Euroseas - Q2 2023

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Euroseas conference call on the second quarter 2023 financial results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer, and Mr. Tasos Aslidis, Chief Financial Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. Please be reminded that the company announced the results with a press release that has been publicly, publicly distributed. Before passing the floor to Mr. Pittas, I would like to remind everyone that in today's presentation and conference call, Euroseas will be making forward-looking statements.

These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements which are based on current management expectations to develop risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide number two of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. Now, I would like to pass the floor to Mr. Pittas. Please go ahead, sir.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Good morning, ladies and gentlemen, thank you all for joining us today for our scheduled conference call. Together with me is Tasos Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the six-month period and quarter ended June 30, 2023. Let's turn to Slide 3 of the presentation to go over our income statement highlights. We are very pleased with our results for the second quarter of 2023, which are one of the best results we have ever had since Euroseas became a containership-focused public company in 2018. For the second quarter of 2023, we reported total net revenues of $47.7 million and a net income of $28.9 million, or $4.15 per diluted share.

Adjusted net income was $29 million, or $4.17 per diluted share. Adjusted EBITDA for the quarter was $30.6 million. Please refer to the press release for a reconciliation between adjusted net loss and adjusted EBITDA. As part of the company's common stock dividend plan, our board of directors declared a quarterly dividend of $0.50 per common share for the second quarter of 2023, which will be payable on or about September 16th to the shareholders of record on September 9th, 2023. The annualized dividend yield based on current share price is about 9%. This is the sixth consecutive quarter of the company paying meaningful dividends. We remain committed to continue paying significant dividends to our shareholders.

The original share repurchase program of $20 million, approved by the board in May 2022, has been extended for another year. As of August 9, we have repurchased 396,000 of our common stock in the open market, for a total of about $8.1 million. This represents close to 6% of our total shares. Tasos will go over the financial highlights in more detail later on in the presentation. I am also pleased to announce our third annual sustainability report, which covers our 2022 environmental, social, and governance progress in achieving our sustainability goal, our commitment to responsible business practices and our social footprint. New in this year's report is our materiality matrix, which includes input from all our stakeholders.

The report is based, as usual, on the Sustainability Accounting Standards Board standards, SASB, but additional criteria have been considered, such as the Global Reporting Initiative, GRI, and the Nasdaq ESG reporting guidelines, plus the United Nations Sustainable Development. The ESG report is available under the Corporate Sustainability section of the company's website. Please turn to Slide 4, where we discuss our recent acquisitions, chartering and operational developments. As previously announced on July 6, 2023, the company took delivery of its second newbuilding vessel, motor vessel Terataki, an Eco 2,800 TEU feeder containership from the Hyundai Mipo Dockyard in South Korea. The vessel is EEDI phase 3 compliant and equipped with a Tier 3 engine and other sustainability-linked features, including installation of AMP, alternative maritime power.

The acquisition was financed with a combination of own funds and a sustainability-linked loan provided by the National Bank of Greece. Following its delivery, motor vessel Terataki commenced a 36-40 month charter with Asyad Lines at a gross rate of $48,000 per day. Continuing on the charter front, the contract for motor vessel Joanna was extended for a period of 6-8 months on a daily rate of $13,900 per day. We also reached a mutual agreement with ZIM to terminate the current charters for motor vessels Rena P and Emmanuel P, while concurrently fixing the vessels on new charters for a period of 20-24 months at $21,000 per vessel per day. These new charters are expected to contribute $2 million-$4 million in extra revenues over the same period.

During the second quarter of 2023, there were no dry docks or vessels of hire. Please turn to slide 5, where you can see our current fleet profile. Euroseas' current fleet is comprised of 19 vessels on the water, which includes 12 feeder containerships and 7 intermediate containerships, with a total carrying capacity of about 59,000 TEU and an average age of just below 16 years. Turning to Slide 6, we show our vessels under construction, which currently consist of 7, they were 9 up to very recently, of our new Eco feeder containerships. The 7 newbuildings are expected to be delivered in 2024 and have a total carrying capacity of 16,600 TEU, 4 with a carrying capacity of 2,800 TEU each and 3 with a carrying capacity of 1,800 TEU each.

After the delivery of the 7 feeder container ship new buildings in 2024, Euroseas' fleet will consist of 26 vessels and a total carrying capacity in excess of 75,000 TEU. Let's now turn to Slide 7 for a graphic view of our vessels' employment schedule. As you may see, we have a very strong charter coverage throughout the next two years, with about 93% of our fleet being fixed for 2023 and almost 64% for 2024. This very high charter coverage at quite profitable rates for the remainder of the year, but also for 2024, suggests that we should continue registering highly profitable quarters regardless of charter rate development. Let's now turn to Slide 9 to review how the 6 to 12-month time charter rates have developed over the last 10 years.

One-year time charter rates were up during the first half of the second quarter, but have declined again by about 15% compared to their highs in May, and are about 75% lower than their levels a year ago. However, they are still significantly higher than their pre-pandemic levels. As of August 4th, the 6-12-month time charter rate for a 2,500 TEU container ship stood at $14,750 per day, which is higher than the 10-year median rate of $9,250 per day, but lower than the 10-year average rate of around $18,000 per day.

Comparatively, the rate for the 4,400 TEU container ship stood at $32,000 per day, which is much higher than the ten-year median rate of $10,750 per day, but still lower than the ten-year average rate of around 25, which of course was influenced by the stratospherically high rates that we had in 2021 and 2022. Moving on to Slide 10, we go over some further market highlights. During the second quarter of 2023, one-year time charter rates, as previously said, slightly improved, but since have markedly decreased by about 15%. The average rates during the second quarter of 2023 were up by 19% compared to the previous quarter, as shown in the table.

By and large, there was a resilience in the market during the second quarter and even some upward momentum in the first half of the quarter. In view of this, rates across the size sectors have experienced some support amid an apparent uptick in liner tonnage demand, in tandem with the short-term lack of charter vessel availability. Only lately are we seeing a further correction. The average secondhand price index increased by about 1% quarter on quarter, but has come down a bit since then, in line with the charter market decline. Secondhand prices remain high, nevertheless. The newbuilding price index increased by about 3% in the second quarter compared to the previous quarter. Newbuilding prices generally remained high amid cost inflation and extended yard forward cover. The idle containership fleet as of July 17 stood at about 1.1% of the fleet.

The idle fleet peaked in February 2023 at 0.8 million TEU, has been trending downward ever since. Recycling activity edged higher during the second quarter, with 39 vessels accounting for 74,000 TEUs having been scrapped. Demolition remains fairly subdued amid some short-term improvements in trade and charter markets, which meant that some vessels circulated for recycling were instead sold for further trading. Recycling is anticipated to continue for the remainder of 2023 and 2024. Scraping prices have also incrementally softened during the second quarter to about $560 per lightweight ton, which still is about 40% above the 2019 average. Overall, the containership fleet has grown by approximately 4.2% year to date, without accounting for idle vessels reactivation. Please turn to Slide 11.

With its latest update in July 2023, the IMF's latest forecast is modestly higher than its previous higher predictions in April 2023. Still weaker by historical standards. Global growth is projected to fall from an estimated 3.5% in 2022 to 3% in both 2023 and 2024, from previous predictions of 2.8% for 2023 and 3% in 2024. Much slowdown in global activity is therefore anticipated in the second half of 2023 and first half of 2024, with a look for a gradual stabilization in the second half of 2024. The latter, supported by rate cuts in many areas around the world and the expectation that inflation will continue to fall. China's reopening appears to be uneven and volatile, even stalled, some might say.

Renewed softness in the housing market, growing concerns of local government financial risks, and an uncertain external environment for the export sector weigh on the economy's near-term growth plans. China's growth forecast of 5.2% in 2023 and 4.5% in 2024 remains unchanged, while growth in other emerging and developing countries is projected to defy the overall global economic slowdown. There is strong demand from India, which delivered the biggest upside surprise so far this year, with its high GDP growth in Q1 that far exceeded expectations. This was driven by strong government CapEx and services exports.

Despite the general global slowdown, the U.S. economy is forecast to moderately grow by 1.8%, which, compared to the previous IMF growth forecast of 1.6%, seems to suggest that the U.S. can potentially avoid recession concerns in the second half of 2023. However, the IMF seems to have lowered a little bit its growth projections for the U.S. in 2024 to just 1% from its previous 1.1% growth forecast. On the other side of the world, literally, the Russian economy is faring better than expected, with a revised estimate of 1.5% growth for 2023, up from 0.7% in the previous quarter, despite the effect of the sanctions with Western financial markets and many export markets for Russian companies and commodities closed.

According to the latest Clarksons estimates, container trade will continue to experience a due demand for the remainder of the year due to the challenging market conditions, with trade growth expected at just 1%. For 2024, demand is expected to return to a positive trade growth level of about 3.4%. Please turn to slide 12, where you can see the total fleet age profile and containership order book. The containership fleet is relatively young, with most vessels under 15 years old and only 10% of the fleet over 20 years old. The largest percentage of which lies within feeder vessels, suggesting high potential recycling for this type of ships. This is the size in which we mostly operate in. The order book as a percentage of total fleet stands at 28.3% as of August 2023.

Clarksons expects new deliveries of about 9.4% of the current fleet to be delivered within this year, 10.6% next year, and 6.4% in 2025, with the majority of the deliveries scheduled to start from the second half of 2023 through the first half of 2025. We go on to Slide 13. We also go over the fleet dates profile and order book for ships in the 1,000-3,000 TEU range, as these sizes are the backbone of our operations and the primary focus of our newbuilding program. The order book here stands at just 11% as of August 2023. According to Clarksons, new deliveries within this year are estimated at 9.4%, 5.6% in 2024, and 1.2% in 2025.

Additionally, 50% of the fleet, half the fleet, is over 15 years old. Clearly, the dynamics are very favorable for this sector of the market, as we can expect a decline of the size of the fleet in the next few years. Let's move to Slide 14, where we discuss our outlook summary for the container ship market. Daily higher rates for all size vessels have declined since last year's highs, following a pronounced correction in the second half of 2022. There are numerous signs that the previously shielded container ship charter market is now being affected by the decreasing demand for ocean trade. Additionally, there has been a noticeable accumulation of available tonnage in smaller feeder sizes, leading to a larger decline in charter rates for these vessels.

Although the container freight index initially rebounded in April 2023, recently, freight rates softened again and further declines are anticipated as record deliveries continue to be incorporated by the market participants. Presently, the index sits at a level that is 80% lower than its peak in January 2022, returning to the pre-COVID ten-year average. Container volumes fell by 2% year-on-year, but still remain at above pre-pandemic levels. For the remainder of 2023, there are still considerable challenges ahead. General downward pressure is expected to reemerge as supply growth accelerates and an increasing number of charter vessels are delivered. On the other hand, however, fleet growth could be somewhat mitigated by environmental regulations that will force some vessels to either reduce their speeds or stop trading.

It remains to be seen how economic developments will develop, especially starting from 2024. This, we believe, will essentially determine future shipping volumes and overall demand, and thus the evolution of charter rates. The energy transition continues to gain traction and will play an important role in the evolution of the vessels of the future, but also on the trading patterns within the industry. While it's evident that the shift is taking place, the long-term outlook is intricate and uncertain. The direction, speed, and metrics of the transition are yet to be fully determined. One thing, though, that is becoming obvious is that the spread between charter rates achieved by eco vessels over conventional ones is expected to further increase. The smaller sized vessels, from 1,000-6,000 TEU, are expected to recover faster from any downturn due to their healthier supply situation.

As we said, many overage ships that will be scrapped and lower order book. Without doubt, though, cascading of larger vessels to trades currently served by this size group fleet could mitigate it to an extent, any differences. Let's move to slide 15. The left chart shows the evolution of one-year time charter rate to containers with a capacity of 2,500 TEU since 2010. One-year time charter rates are far below the early 2022 peak, but are above historical levels. As previously mentioned, the current one-year time charter stands at $14,750 per day, which is a much higher and profitable level than the historical median. The same time, the right-hand chart shows the historical range for newbuilding and 10-year-old container ships with a capacity of 2,500 TEU.

As charter rates across the container market have remained relatively buoyant in the past several months, values in the secondhand market have been equally resilient and stubbornly high. We believe that we are well protected against market volatility with our high, high contracted revenue coverage throughout 2023 and 2024, at very healthy rates. Our liquidity build-up will allow us to comfortably date delivery of the remaining seven newbuilding vessels, whilst keeping leverage low at around 60%. It will also allow us to continue paying a significant dividend and executing on our stock repurchase program as our price continues to hover at levels below 50% of NAV. At the same time, we will continue to evaluate investment opportunities with low risk that will incrementally increase our earnings and growth potential.

With that, I will pass the floor to our CFO, Tasos Aslidis, to go over our financial highlights in further detail.

Anastasios Aslidis (CFO, Treasurer, and Member of the Board of Directors)

Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Over the next four slides, I will give you an overview of our financial highlights for the second quarter and first half of 2023, compare them to the same periods of last year. For that, let's turn to slide 17. For the second quarter of 2023, the company reported total net revenues of $47.7 million, representing a 1.6% decrease over total net revenues of $48.5 million during the second quarter of last year.

That decrease was the result of the lower time charter rates our vessels earned in the second quarter of 2023, as compared to the same period of last year, partly offset by the increase in the average number of vessels we owned and operated in the second quarter of this year. The company reported a net income for the period of $28.9 million, as compared to a net income of $30.7 million for the same period of 2022.

Interest and other financing costs for the second quarter of 2023 amounted to $1.2 million, which is the result of $2.4 million of interest and finance costs paid for our loans, partly offset by $1.2 million of imputed interest income, as we self-finance the construction of our new buildings before the delivery, compared to $1.1 million for the same period of last year, during which we had no imputed interest income. The increase of the interest paid for our loans is due to the increased amount of debt that we carry and the increase in the weighted average of LIBOR and SOFR rates that we paid in the current period as compared to the same period of last year.

Additionally, it should be noted that in the second quarter of 2023, we had interest income to about $265,000, compared to almost zero interest during the same period of 2022. Adjusted EBITDA for the second quarter of 2023 was $30.6 million, compared to $34.2 million achieved during the same period, the second quarter of 2022. Basic and diluted earnings per share for the second quarter of this year was $4.17, and $4.15, respectively, calculated on about 6.9 million basic and about 7 million diluted weighted average number of shares outstanding, compared to basic and diluted earnings per share of $4.26 and $4.24 for last year, respectively.

Excluding the effect on the income of the unrealized loss on derivatives, the amortization of below market time charters acquired, and the vessel depreciation on the portion of the consideration of vessels acquired with below market charters allocated to the below market charters, the adjusted earnings for the second quarter of 2023 would have been $4.19 per share basic, and $4.17 diluted, compared to adjusted earnings of $4.10, and $4.08, basic and diluted, respectively, for the same quarter of last year, making for that quarter similar adjustments. Usually, security analysts do not include the above items in their public statements of earnings per share. That's why we're making these adjustments.

Let's now look at the numbers for the corresponding six-month periods ended June 30, 2023 in this year and compare it to last year. For the first half of this year, the company reported total net revenues of $89.6 million, representing a 4.5% decrease over total net revenues of $93.9 million during the same period of 2022. The company reported a net income for the period of $57.6 million, as compared to a net income of $60.7 million for the first half of last year.

Interest and other financing costs for the first half of 2023 amounted to $2.1 million, which is the result of $4.4 million of interest and finance costs paid for our loans outstanding, offset by $2.3 million of imputed interest income, as I mentioned, as we self-finance the construction of our, our newbuildings before they deliver, compared to $2.1 million interest and financing costs paid during the same period of last year, during which, again, we did not have any imputed interest income. Again, this year, over the six-month period, we had an interest income of about $500,000, compared to almost zero interest during the same period of last year.

Adjusted EBITDA for the first half of 2023 was $56.6 million, compared to $65.3 million achieved during the first half of last year. Basic and diluted earnings per share for the first half of 2023 was $8.28, and $8.25, respectively, calculated on about 7 million weighted average number of shares outstanding. That compares to basic and diluted earnings per share of $8.40 and $8.36, respectively, for the same period of last year.

Making similar adjustments to our net income for the first half, as I described earlier, that we did for the second quarter, the adjusted earnings per share for the 6-month period ended June 30, 2023, would have been $7.29, and $7.26, basic and diluted, respectively, compared to adjusted earnings of $7.81 basic, and $7.77 diluted for the same period, the first half of 2022. Let's now move to slide 18 to review our fleet performance. We'll start our review by looking at our fleet utilization rates for the second quarters of 2023 and 2022. As usual, our fleet utilization rate is broken down into commercial and operational components.

During the second quarter of 2023, our commercial utilization rate was 100%, while our utilization rate, our operational utilization rate was 99.8%, compared to 100% commercial and 99.7% operational for the second quarter of last year. On average, 17.95 vessels were owned and operated during the second quarter of this year, earning an average time charter equivalent rate of $30,133 per day, compared to 16.46 vessels that we owned and operated in the second quarter of last year, earning on average, $33,714 per vessel per day.

Our vessel daily operating expenses, including management fees, averaged $7,114 per vessel per day for the second quarter of this year, compared to $7,080 per vessel per day during the same period of 2022. D&A expenses amounted to $715 and $615 per vessel per day, respectively, for the two periods. If we move further down on this table, we can see the cash flow breakeven rate for the second quarter of this year, which also takes into account dry docking expenses, interest costs and loan repayments.

Thus, for the second quarter of 2023, our cash flow, cash flow breakeven rate was $13,837 per vessel per day, compared to $13,562 per vessel per day during the second quarter of 2022. Finally, in the last line of the table, you can see the common dividend pay expressed in dollars per day per vessel. In the second quarter of 2023, we paid the equivalent of $2,217 per vessel per day in dividends, compared to $2,414 for the same period of last year. Let us now go over the same figures for the six-month period of 2023 and compare them to the same month, to the same period of last year.

During the first half of 2023, our commercial utilization rate was 99.1% and our operational, 98.7%, compared to 99.8 commercial and 99.6 operational for the same periods of last year. On average, we owned and operated 17.52 vessels during the first half of this year, earning an average time charter equivalent rate of $29,705 per day, while for the same period of 2022, the company owned and operated 16.23 vessels, earning an average of $33,843 per day.

Our vessel operating expenses, again including management fees, were $7,215 per vessel per day in the first half of this year, compared to $6,867 per vessel per day for the same period of last year. D&A expenses for the two periods amounted to $727 and $667, respectively. Again, looking at the bottom of this table, we can see the cash flow breakeven rate for the first half of 2023, which takes into account, as I mentioned, dry docking, interest costs and loan repayments, that averaged $13,993 per vessel per day in the first half of this year, that compares to $13,805 per vessel per day for the same period of last year.

Okay, final line, we saw the dividend paid expressed in dollars per day. During the first half of this year, that amount, amount, was $2,194 per vessel per day, and that compares to $1,207 for last year. The difference being due to the fact that we started paying dividends in the second quarter of last year. Let's move on and go to slide 19 to review our debt profile and our forward cash flow breakeven levels. Our total debt, as of June 30th, 2023, stood at about $132.8 million. At the top of the slide, you can see a snapshot of our current debt repayment profile over the next several years.

We have already made $27.15 million of loan repayments in 2023. In the remaining part of the year, we are to make another $14.8 million of loan repayments, as well as we are due to pay balloons amounting to $27 million. The latter, we are in the process of refinance. For 2024 and 2025, our loan repayments drop to about $31 million and $35 million respectively, including balloon payments, which we should be able to refinance if we choose to do so. The average margin of our current debt stands at about 2.54%. Assuming a SOFR rate of about 5.36%... Our senior cost of our senior debt amounts to about 7.9%.

That figure would drop to 6%-7.60% if we account for the portion of our debt for which the underlying SOFR rate has been capped. I should state that we plan to partly finance our remaining newbuildings with debt. Over 2024, I would expect us to assume an additional about $165 million of debt to cover about 60% of the price of the newbuilding vessels. I would like to draw your attention to the bottom of the slide now, where we present the level and components of our expected cash breakeven level for the next 12 months.

We expect to have, over the next 12 months, an EBITDA breakeven level of about $8,851 per vessel per day, and in total, including interest and loan repayments, a total cash flow breakeven level of about $14,682 per vessel per day. Let's sum up our presentation by moving to Slide 20, to present some highlights from our balance sheet. As of June 30, 2023, our assets included cash and other current assets amounting to about $51.2 million. We also, our assets included advances that we paid for our newbuilding programs, spending at about $93.8 million.

Finally, they include the book value of our vessels, which was $224.3 million, resulting in a total book value for our assets of around $394.1 million. On the liability side, our debt as of June 30, 2023, as I previously mentioned, stood at $132.8 million, representing about 33.7% of the book value of our assets. The fair value for below market charters acquired is about $27.3 million, accounting for another about 7% of our assets, and other liabilities of about $10 million account for another 2.5% of the total book value of our assets. However, it should be noted here that the charter adjusted market value of our fleet is much higher than its book value.

Based on our own analysis and using market transactions, charter adjusted value for our fleet and new building contracts, we estimate the value of our fleet, charter adjusted again, to be approximately $369.6 million, which translates to a net asset value for our company of about $372 million or about $53 per share. Recently, our shares, our shares have been trading around $21 per share, thus having a gap to our net asset value, and that gap representing a good appreciation potential for our shareholders and investors. With that, I would like to turn the floor back to Aristides to continue the call.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Thank you, Tasos. Let me open up the floor for any questions we may have.

Operator (participant)

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Once again, that's star one to ask a question. Thank you. First question is from Tate Sullivan with Maxim Group. Please proceed with your question.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

Hello, good day. How are you?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Hi, Tate.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

On slide... Good, hello. Good, on Slide 13, you showed 9%, approx, a little more than 9% fleet growth this year for TEU vessels, less than 3,000. Is that indicating what you indicate year to date, that roughly half of the vessels have entered the fleet so far this year with another half? Do you have approximate numbers of the new ships entering the fleet this year? Thank you.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Yes, half of the vessels that were supposed to, a little bit less than half of the vessels that were supposed to enter the fleet this year have actually entered already, yes.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

Then what have you observed in terms, in parts apartment? Yes, please, Tasos.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Sorry, I didn't get you.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

What have you observed in, in terms of chartering activity for those new builds entering the market in terms of securing contracts and, and the length of time securing contracts ahead of delivery?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

There, there, there were quite a few ships that were quite large that had already secured employment. Even smaller ships had already secured employment. For example, our Terataki that was delivered in July, we had secured the employment since last year. It was obviously at very high rates. A similar vessel that opened up, that was delivered to somebody else and was not chartered, was able to be fixed at around $25,000 per day for a year. The ships that are being delivered are being fixed today, but slightly at lower rates than what was achievable last year.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

Okay. I think for the previous announcement, you announced it on July 25th, for the new contracts for the Rena P and Emmanuel P, and I think you mentioned that was with ZIM. Can you, can you mention a part of how the negotiations went for that? I mean, it, it when I first read the headline, I was expecting lower contracts for, for your, for yourself, but, but it you did extend them for longer terms at higher rates than the previous contract. Can you just give more of the situation behind those contract negotiations, if you can?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Sure. I have to be very clear to you so that we don't give any wrong impression. We had no obligation to cancel the charters that we had with ZIM, and there was no such request. We were told that if, if we wanted the vessels free, we could take them and charter them elsewhere. We looked in the market, we saw that we can get something a little bit better than what and for longer than what we had in our ZIM charters. Very amicably, we agreed with ZIM that we would cancel the charter with them, and we would fix with OOCL at what we did. Everything was done very amicably and without any distress.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

Great example. Do you think that kind of example will occur in the container ship market for the rest of the year? I mean, is there continue to be counterparty risk with longer term contracts, and how do you manage that if so?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

I, I think that the main counterparties are all very credible operators of ships. They will stick to the charters and will perform. I don't expect us to see non-performances. Everything that will be done if there is some rearrangement, because some lines want to reduce to reduce, or others want to increase the number of ships under charter, everything will be done, you know, amicably and commercially and without disputes.

Tate Sullivan (Senior Research Analyst, Managing Director of Equity Research, and Lead Industrial and Maritime Analyst)

Okay. Well, well, great example on, on the, on the contract with those or contracts with OOCL. Thank you.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Thank you very much, Dave.

Operator (participant)

Our next question is coming from the line of Christopher Skae with Arctic Securities. Please proceed with your questions.

Christopher Skae (Equity Research Analyst and Member of the Shipping Research Team)

Hello, how are you?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Hi, Christopher.

Christopher Skae (Equity Research Analyst and Member of the Shipping Research Team)

Congrats on a great quarter. I was just wondering if you can share some details on how you are progressing on the 7 new builds, both in terms of employment, but also on the financing side. I mean, how much is now remaining CapEx and how much do you expect to fund through senior debt?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

On the employment side, we haven't arranged anything yet. We are in contact with various charterers, but I think it's too early to fix the ships yet. We will see closer to the delivery dates, how we fix them. On the financial side, Tasos can brief you a little bit more. We have arranged or pretty close to arranging the financing of the first ship that.

Anastasios Aslidis (CFO, Treasurer, and Member of the Board of Directors)

The first, the third ship.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Yeah, on the third ship that will be delivered in 2024. In discussions with other financiers regarding the rest. I feel very comfortable about it, but, Tasos, you can add some figures.

Anastasios Aslidis (CFO, Treasurer, and Member of the Board of Directors)

Chris, we have about $280 million of vessel payments to make. The value of the vessels that were delivered is about $280 million. We have made about $60 million advance payments against that through equity. We, we have the equity already built in our numbers that we, we'll be able to cover with our own cash flow generation. As I mentioned earlier, we expect to assume incremental debt of around $165 million, give or take, to finance the vessels. $165 million debt, about $60 million we made, and we are going to put another $60 million of equity to cover another $40 million of equity to cover the payments.

Christopher Skae (Equity Research Analyst and Member of the Shipping Research Team)

It's $165 and then remaining $40 through cash on hand?

Anastasios Aslidis (CFO, Treasurer, and Member of the Board of Directors)

Sure.

Christopher Skae (Equity Research Analyst and Member of the Shipping Research Team)

Okay, great. I mean, It is quite a comfortable cash level, and you will definitely build a lot of cash over the coming, coming quarters. You mentioned in your presentation on results that you, you, you are building a significant war chest in order to pursue investment opportunities. I just wondering, can, can you elaborate a bit on what you mean about that? Are we starting to see any opportunities out there in the market on secondhand transactions that might be, might be interesting?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Sure. Well, as, as I said in the presentation, our cash flow build up is sufficient to easily finance the new building program that we have. It is sufficient for us to continue paying dividends in the foreseeable future that are, that are significant, that are, you know, close to the 10% yield. Of course, to continue acting on our repur- stock repurchase plan. In addition to all that, the liquidity we are building, and we currently have, I think, about $50 million, is sufficient to also look at the potentially new, potential new acquisitions. At this stage, we would not buy something speculatively.

We would only invest if we can find a deal that is backed by a charter that will bring the residual value of the vessel at the end of the charter at extremely low levels. That is the strategy, and we feel comfortable about its implementation.

Christopher Skae (Equity Research Analyst and Member of the Shipping Research Team)

Great. Great. Thank you. Thank you. That's it for me.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Thanks, Chris. Thank you.

Operator (participant)

The next question is from Climent Molins with Value Investor's Edge. Please proceed with your questions.

Climent Molins (Head of Shipping Research, Senior Equity Analyst, and Member of the Global Research Team)

Good morning. Thank you for taking my questions. I wanted to start by asking about the Aegean Express. Could you provide an update on how the arbitration against the previous charter is going?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Yes. As, as we said in, in our previous call, in the previous quarter, we have assumed that we will recover nothing from that arbitration. Unfortunately, it probably seems that we are moving along that line right now. The charterer has disappeared. We think he has, is winding down the business. We can't find him. There is, we can't locate the assets, but we still, we continue trying to do that. Hopefully we will find something, but, as we said, our projections suggest that this will be a loss that we will have, that we have incurred already. If, if there is any surprise, it will be, it can only be a positive surprise, because we've planned for the worst.

Climent Molins (Head of Shipping Research, Senior Equity Analyst, and Member of the Global Research Team)

Thank you. You've pursued a very balanced approach to capital allocation by ordering new builds, distributing dividends, and repurchasing shares. Despite that, the market is still valuing the company at a significant discount to NAV. Share repurchases continue to make a lot of sense. Are tender offers something the board has or would consider, or do you prefer to stick with share repurchasing in the open market?

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

I, I think that share repurchasing in the open market is, is the way that we want to continue. It is, you know, a tender offer usually has to be made at a higher price, and we think that, you know, by implementing gradually the, the strategy with the stock repurchases, we are doing it more economically.

Climent Molins (Head of Shipping Research, Senior Equity Analyst, and Member of the Global Research Team)

Makes sense. That's all for me. Thank you for taking my questions, and congratulations for the quarter.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Thank you very much. Bye.

Operator (participant)

Thank you. At this time, we've reached the end of our question and answer session. I'll turn the call over to Aristides Pittas for closing remarks.

Aristides Pittas (Chairman of the Board of Directors, CEO and President)

Thank you all for participating in this call. We will be back with you in three months' time, hopefully with quite good results. Good results again. Thanks, everybody.

Operator (participant)

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.