Q3 2021 Genco Shipping & Trading Ltd Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Genco shipping and trading Limited's third quarter 2021 earnings conference call and presentation.
We begin please note that there will be a slide presentation accompanying today's conference call that presentation can be obtained from <unk> website at www Dot Genco shipping dotcom.
To inform everyone. Today's conference is being recorded and is now being webcast at the company's web site Www Dot Genco shipping Dot Com, we will conduct a question and answer session. After the opening remarks instructions will follow at that time, a replay of the conference will be accessible any time during the next two weeks by dial.
888, Tuesday row, 31112, or 7194570820 and entering the pass code of 8667167.
At this time I will turn the conference over to the company. Please go ahead.
Good morning, before we begin our presentation I note that in this conference call, we will be making certain forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, such forward looking statements use words, such as anticipate budget estimate expect project intend plan believe and other words in terms of.
Good morning, meaning in connection with a discussion of potential future events circumstances or future operating or financial performance.
These forward looking statements are based on management's current expectations and observations for a discussion of factors that could cause results to differ. Please see the company's press release that was issued yesterday the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including without limitation. The company's annual report on Form 10-K for the year end.
At December 31, 2020, and the company's reports on Form 10-Q, and form 8-K subsequently filed with the SEC at this time I would like to introduce John Wogan, Smith, Chief Executive Officer of Genco shipping and trading.
Good morning, everyone welcome to <unk> third quarter 2021 conference call I will begin today's call by reviewing our year to date highlights providing an update on the company's comprehensive value strategy financial results for the quarter and the industry's current fundamentals before opening the call up for questions.
Actual information. Please also refer to our earnings presentation posted on our website.
Since announcing our comprehensive value strategy in April we have worked diligently to implement this strategy to drive shareholder value our approach centers around growth financial deleveraging and positioning genco to distribute compelling dividends.
During the third quarter, we continue to execute on key initiatives covering all components of our strategy and are on schedule to declare our first dividend under our new policy.
In terms of opportunistic growth during the quarter. We grew our core minor bulk fleet to 27 vessels on a pro forma basis, which effectively complements our major bulk fleet of 17 Capesize vessels.
Taking delivery of four ultra Max's in August and September we now have more than doubled the number of <unk>. We owned at this time last year strengthening our position to benefit from the favorable fundamentals in this sector.
Additionally, we expect delivery of two additional <unk> in January of next year to further augment our earnings power.
We also made significant progress proactively deleveraging repaying $144 $2 million of debt or 32% at the beginning of the year debt balance through September.
Given the strong market in the year to date and the important role deleveraging plays in our value strategy, we accelerated our debt repayments to further fortify our balance sheet as we position the company to distribute sizable dividends in diverse rate environment.
Importantly, both our debt paydowns as well as vessel acquisitions were funded without the need to raise equity capital in the public markets highlighting not only the significant operating cash flows of the company in the year to date, but also the strong financial foundation that we've built over the last several years.
Additionally, we closed on a $450 million credit facility, which includes a $300 million revolver.
This facility has improved key terms and helped to lower our cash flow breakeven rates, which opposed to Lewis will discuss in further detail later on the call.
Regarding returning capital to shareholders in our current quarterly dividend for the third quarter, we increased our payout to <unk> 15 per share our third consecutive quarterly increase we have now declared a total of a dollar and $5 <unk> per share in dividends over the last nine quarters, we expect to continue.
This upward dividend trajectory with the first dividend under our value strategy to be paid based on Q4 2021 results during Q1 2022.
As outlined in our presentation, our quarterly dividend calculation to be applied next quarter is based on operating cash flow less debt repayments Drydocking Capex and a reserve we plan to repay $59 million of debt in Q4, 2021, reducing our debt balance to 200.
And $46 million by year end, representing what would be a 45% decrease from the start of 2021, we estimate that our December 31, 2021 debt balance will be approximately 60% of the current scrap value of our fleet highlighting our strong financial standing.
We believe this low financial leverage position together with a compelling and consistent dividend will provide an attractive risk reward balance that has been absent in drybulk shipping historically. Furthermore, our reserve for the fourth quarter is expected to be $10 $75 million, which is based on $8 <unk>.
$75 million of voluntary debt repayments planned to be made in the first quarter of 2022 as well as estimated cash interest expense on our debt.
Continuing to pay down debt, despite having no mandatory debt repayments required is consistent with our medium term goal to reduce our net debt position to zero and our longer term goal of zero that we are focused on rewarding shareholders in the near term through compelling dividends, while continuing to duty to delever.
To be in a position to reward shareholders over the longer term and support sustainable dividends. We view this as prudent to further improve our financial standing over time.
Genco in an even stronger position to take advantage of attractive growth opportunities as markets develop.
The reserve will be assessed on a quarterly basis by management and the board of directors.
And will be communicated in advance our quarterly reserve as well as Optionality for the uses of the reserve are important factors of the corporate strategy as it enables genco to be flexible depending on market conditions and provide a more tailored approach to <unk> overall business model and.
In addition to the measures taken to execute our value strategy from an earnings perspective, the third quarter was our strongest in over a decade led by net income of $57 million and our time charter equivalent rate of $29287 per day <unk>.
Additionally, our third quarter, adjusted EBITDA was $79 $8 million, which to put in perspective is higher than adjusted EBITDA for all of 2020 looking ahead to the fourth quarter. Our estimates point to continued strong results with a TCE of approximately $37000 per.
Today based on fixtures to date across the fleet for 71% of our owned available days.
Consistent with our portfolio approach to fixture activity, which consists of mostly spot trading and opportunistic period time charters in forward cargo coverage. We are six seven vessels on period time charters for one to two years at rates ranging from $23375 to $32000 per day.
The best illustrate this in our earnings release, we have broken out our fourth quarter TCE estimates highlighting our spot TCE in the quarter to date, which on our Capesize and ultra Super Max Fleet is approximately $51000 and $37000 and 600, respectively.
Importantly in line with our portfolio approach. We also have approximately 20% of our Capesize days for the first quarter of 2022 fixed at $28500 per day.
While we expect traditional freight rates seasonality to materialize in the coming months, we believe where we are in a cyclical dry bulk market upturn.
It remains solid visibility, particularly on the supply side, given the historically low new building order book that will be supportive for the market over the coming years.
At this point I will now turn the call over to a wholesale portfolios, our chief financial Officer.
Thank you John.
For the third quarter of 2021, the company recorded net income of $57 1 million or $1 36, basic and $1 34 diluted earnings per share adjusted for the loss on debt extinguishment related to our financing and loss of two vessels adjusted earnings per share were $1 47.
And $1 44 diluted respectively.
During the quarter, we continued to further strengthen our balance sheet through operating cash flows by taking advantage of fair market conditions, our cash position as of September 32021 was $80 5 million following a $144 $2 million or better repayments through the first nine months together with $108 $7 million paid.
To acquire vessels over that same period.
Owing substantial deleveraging our debt outstanding of $305 million at the end of the quarter, which after considering our cash position resulted in a net debt figure of $225 million.
In August we closed our new credit facility. The new facility consists of a five year term loan together with a significant revolver that can be used for growth.
This new debt structure will provide improved capital allocation flexibility and significantly reduce our cash flow breakeven rate, which combined with the strength of our balance sheet provides a solid foundation for our value strategy and our focus on distributing sizable dividends to shareholders and diverse rate environments.
As we continue to implement our comprehensive value strategy, we plan to pay down $59 million of debt during the fourth quarter to reach its target year end balance of $246 million further strengthening our balance sheet based on our year end target that balance we would have no mandatory debt amortization payments until December 'twenty.
25.
Regardless of this favorable mandatory amortization schedule, we plan to continue to voluntarily pay down debt with our medium term objective of reducing our net debt to zero.
This new facility will also lead to a reduced cash flow breakeven rate for the company. Our fourth quarter 2021 estimated breakeven rate excluding any voluntary debt prepayments is $8190 per vessel per day. Our total ownership days for the fourth quarter are estimated to be 3896, and we anticipate <unk>.
<unk> vessels to enter dry dock, resulting in approximately $2 $9 million of costs and 60 days of estimated off hire time during the quarter.
Lastly, during the third quarter, we completed the sale of the Genco Lorraine and we have now also delivered the genco provides to her new owners in November receiving gross proceeds of $13 $25 million.
I will now turn the call over to Peter Allen, our SVP of strategy to discuss the industry fundamentals.
Thank you apostolos during the third quarter of this year freight rates continued to increase to decade, plus highs driven by augmented demand for raw materials, and improving poultry and seasonally strong iron ore volumes from Brazil, as well as the continued reduction in fleet wide productivity.
Operate rates remained on the uptrend in early October with Capesize rates exceeding $85000 per day, and supermax earnings approaching $40000 per day, Capesize and supermax rates have pulled back from these decade, plus highs to approximately 27000 230000, respectively.
It has been driven by easing of port congestion in recent weeks declining steel production in China in the beginning of the seasonal slowdown in iron ore shipments towards year end.
Despite this recent downward volatility there are still positive factors currently at play in the market, including increased demand for seaborne coal due to low inventory levels. Among several countries ahead of peak winter demand season, as well as the historically low new building order book. Furthermore, while China's government has been tightening policies throughout 2021.
The expectation that in the coming months the government may become more accommodative into 2022 with Morgan on achieving economic growth targets.
Heading into 2021, our view was for a substantial recovery in demand for Drybulk commodities and ex China markets, China had led the Drybulk recovery from Covid earlier lows in 2020, while the rest of the world gradually began to recover towards year end. However in 2021, we have seen a meaningful uplift in economic activity and drybulk demand.
China highlighted by steel production, increasing by 16% year over year.
This has been welcomed strength as Chinese output slowed from record highs seen since may.
While Chinese steel production historically peaks in the second quarter seaborne iron ore shipments the largest driver of Drybulk trade historically peaked during the second half of the year to that end, we've seen less of a correlation between China's steel output and iron ore imports this year and over the last decade.
As highlighted by freight rates, reaching such strong levels in September and October despite lower levels of Chinese steel production.
Going forward, we anticipate the usual seasonal drybulk trends materialize in the coming months highlighted by the onset of wet weather conditions in Brazil, and Australia, which will likely limit cargo availability in those regions. The timing of new building deliveries at the beginning of the year when Youre steel output restrictions in China as well as the timing of the lunar new year, which coincides with the patient.
Olympics in February despite near term volatility. We believe we are in a cyclical upturn market came into balance in 2017, but was interrupted along the way by unique events, including the Valley Dam incident in COVID-19.
Our positive go forward thesis for the Drybulk market is underpinned by the historically low order book the order book as a percentage of the fleet is six 8%, which compares to 7% of the fleet that is greater than or equal to 20 years old declining fleet renewal.
More than material net fleet growth in the coming years Encouragingly, New building vessel ordering has been relatively low this year, despite the strong market conditions.
At fleet growth year to date is approximately 3%, which combined with increased port congestion throughout the year has led to a reduction in global fleet wide productivity.
Overall, we believe these positive supply side dynamics provide a solid foundation for the dry bulk market and lead to a low threshold for demand growth to exceed in order to improve fleet wide utilization and in turn freight rates. This concludes our presentation and we would now be happy to take your questions.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question we'll.
Pause for just a moment to allow everyone the opportunity to signal for questions.
Thank you our first question will come from Randy Gibbons with Jefferies.
Howdy gentlemen, how's it going.
Good morning, Randy.
Morning, So congrats obviously on the best quarter since 2008, I'm sure I'll say it again next quarter.
But let's talk about the spot market right capesize rates very profitable levels still however, they have fallen right from over 80 85000, a day, although over a month ago to under 30000, a day currently so I guess in your view, what's driving this recent capesize volatility and what's your outlook.
Look for the coming weeks and months as we head into the seasonally soft first quarter.
As Pete.
Pete mentioned, Randy I mean, I think there are a few things going on here.
We're clearly seeing unwinding of congestion.
Imports.
Which is which is no surprise because that's also on the back of lower iron ore.
Imports, which is.
Mostly a seasonal factor, but also we have seen obviously low steel production utilization numbers in China, which I think we're all aware is related mostly to to power.
<unk>.
And in China, and really putting putting their people in front of.
Industry, which is obviously the right move by the Chinese government.
I also think there is there's a tremendous amount of volatility in the FSA market.
And is.
We can and does.
Have short term effects on the physical market I think there's been a lot more financial players that have come into the into the FSA market over the last 12 months.
And as soon as you have some downward volatility you can have some have stopped losses kick in you can add some wild violent swings, which is what I think we've seen.
And when that calms down, which it seems to be coming down.
Usually you then have a more stable physical market, so billing to outlook I actually believe that we could have another push off from.
From where we are before the end of the year, but I do think we're entering a more seasonal soft period is as we get into in the first quarter.
As I.
I'm going to be optimistic and hope that the power issues in the coal stockpiles in China are sorted out.
Mid first quarter and I believe steel production once we get past the Olympics and Chinese new year will.
We'll recover I mean, you have to keep I mean, if you put this into perspective, we're at I don't know somewhere around 70, 880% utilization in the Chinese steel market today.
<unk>.
And even if steel production remains flat for 2022 over 2021, we actually think there's going to be a couple points of growth, but let's just say it remains flat at still shows a normal and probably fairly large seasonal recovery.
Steel production in the second quarter and.
Im probably going out a little too long here, but let's not just focus on China.
On the rest of the World II, we're ceiling steel production recover.
Across the across the globe, we're seeing.
Another 4% to 5%.
And projected GDP growth for for next year, all of that bodes well for dry bulk shipping, particularly when you're talking about supply order book, maybe deliveries of around 2% next year, you just don't need that much demand growth to continue building off of what we've seen this year. So hopefully that was it.
Was a long answer, but hopefully I covered your question.
It does yes.
What I'm, saying paint in the coal trade should be continuing to be elevated here in the coming weeks and months.
All fair.
I guess more Genco specific you mentioned your total debt will be under 250 million by year end with that you wont have any <unk> due next year, but obviously you want to continue to reduce your debt levels. So I'm. Just curious how was the $8 75 million of quarterly debt determined for <unk>.
<unk> 22 and will cause this trend.
To go higher or lower as the year progresses, basically just trying to get a sense for that expected reserve amount throughout 2022.
No look it's a great question and I would say in general.
We'll be looking looking at this as.
On a quarter by quarter basis, giving advanced guidance.
On a quarterly basis, but if you take if you take the reserve.
That that we put in place for the fourth quarter and you do put a run rate on that youll get to $35 million of debt amort for 2022.
That's $35 million.
Does is that obviously, we continue to pay down debt, though we're not.
We're at a level now where were.
We're at 60% of scrap value of the fleet, but as opposed to that said, we do want to continue to delever.
And one more year of.
$30 million to $35 million of debt amort.
And then there is no amortization whatsoever on on this credit facility until the term expires towards the end of 2026. So what we've effectively done is turned a bank credit facility into a non amortizing bond with all the flexibility that you get from from a bank facility to be able to borrow and repay.
The revolver.
You don't necessarily get in the bond market and by the way price that price very well at LIBOR plus 215. So.
That's that was some of the thoughts around.
What we're targeting.
But as I said, we can tailor it on a quarter by quarter basis, but if you do the numbers you get to the run rate of $35 million and I think the biggest.
We've said this many times, we we actually really want to make sure that we can put our hand on our hard and say we have a sustainable dividend model throughout any cycle and the only way to do that is to continue to.
Continue to Delever and I do think we're in a we're just a fantastic spot right now it's we're in a better spot than the company ever has been.
And I think we've got the brightest long term future that the company ever has ever had so.
And.
We obviously want to reward shareholders in the short term, but we also want to reward the shareholders that.
Are you going to be in the company five to 10 years from now as well.
That's the purpose of the model and I think it is a great risk reward balance.
Yep.
And looking forward to the bigger dividend going forward. So thanks, so much.
Okay. Thanks, Randy.
Thank you. Our next question comes from Omar <unk> with Clarksons <unk> Securities.
Thank you Hey, guys Hi, John Good morning.
Good morning Margaret.
I wanted to follow up on Randy's question, just kind of about the market and how you are perceiving things.
Clearly there Peter had mentioned this in his remarks as well about the separation for a while they're on the steel production and what was going on in China, and then Cape rates still being very firm recently, obviously things have come off but you could make the case that the outlook remains very constructive.
How does that with your view.
How does that affect your trading business.
Do you see an opportunity in the sort of air bucket that we're experiencing bolstered.
Bolster that charter in fleet.
So.
You mean charter enter charter out Omar.
The charter rate to take advantage of our range year to date.
Yes, no fair enough.
Keep in mind.
We do not have a business model, where we charter in.
On a naked basis, if you will.
So what what with the chartering group has been doing is like.
It normally does is continues to take forward cargoes and then create arbitrage opportunities.
My chartering and so so booking obviously a higher rate on the cargo and then chartering it at a cheaper rate I think those opportunities.
Our coming to be more and more apparent so.
The answer is yes, but yes.
You will not see us go into the long term charter market and charter in ships blindly, if you will without having some sort of cargo that at least derisk.
The front end or that or the initial backhaul voyage.
Okay got it.
But I do but I do see more arbitrage opportunities as we go into it as we go into the first quarter right now.
Got it thanks, John and then wanted to ask on the on the Delaware.
Delek purchase fronts.
Seven months to established or the plan to transition the capital allocation policy and along the way as you de Levered.
Acquired ships.
We have two more deliveries coming next January.
What are your thoughts at the moment.
Position provides or you just take a step back and focus now just taken these deliveries paying down the debt and preparing the dividend.
Policy or is it still see a chance to go out and acquire ships.
I think there is I would say theres, a little bit of a pause right now value certainly have have moved up nicely, which we're obviously happy about.
From a from a fleet standpoint.
NAV standpoint.
Yes.
The transactions that we did over the last five or six months, we could we could buy vessels and put them away on two year charters to derisk, the purchase and pay off 50% on a on a.
Unlevered return on capital basis EBITDA.
50% over the two years of that charter and Thats just extremely compelling.
And we've been able to do that.
Those opportunities are not there right now, but I would also caution a lot of it just has to do with all the volatility in the SFA market, which I do believe is going to come down and I do think opportunities will present themselves again, so little bit of a pause I would say going into year end.
Paying down the debt.
That's the top priority is to pay down the $2 46.
And then we'll assess what the next move is.
At this point Magnus, but I do see us taking.
As the market allows more of the Capesize exposure.
Off the table too.
Derisk I don't see us doing the entire fleet and I also.
We're pretty happy with those the two year charters that we've done so far that have been above 30.
It's much more of an opportunistic.
Approach to it when when when we see something that makes sense. When we were able to do that is charters. Those are those are at we're done.
You know a few thousand dollars above where the where the what the FFA curve would have.
Would have shown for that period of charter. So we looked at that as as a very good trade. So there's quite a few things we look at I think in general we we do want to provide more visibility, but we also want to make sure we're doing the right transaction.
And with the volatility in the market.
Have you seen once the appetite.
From.
Your clients to go along I am sure they wanted to belong at a lower rate but.
Spot rates have come down. So I was just curious to see if it's easier to do time charters one spot rates are lower.
Then when you have this recent spike and spot rates.
I think it has more to do with the with the FSA market and again, there's been so much volatility in that right now.
We haven't seen much down over the last week, but again is that calms down, which I think were saying I believe we are seeing the beginnings of that you'll see more more 112 year deals being done to answer your question, Yes, I am I am sure that that cargo owner.
The owners.
Are looking at the same demand and supply fundamentals as we are going into the.
Going into next year and if they can take advantage of.
Of an attractive opportunity on their side and owner that wants to fix and this kind of market.
They will.
There's no doubt.
Which which I think is really important.
There is so much more liquidity in the time charter market the period market. This year as opposed to what we were seeing in 2020. So I look at that is very positive in general and I think that will continue into next year.
Alright, Thank you and just one last question before.
Here.
Everybody's focused on the iron ore market, but.
Markets in.
Surprisingly strong.
I guess.
The big focus here is China going to step up production domestically or are they going to EMCORE do you see any any signs there that actually imports are increasing.
Over the last few months and then going forward.
Hi, Magnus. Thank you for your question, Yeah, we actually have seen quite an uptick.
Recently in Chinese coal imports typically when you look at the last three years, we see quite a drop off this time of year on the coal imports side in China. There is a lot of talk about restrictions normally this time of year importing basis last year's level. This year, it's actually been the opposite we've seen quite an uplift in.
In coal imports into China, there's been low stockpiles increased demand for electricity and also just shortages within the domestic market in terms of production that had a difficult time getting cold from Mongolia due to Covid restrictions and then obviously the Australia to China hold dispute, where there's been more of a diversion of cargoes. So.
Some of his self imposed by China. Some of it is market related but we're certainly seeing an uplift of coal shipments to China over the last few months.
Okay, great. Thank you that's it from me.
Thanks Magnus.
Thank you. Our next question comes from Liam bark with the Ryan Lee.
Thank you good morning, Jog morning Apostolos.
John on the reserve when you're looking at a quarter forward presuming that buybacks and.
Special acquisitions are in that reserve mix, how much flexibility to you have when you're looking at a quarter forward.
Yeah.
Keep in mind the reserve is really set off of how.
How much that we want to repay the following quarter. So the real toggle is the is the debt repayment and then that translates into the reserve.
In terms of how those.
Proceeds are used there's a lot of flexibility.
There that's.
That's cash that will sit on the balance sheet that as you pointed out can be used for.
Acquisitions, it could be used for certainly stock buyback somewhere somewhere down the road. If we felt that was the right move and it could also be used to smooth out dividends. If we have a.
A lower quarter do too.
Volatility, but we we still believe in in the fundamentals going forward, we can smooth that quarter out with with the reserve.
So a lot of flexibility there there's there's nothing written in stone in terms of how those monies can be used by.
By the company.
Great and I think this question for Peter but.
When you're talking about presuming that China's steel production remains schlatter slightly rest of the world production is up mid single digits, which is almost half the world's steel production, how does that translate in a ton miles.
In terms of rest of the world carrying the production increase.
Yeah, I know, it's a good question and that's why we're one of the reasons why we try to highlight that and are prepared remarks was that there is so much focus on China, which deservedly. So it's a huge driver of global trade no doubt, but X China on steel side has been there's been a huge recovery. This year up 16% of the first nine months of this year when.
When we talk about 10 miles.
Just look at the.
Other larger steel producers, Japan, India Europe.
The us South Korea so.
So when we're talking about Asian producers of steel.
10 miles don't change too much because it's still going Brazil to Japan, possibly or Australia, and instead of instead of China, but the overall sense of that let's say there is a a little bit of a hiccup on the steel side in China that we've seen although you over a year were essentially flat in terms of overall production, it's more timing we're still.
Being important flows into into the other.
Larger steel producers. So that's one thing to really keep in mind.
Another another important part is that.
Chinese steel production historically peaks in the second quarter of the year during spring construction season.
Typically we do see a drop off in steel production in Q3, and Q4 not necessarily to this extent, there's other factors at play right now within China.
But.
Iron ore exports from Brazil, and Australia peak during this time of year really the sweet spot of September and October and that could really correlates with what we've seen on the capesize side. So.
It's just important to to understand the difference really between steel production eyewear importance because correlation hasn't really been there in recent years.
Alright, well. Thank you John Thank you Peter.
Thankfully.
Thank you. Our next question comes from Cracker barrel.
I T.
Yeah. Thank you and good morning, everybody John I think you've kind of touched on how you were thinking about a buyback on with Williams with liam's with some of comments for Williams question, but just kind of curious.
Nearly as the prices have gone higher than you are generating good cash flow.
And this is something that will start to talk about.
The stocks never really went up with that spike in rates, but it seems like they're pulling back with the recent more so with the pullback in rates.
As we look to kind of that softness in the market whether it's the next couple of weeks or maybe a little bit longer.
That continues to weigh on the stock buyback potentially makes sense or right now, let's get to that where we can really push the dividend going forward.
Yes, I would say the number one.
Goal right now Greg is to get at that the 246, and then use cash to take delivery of the the.
The two alter Max's in the beginning part of January.
January which I might add are very much in the money from evaluation standpoint.
I.
<unk>.
I definitely agree with you on the equity needs they did not move up.
When when Cape rates moved up into the eighties and and they seem to be.
In that little bit of a downward motion with with rates overall I think I.
I'm not sure if it's entirely rates or if it's uncertainty around evergrande or uncertainty around the power issues in China.
But again, we haven't seen they haven't seen asset values come off if anything they'd probably strengthened a little bit of a over the last last week and I and I don't I don't see them coming off to any extent because the new building prices is pretty firm and there is a there is a correlation between those two so.
I think there is a floor that set of the new building price and as as we all know theirs.
Even if you wanted to order you are talking about 2024. So there is demand for new buildings, you've got the price of steel that's remaining firm.
So to me, it's a it's a good opportunity for for people right now in terms of the discount to steal value, but I'm also hopeful as we get into next year. He.
He will become.
More comfortable or as comfortable as we are with the supply and demand dynamics.
Our value strategy.
It will take some a few quarters to season.
Hopefully that will be also very helpful to to the evaluation in the equity.
Okay, Great and then just you know what I mean, clearly everybody's taking over the how you're thinking about the formula for the dividend as I think or as we think about.
Try knocking realizing it's not a big number but is that something that is going to be is that going to be more on an annual how how should we think about trying to forecast that expense is that something that we should be thinking about on like a quarterly annual basis or lately and guidance there.
Yes, Greg this as a possible will be given guidance on a quarterly basis for for Q4, we're talking about $2.9 million and then for all of 2022, we're talking about $27 million.
That includes.
The the upgrade.
On fuel efficient two side that we're doing which is really an investment.
In any case, we will be giving it to you in a court of our quota basis. So at the same time, though we announced the that pay down in the reserve.
Rest of the costs us can be part of it.
Okay, great. Thanks, a lot you have a great day.
Thanks, Greg.
Thank you. Our next question comes from pilot Fattening Nipple capital markets.
Yeah. Good morning, John Good morning, Apostolate can you just clarify that last comment of posters.
So if you're looking at 27 million with upgrades will be upgraded to also be included in the dividend calculation.
Yes, they will so that $27 million is all inclusive.
Including eight $6 million of upgrades for 2022.
Eight six is upgrades and then can you clarify whether the 41 million of cash that you're gonna use to to.
To complete the acquisition is that can be.
Taken out of the dividend in the first quarter will that'd be part of the dividend calculation in the first quarter.
It doesn't get effect that it is completely separate in the sense that it's not operating cash flow and you did say, we will be using it using tack from the balance sheet to pay for that.
But again it of 92.
Alright.
Go ahead.
No, but again, it's not going to be excluded from the operating cash flow. When you look calculating the net catch that's available for the dividend.
It will not go into the dividend calculation, so we're paying down the debt to 246 million.
And then we will be using cash off the balance sheet in the very early part of January to take delivery of those two shifts but that catch up a balance sheet.
Is not going into the dividend formula the dividend.
On page eight is is the only number that really needs to be filled in here on page eight of the presentation.
Is is the net revenue number we've given 70% of the fixture. So the the question Mark is the 30%.
Which will be market based.
And then can you just clarify the reserve John does include your corporate purposes, and acquisitions can you just talk about how future acquisitions might be.
Handled in the context of the dividend calculation in the reserves.
Acquisitions will not go into the calculation of of the of the dividend.
Again as you as you're looking at on page eight these are the Ah buckets. If you will starting at the top with the operating cash flow and then debt repayments for the quarter. The Drydocking the reserve for the quarter and again the reserve is really a factor of of the debt repayments.
And then that will give you the the dividend per share and.
Can't stress enough the ideas to give this.
At least one quarter in advance.
Great and then when you talk about debt repayment of the run rate is $35 million a year.
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Seven years, you're gonna be debt free does that need your intermediate.
Mm term goal of being debt free or.
Would you think that the intermediate would be a little bit shorter timeframe.
If you if he is if he is a $35 million targeted run rate and I I'm using that term specifically because we will look at this on a quarter by quarter basis, but again, if you use the reserve.
You can see getting into 2022 $35 million of debt repayment.
If you do two years at 35 million I think you're pretty close to net debt zera with the reserve buildup and the and the debt amortization.
But by the end of 2023 would actually be in a net zero.
And then obviously the longer term goal is to is to get to zero overall.
Okay, and then can you just talk about your time chartered strategy on the Cape I.
I guess it in previous conversations you always viewed the or it seems like your beauty, Cape adding upside volatility an upside potential.
And I think that your your.
Saying that maybe you're going to lock in time charters to reduce the Cape volatility is can you just help me understand sort of your strategy on the Cape side.
Yeah again, it's opportunistic pile I mean, the Cape says you pointed it out are volatile, but if you can if you can put into place a good too.
Two year fixed year.
Four three or fixture for that matter basis return on capital.
We'll take advantage of those opportunities, but it's not just as simple as waking up in the morning, and saying Oh, well the market's at $30000 a day, let text.
We look at what the <unk>, a curve as indicating and can we create better value over that are we have hurdle rates in terms of what we think the rates should be at a time charter basis, and we also look at the valuation of our fleet and sort of what cash on cash return.
We were able to put in place.
So it's a combination of factors I think derisking some of the Capesize sweet from time to time makes a lot of sense because of the volatility and.
Quite frankly going into the first quarter, we've got 20% of the Capesize fleet fixed at 48500.
So obviously that is that's a very good number as we look at the paper market right now.
So it's a combination of factors overall, we we do want to take opportunities as they present themselves.
Two.
To lock away some some of the Capesize tonnage we may do it on the in the minor box, but I would say less on the monitor box side more on the on the Cape because of the inherent volatility.
Great. Thanks, So that's helpful.
Thank you Paul.
This concludes that can kind of shopping and training limited conference call. Thank you for your participation and have a nice day.
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Right.
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