistaken.
Putting this in context, it might be quite useful to look at slide 28.
The the presentation. So if you go to the appendix in slide 28.
You can see how the book.
The fleet's age profile of the global fleet.
It's composed by size segment in there of some useful sort of reference points in there and you can see the bar and launched the midsize and smaller segments because they have been underinvested over the course of the last few years they tend to be materially older. So whenever you sort of assess the age of our fleet.
It's important that you assess it against the age of the corresponding peer group and hopefully the data on slide 28 is helpful in that regard.
Understood.
And then just a couple of comments going back to some of the earlier questions on the call regarding.
Capital allocation when when we run the.
The.
Spot charter assumptions through the EBITDA calculator on page 21 for 2022, and 2023, we get somewhere between 425 and $450 million of you.
EBITDA for 2022.
And just the pull through of those full year each other into 2023.
The mathematically get to the excess of $500 million for 2023.
Sure.
On a pro forma T E D of the company of the current stock price of $18 implies approximately $1 billion 7 that implies the effectively you would earn.
The entire.
Enterprise value the company and free cash flow over a little more than 3 years of George alluded.
The average contract for public today sort of half years, and the re chartering of new ships for 3 to 5 years out so that implies.
Effectively.
Scribing zero value to the residual life of the fleet and these are 25 year useful life of assets Longbridge life of something like you said between $13.5 for 15 years. So the implied effectively an extra 10 plus years and it is not being imputed into the the.
The valuation at all and so when we look at it just just in terms of.
Back of the envelope range of evaluations for.
The charter basis, even in extremely punitive scenario of the liquidation scenario and I'm not saying that debt.
That's anywhere.
For the company is going given the growth and earnings trajectory, but if you just assumed you just ran out of the triggers through 2022, and we're going to scrap the ships based on the scrap values of 500 plus dollars per lightweight ton that you have on page 28.
That in itself is kind.
The back at 10% gets you to the current stock price of $18 per share approximately.
And then if you will.
We're even conservatively assume the mean reversion to the 15 year average.
Charter rates for 2023, and beyond which imply the 75% discounts of the current corporate index.
And you discount that back of 10% debt gets you just sort of the mid <unk> 30 per share stock price and then as George alluded the significant incremental upside to the charters if rates stay higher for the longer.
Given the fixed operating leverage of the business.
Because the order.
What are the book defeat ratio in the mid and small price segment is still quite low and because of the impacts potentially beneficial impact of IMO 2023 going into 'twenty 3 so.
A couple of the comments from prior callers in terms of.
The capital allocation and.
Capital return to shareholders.
A couple of takeaways the first is the.
On that range of values. It does seem conservative believe at your current stock price reflects.
At least the 50% discount to what is largely contracted NAV going forward.
And so the takeaways we have for them that is 1 we would not want to see any primary equity stock issuance.
At the at the level.
To the extent that there is accretive solution to tender for the remaining.
The telco shares we would be supportive of that.
With regard to evaluating any new ship vessel purchases and the accretive impact of that.
Supportive with the caveat that that should be weighted against the returns of capital to shareholders either in the form of dividends or accretive repurchases.
In terms of the dividend payout ratio.
Which you alluded is approximately a dollar of share which is a 6% dividend yield which is high but as a payout ratio in 2022 implies only approximately 20% of.
2020, free cash flow, which is quite low and suggests substantial room for potentially increasing that dividend.
And if you had concerns about the variability of earnings even though they are largely contracted over the next few years, you could potentially target a variable deal.
Other than targeting a percentage payout of.
Free cash flow.
Or a combination of the base dividend plus the variable dividend and then the last point is just in terms of your debt stack, which is approximately $1 billion pro forma for.
The acquisitions, given the levels of free cash flow over the next couple of years, which are contracted you will have the ability to pay down a very significant portion of that debt stack very rapidly and so the ability to either refinance that debt stack at lower rates, which is accretive or potentially.
The additional flexibility in the capital structure.
Issuing in the baby bond market or a.
The cumulative preferred market, we would be supportive of that as well.
Thank you.
Yeah.
Thanks you.
And this concludes our Q&A session for today I would like to turn the call back to Ian whether for closing remarks.
Yeah.
Thank you for February. Thanks. Thank you so much for your engagement in queue and I am sort of comments.
We look forward for giving further updates on the business.
For Q3, which will be.
So the 3 month's time, thank you very much.
And with that we conclude today's conference call. Thank you for your participation and you may now disconnect.