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Safe Bulkers Inc. (NYSE:SB)

Q3 2012 Earnings Call

November 15, 2012 9:00 am ET

Executives

Polys Hajioannou – Chairman, Chief Executive Officer

Loukas Barmparis – President

Konstantinos Adamopoulos – Chief Financial Officer

Ioannis Foteinos – Chief Operating Officer

Analysts

Seth Lowry - Citi

Greg Lewis – Credit Suisse

Natasha Boyden – Global Hunter

Fotis Giannakoulis – Morgan Stanley

David Beard – Iberia

Ken Hoexter – Merrill Lynch

Operator

Good morning and thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers conference call to discuss financial results for the third quarter 2012. Today we have with us from Safe Bulkers Chairman and Chief Executive Officer, Polys Hajioannou; President, Dr. Loukas Barmparis; Chief Financial Officer, Konstantinos Adamopoulos, and Chief Operating Officer, Ioannis Foteinos. At this time, all participants are in a listen-only mode. There will be presentations followed by a question and answer session, at which time if you wish to ask a question, you will need to press star, one on your telephone keypad and wait for your name to be announced. Following this conference, if you need any further information on the conference call or on the presentation, please contact Matthew Abenante at Capital Link at 212-661-7566. I must advise you that the conference is being recorded today, Thursday, November 15, 2012.

Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27(a) of the Securities Act of 1993, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended, concerning future events, the company’s growth strategy and measures to implement such strategy, including expected vessel acquisitions and entering into further time charters. Words such as expect, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include but are not limited to changes in the demand for dry bulk vessels, competitive factors in the market in which the company operates, risks associated with operations outside the United States, and other factors listed from time to time in the company’s filings with the Securities and Exchange Commission. The company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.

And we now pass the floor to Dr. Barmparis. Please go ahead, sir.

Loukas Barmparis

Good morning. Welcome to our conference call and webcast. Let’s move on to discuss the financial results for the third quarter of 2012, which were announced yesterday after the close of the market in New York. Slide 5 will present the average 4TC about the Cape and Panamax index. Capes and Panamaxes have been trading in many cases lower than their operating expenses. The adverse market conditions and the excess supply of new big vessels have pushed vessel values to considerably lower levels during the recent past. The low asset values have triggered in many occasions the loan covenants, further reducing the liquidity of shipping companies.

On Slide 6, there is a substantial order book throughout 2013. The average age of the fleet is reduced due to numerous new building deliveries; still, 7% of the fleet is currently above 20 years old and is expected to be scrapped in the present market conditions. Further to that, even younger vessels are scrapped in the range of over 15 to 20 years old as the charter market is very low and still value remains relatively high.

Delayed deliveries and cancellations affect the actual delivery rate, as shown on Slide 7. Financing of new builds is an additional factor which contributes to cancellations or delays. Furthermore, scrapping activity will contribute in lowering the net fleet increase. During the first nine months of 2012, the scrapping activity exceeded the scrapping activity of 2011.

On Slide 8, we present the real GDP growth of BRIC countries. There are concerns about the global development. China and India are playing an important role in dry bulk trade and any adverse development in their GDP can affect the demand for transportation of dry bulk commodities. In the figure below, we see certain estimations for the demand for dry bulk commodities which, if confirmed, will provide the grounds for a new upward shipping cycle.

On Slide 10, we present our fleet and order book. Safe Bulkers owns a fleet of 24 high specification vessels with an average age of 4.36 years and a contracted order book of seven vessels from top (inaudible) shipyards in Japan and China delivered through 2015. On Slide 11, we provide certain information about Safe Bulkers. We would like to reiterate that management is fully aligned with our public shareholders.

Let’s move to Slide 12. Through these years in the shipping market, we have navigated through many shipping cycles, gaining experience and proven track record, maintaining (inaudible) approach with the results in low daily operating expenses and high utilization ratios. We expanded our business sensibly to create for our shareholders with whom we are fully aligned. In the present prolonged adverse charter market conditions, it is prudent to maintain a strong balance sheet, liquidity and comfortable debt in compliance with loan covenants while rewarding our investors with regular payments of dividends.

We have a substantial expansion through 2015 as presented on Slide 13. We invest mainly in new build shallow-drafted economical (inaudible) vessels in the low part of the shipping cycle. We manage actively our order book by selective reductions of vessels’ acquisition cost, replacement of Cape to serve our clients in delays in the deliveries in 2015, which pushes the related cash flows to that year. We have adapted our policies and acquired a second-hand Japanese Panamax at 14.2 million. This acquisition is opportunistic. The cost is less than half the price we sold a similar Panamax in 2010 at about 53 million.

Going to next Slide 14, we seek to employ our vessels in period time charters in order to have visibility of our future cash flows while maintaining certain vessels in the spot market to have flexibility that the spot market offers in low charter market periods and upside potential when the markets improve.

As presented on Slide 15, we evaluate the performance of our chartering policy against the spot market, which we outperform most of the time. Over the years, we have established long-term relationships with some of the most respected charterers in the shipping industry. Presented on 16, all of our charters are performing. We maintain our cautious approach, monitoring closely the charter market which currently is (inaudible) affecting most companies in the industry.

On Slide 17, we show daily operating expenses and management fees compared to industry average reported at about 8,000, with our lean operations contributing to Safe Bulkers’ net income. On Slide 18, we present the net debt per vessel together with the fleet expansion. We maintain low interest expense, as evidenced by our debt per margin levels. We will retain more earnings in the company to further strengthen our balance sheet and our liquidity. We intend to finance our new building programs from equity and debt while we maintain a comfortable debt to asset ratio and comply with our financial covenants.

On Slide 19, we present our liquidity and our ability to finance our capital expense requirements. As of November 9, 2012, our liquidity was 180.5 million while our capital expenditure requirements were 199.5 million. We have not included our operational cash flow, which is supported by our (inaudible). We also have the ability to raise additional indebtedness against one existing and seven unencumbered new build vessels upon their delivery, providing us further financial flexibility. The excess cash and low charter markets can be used either for debt repayments in order to deleverage our balance sheet or to be used as equity for further expansion.

On Slide 20, we present historic our quarterly earnings per share and our quarterly dividends. Our Board has declared a dividend in the amount of $0.05 per share payable on the 10th of November. At this point, we would like to point out that as presented on Slide 21, we remain committed to returning cash to our stockholders. We continue to actively manage our order book to selective reductions in new fleet acquisition costs (inaudible), existing new build deliveries and opportunistically acquiring new builds and second-hand vessels at attractive prices. We maintain our low financial costs by continuing to make (inaudible) payments to our banks in order to ensure compliance with our financial covenants. We have a lean and efficient cost structure in relation to operating expenses, management fees, and general and administrative expenses. We believe it is important to preserve liquidity in this environment as we aim to further strengthen our balance sheet and deleverage our company while maintaining the ability to make additional acquisitions in the depressed charter market timely for the next upward shipping cycle.

Our Chief Financial Officer, Konstantinos Adamopoulos will now present and detail our financial results.

Konstantinos Adamopoulos

Thank you, Loukas, and good morning to all. Slide 22 illustrates the comparison of selected three-month financial key points of our performance for the quarter ended 30 September 2012 and the respective figures of last year. For the third quarter of 2012, net revenues increased by 10.1% to $46.8 million from $42.5 million in the respective period of last year. Net income for the third quarter of 2012 was $20.7 million, an increase of 4.5% from net income of $19.8 million in the same period in 2011. Adjusted net income for the same quarter of 2012 was $22.8 million as opposed to $25.9 million during the same period in 2011. The increase in net income is mainly attributed to the following factors: net revenue of $46.8 million compared to $42.5 million; (inaudible) expenses of $8.3 million compared to $6.6 million; loss of derivatives of $2.1 million compared to $6.2 million for the same period in 2011; (inaudible) expenses of $2.3 million compared to $0.2 million; depreciation of $8.3 million compared to $5.8 million for the relevant quarters of 2012 and 2011.

EBITDA was $31.4 million for the second quarter of 2012, an increase of 18% from $26.6 million in the respective period last year. Adjusted EBITDA was $33.4 million for the third quarter of 2012, an increase of 1.8% from $32.8 million in the same period in 2011. Earnings per share and adjusted earnings per share for the third quarter of 2012 were $0.37 and $0.30 respectively calculated on the weighted average number of shares of 76.7 million compared to $0.28 and $0.37 in the third quarter of last year calculated on the weighted average number of 70.9 million shares. For a definition and reconciliation of adjusted EBITDA and adjusted net income, EPS and EBITDA, please refer to Slide 25.

Slide 23 presents a summary of our key financial figures during the third quarter of 2012 as compared to the same period in 2011. Our net revenue increased by 10.1% to $46.8 million from $42.5 million. Our adjusted net income for the third quarter of 2012 decreased by 12% to $22.8 million from $25.9 million during the same period of last year. Our adjusted EBITDA for the third quarter of 2012 increased by 1.8% to $33.4 million from $32.8 million during the same period in 2011. Adjusted EPS for the third quarter of 2012 was $0.30 compared to $0.37 in the third quarter of 2011 calculated respectively on a weighted average number of 76.7 and 70.9 million shares.

In the second table on the bottom of Slide 23, we see that total debt as of the end of September 2012 increased by 27%, amounting to $617 million compared to $484.3 million as of end of December of last year. The result of our financial performance is demonstrated by the company’s dividend policy, maintaining prudent and meaningful dividends.

Moving on to Slide 24, we present the operating highlights for the third quarter of 2012 and 2011. As of 30 September 2012, we owned and operated 23 vessels and we achieved a utilization rate of 99.2% compared to 17 vessels and a utilization rate of 99.8% during the same period of last year. The average daily time charter equivalent per vessel for the third quarter of 2012 was $22,534 compared to $28,312 for the same period of last year. For the third quarter of 2012, daily operating expenses decreased by 5.4% to $4,185 compared to $4,426 in the same period of last year.

On Slide 25, we present the reconciliation of our adjusted net income, EPS and EBITDA from net income.

Turning now to Slide 26, the company has declared for the third quarter of 2012 a cash dividend of $0.05 per common share payable on November 30, 2012 to shareholders of record at the close of trading on November 26, 2012. This is the 18th consecutive quarterly cash dividend since our company IPO more than four years ago.

Summing up our presentation is Slide 27. Although market conditions at the moment are not rosy, we stand prepared as a long-term oriented company. We have been in shipping for more than 50 years, we know the industry and we believe in this industry. We actively manage our order book and fleet. As a result of our track record and reputation in the industry, we have developed strong long-term relationships with key shipyards, charterers and banks (inaudible). We have a history and reputation of operating excellence as reflected in our utilization rates and operating expenses. We maintain low financial cost as a result of our low spreads and our prudent levels in compliance with our financial covenants. We actively manage our young shallow drafted fleet of 24 dry bulk vessels, all of which are built post-2003. Our extensive charter coverage with established performing customers supports our strong balance sheet and liquidity, providing financial flexibility. We remain committed to a prudent dividend policy to reward shareholders through payment of dividends and at the same time ensure future expansion and deleveraging.

Our contact information can be seen on Slide 28. Thank you for listening. We are now ready to accept questions.

Question and Answer Session

Operator

Thank you. [Operator instructions]

Your first question from Citi comes from Christian Wetherbee. Please ask your question, sir.

Seth Lowry – Citi

Good morning, this is Seth Lowry in for Chris. If I could touch first on the dividend cut, I guess there’s a lot of reasons why you could—you know, you reduced the dividend. But could you just give us more of a sense of the change in strategy here? Was it your observation that the market wasn’t rewarding you at the prior dividend level, or should we expect the company to get more acquisitive or de-lever more aggressively? Can you just give us more of a sense of what the driving force of the cut was?

Polys Hajioannou

Yes, good morning to you – Polys Hajioannou speaking now. The decision to cut the dividend was not taken lightly. It was taken after a long discussion with the Board during our present board meeting in Monaco where it was decided that the prevailing and persevering low charter market that we have three continuous quarters of below $10,000 on the BPI and the expectation that we will have a low 2013 spot market, coupled with the fact that this low market is heavily affecting now the value of second-hand prices and hence the value of the assets of the company, we needed to bear in mind also the fact that the company considers of utmost importance the fact to maintain its financial covenants. So considering that in the last three quarters we have seen 5-year-old Panamaxes drop by $7 million, you know, with a company like ours controlling 24 ships, this is a total cost of more than $150 million. We thought that this was the time to act and bring the dividend to a more reasonable level so that the company could at the same time deleverage to keep always in line with the lower asset prices, the low freight market was not expected to turn by anytime soon, and definitely looks like 2013 could well be another lost year, and the fact that we are not convinced at all about the world economic conditions.

So all these factors made the Board to decide that it was time to act now proactively and not to leave it in a subsequent date in 2013 to reduce the dividend.

Seth Lowry – Citi

Okay, so it’s fair to say that it was more of a preemptive cut. I mean, there wasn’t any pressure from your lenders or anything to cut the dividend due to financial covenants? Could you also remind us what’s the covenant you’re most concerned at this point and how close are we to potentially breaching that level?

Polys Hajioannou

Yes, we have not factored in any kind of this pressure. We comply fully with our covenants and have substantial room to move ahead. As you know, many of you check our quarterly results, you know that we have done prepayments regularly and we have the financial strength to do prepayments in order to comply, and we comply fully with our covenants.

Seth Lowry – Citi

Okay. And just my last question, bearing all that you’ve said, I guess I understand the need to preserve capital, but how does acquiring the 2003 Panamax during the quarter factor into this new thinking of capital preservation and deleveraging, especially just considering it’s a bit of a break from the strategy of buying a new Japanese-built vessel. Was it just simply that the price was too good?

Polys Hajioannou

Yes, this was on a completely different note. As you have seen, we have postponed the delivery of two of our new buildings by one year from 2014 to 2015, and this is giving us more room to invest on second-hand prices which have dropped faster than new building prices. We believe that new building prices have another 15% room to drop into next year. While we feel that second-hand prices have dropped much faster and also the risk associated with second-hand ships at these prices of an 8 to 10-year-old ship is much less than the new buildings if the prevailing low market is maintained longer than what we anticipate. So this second-hand vessel and maybe further additions next year could fill in the gap for the two ships we pushed back their deliveries into 2015, into the second half of 2015, and believing that should the market turn at certain point, most likely in 2014, the ship will appreciate very fast and their price could climb 50, 60% quite easily. New building prices are not going to change anytime soon, even if the freight market improves. It will take a time lag of six to nine, 12 months due to the yards’ overcapacity before they increase prices.

So this is completely different from the dividend cut or whatever else. It’s an internal change of pushing back the more expensive ships to have them available in a better market and in between fitting out the stage one second-hand ship and maybe one or two more in the next quarters.

Seth Lowry – Citi

Okay, thank you. I’ll turn it over.

Operator

Thank you, sir. Now from Credit Suisse, you have a question from the line of Greg Lewis. Please go ahead.

Greg Lewis – Credit Suisse

Yes, thank you and good afternoon. So Polys, just to follow up on the 2003 build, I guess the—how do you say that?

Polys Hajioannou

Koulitsa.

Greg Lewis – Credit Suisse

Koulitsa. So in thinking about that vessel, when we think about next year and beyond, that vessel is going to be 10 years old. It’s a little bit older than your traditional fleet. Should that—can we walk away from that acquisition thinking that you’re not necessarily a believer in the new eco-vessels, because I have to imagine that that vessel being 10 years old, it’s probably going to be less fuel efficient than the newer vessels coming out of the shipyards.

Polys Hajioannou

Yes, we still believe in the eco-vessels and we will invest in those in the future, but we don’t believe that it makes a hell of a difference in a low freight market. You know, whether you earn $8,000 or $8,500 or $9,000 with an eco-ship, it doesn’t make a great difference in the accounts. So we thought to push out these more expensive and more, let’s say, ships nearer to what we expect to be a good market and fit in between low cost, still good vessels, not older than the ones we already have in the fleet to work in the lower market. So in case we are wrong and the market improves faster, still you will have the ships. The ships will be appreciated by—hopefully as soon as the market turns and second-hand prices will pick up. But this ship is a short-term investment for the company. I don’t expect that we will keep second-hand acquisitions for more than three or four years in the fleet.

Greg Lewis – Credit Suisse

Okay, great. And then just looking at your balance sheet, it looks like you drew down debt to build your cash position. Is that a timing issue, or is there sort of a reason for doing that? Could you walk us through that?

Polys Hajioannou

Yes look, we wanted to have the ability of meeting all the covenants with all the banks. We don’t know which bank would need more cash and more securities for the covenants. As I told you, asset prices have dropped 7 million per vessel this year. Our charters are eroding so we are aware as time passes the remaining period is reducing less and less, so there will come a point that we will have to give some money back to the banks, as we have done in the third quarter. We have returned some money to the banks, so because we don’t have revolver facilities on all the loans, we have only on six or seven of them. You know, they were ships that they have the (inaudible) debt and they have the revolving facility of 20 million, for example, so we draw those facilities not to the maximum extent – we can still draw some more to have the flexibility to see which bank we have to give what to which bank, and as soon as we clear all our debt requirements, we’ll give them back. The excess money will go back into the revolvers and so we could reduce the spreads again.

So it’s very important for a company like ours to maintain through the low freight market the low cost base of our finance because I think that this is a cost base that we should keep as low as possible.

Greg Lewis – Credit Suisse

Okay. And then just shifting gears a little bit to the Cape Hull 131, it looks like if that’s not delivered by the end of the year, you can walk away from that vessel. Is that correct? Like, it’s a non-performance by the shipyard. If that indeed happens, what if your deposit and how much of that deposit will you be able to claw back from the shipyard?

Polys Hajioannou

Yes, the deposit to the shipyard is $31.8 million, so if the ship is not delivered and there is no chance that it would be delivered – it’s months behind scheduled – this deposit is covered by a refund guarantee with 5% interest rate, so it will be returned back with interest rate. We don’t expect any problem if the company decides to cancel, which the way the market prices are, this is the obvious thing to do unless, of course, they got things differently and wants to, say, very, very low price. We expect that this ship is so late that—you know, I mean, we cannot possibly keep it. That’s why the company worked quietly with the charterers. We have a very good charter on this ship. We have a friendly relationship with our charterers. We offer them a replacement vessel from better yard with better consumption and better characteristics at a lower price. We secure the vessel at a lower price than the previous one, and we gave part of that benefit also to the charterer with a small reduction of $102 million on the charter rate, so I think it’s a win-win situation.

Greg Lewis – Credit Suisse

Okay. And then just finally, there’s been a lot—clearly Safe Bulkers has a lot of above-market contracts on long-term charters. I think you mentioned a couple times on the call that all the charterers are up to date with their payments. But just in thinking about that and thinking about some of these long-term charterers, where they are versus spot rates, have there been any discussions related to maybe blending and extending farther out some of those contracts so that the counterparty could maybe receive a lower charter rate? Is that something that is being talked about? Has there been any sort of color you can provide on maybe what’s happening, or is nothing happening?

Polys Hajioannou

Okay. All the payments are up to date. We cannot know in the future—I mean, the low freight market and we know that next year will be tough, everybody says that. We do not know how much charterers can afford this low market, so we have to be prepared for all events. I’m optimistic that nothing will happen, or if something happens it will be within fair numbers and fair proposals, et cetera. So I mean, we are cautious but to this point everybody pays and we cannot complain.

Now how much a charterer can take and how much room they have and things like that, this only the future will show. But the company is well prepared and anyway the balances of our charterers are reducing, so in a way the risk is reducing as time goes by. So I mean, every month that goes by and everybody pays as per contract, that’s good news.

Greg Lewis – Credit Suisse

Okay, perfect. Thank you for the time.

Operator

Thank you, sir. Now from Global Hunter you have a question from Natasha Boyden. Please go ahead, Ms. Boyden.

Natasha Boyden – Global Hunter

Thank you, Operator. Good morning gentlemen. Just to follow up on Greg’s question about counterparties, I realize, Polys, you’ve sort of said what you wanted to say; but is there any of your counterparties at this point in time that you might or you could classify as being in some distress, or do you think they’re all holding up pretty well under this market?

Polys Hajioannou

Look, it has been widely reported, but Daichi is a company that has been supported by their major shareholders recently with capital injection, so that is no secret this. We know it, and they have the support until the end of March of 2013 by some $200 million that they were (inaudible) to them. You know, we don’t know what exactly will happen after that. We monitor all situations. We know that people pay on time, and—but after that date, nobody knows what will happen. We’re optimistic because it’s a 120 years company, always performing correctly and always being fair to their counterparties. But you know, what more can we say than what the market knows.

So I think that they should be okay in the long run, but this depends of course on what their banks and their shareholders say in the end.

Natasha Boyden – Global Hunter

Fair enough. And then just jumping back to the question of the dividend cut, is there a chance, again given this environment and given sort of Safe Bulkers’ desire to preserve capital at this point, that Safe Bulkers could cut the dividend completely?

Loukas Barmparis

Look, the decision for the dividend cut was taken based on various risk scenarios, and as you well know, our intention is when we make—to maintain a dividend policy as much as possible, if not at a certain point in time to increase it when the market conditions permit. The important thing is that all the shareholders—you know, the Hajioannou family and specifically Mr. Polys Hajioannou is a major shareholder, and I think he puts his—the company’s interest above his own. The important thing is that the company to have the liquidity and the flexibility to make all the necessary moves under any specific scenario. So right now, our Board has made the decision to do this dividend cut to $0.05 and to maintain the policy as is for, let’s say, for the future which is to pay out meaningful dividend out of free cash flows.

I think also one point that we need to make is that the company’s value is not only related to dividends. The dividend is also one portion, but the earned income per build is another. The retained earnings that are—we hold in the company are substantial. It might be that, let’s say per year, you could maybe buy one additional second-hand vessel which if sold later on could maybe have a substantial increase in benefit on sale of this asset. So I think that we should always look at the broader picture, which is the dividend from the one hand side and also the company’s strength and the money are not going away from the company. They are staying in the company for flexible development and deleveraging. This is a very important thing for all our investors to understand.

Natasha Boyden – Global Hunter

Okay, great. Thank you. Then just lastly, just jumping back to the new Capesize that you ordered and the one that you delayed, did you consider chartering in a modern Capesize to meet the charter requirements until the new order is delivered in 2014 at all?

Polys Hajioannou

Can you repeat, Natasha? I didn’t get it.

Natasha Boyden – Global Hunter

Yes, sorry. I asked if whether or not you had considered chartering in a modern Capesize to meet the charter requirements until your new order is delivered in 2014?

Polys Hajioannou

The 2014 vessel has already got the business of the one that is late, so this 2014 Capesize will perform the 10-year charter that will be around $24,300.

Loukas Barmparis

This charter will commence in delivery of a new build.

Polys Hajioannou

So the charter was supposed to commence in 2012 with the other ship that is not going to be delivered on time. It will be performed with the 2014 Cape, so that’s why I called it before a win-win situation because also the charterer gets a better Cape, a more economic vessel from a Japanese yard that will be delivered also a year later, but should be nearer to the better market and things like that. So we all benefit out of this rearrangement.

Natasha Boyden – Global Hunter

No, I understand that. I guess what I’m trying to get at is if the original Cape was due to be delivered this year in 2012, and now the new Cape isn’t going to be delivered until 2014, what are you going to do for 2013 to breech the gap?

Polys Hajioannou

Look, we are not going to put another Cape in to bridge the gap because our expectation for the Cape market is to be around $10,000 a day for next year. This is also the (inaudible) showing. Capesize having an expense of $6,500 a day, so I mean, the gap at best is minimal that will be in that year. For us, 2013 will be a low freight environment year because we are very, very concerned about world economies and the order book, which still is big enough in 2013. The order book gets better only in 2014 onwards. Hopefully economies will start recovering in 2014. Hopefully Europe solves some of the problems in 2014 onwards, because for 2013 I am very pessimistic about European economy and recession could hit even the big countries, not only the south countries but the north countries, so there wouldn’t be any possibility to employ in the spot market such a vessel at a meaningful rate.

Natasha Boyden – Global Hunter

Okay, great. Thank you very much for your time.

Operator

Thank you, ma’am. Now from Morgan Stanley, you have a question from Fotis Giannakoulis. Please ask your question, sir.

Fotis Giannakoulis – Morgan Stanley

Yes, hi gentlemen. I would like to ask regarding your charterers. You mentioned that they all perform right now and that Daichi, it’s known that they have some problems. Have you had any approach by Daichi or any other customer for potential restructuring any of your charters?

Loukas Barmparis

As of this stage, we didn’t have any approach whatsoever. The thing is that seeing that the freight market is hovering around $7,000 a day for Panamaxes and around, okay, maybe 15,000, 16,000 on the Capes, and the expectation for next year the market seems to be around $7,000 for Panamax and around $10,000 for Capes, we expect that this charterer—it’s not only them but other charterers as well, are not going to have a profitable year next year. So we don’t exclude that some of them or one of them, they will come and they will want to discuss possible cooperation and some rearrangements and some discussion.

But having said that, our risk is diminishing because these people, they have support until next March by the $200 million injection, and by that time, in March next year, our risk with them is reducing a lot. So I mean, whatever we need to do, if we need to do something, it will be within affordable levels.

But I’m more worried—I’m not worried about them. I’m more worried about the situation of world economies. We are not optimistic the way things are turning for 2013, and it’s not only Europe, it’s also the U.S. and the fiscal issue there and how much of the GDP will take off from the U.S. if they find that they have to somehow start dealing with the fiscal problem. We don’t know certainly in China what the new policymakers decide to do and how this will be implemented in the market. As I told you, Europe cannot solve its problem with the austerity—you know, the continued austerity, which is just killing the economies. I think that 2013 looks like it will be a lost year. That’s why the company wants to be cautious because as I told you before, we don’t want to touch issues like spreads and the low cost base of the company, which as you know is still at very, very low margins that existed before Lehman Brothers, you know.

Fotis Giannakoulis – Morgan Stanley

And can you give us a snapshot of your charter portfolio and particularly the exposure to Daichi, how many vessels you have with them? You said that you believe that until March, they have sufficient cash and you do not expect anything to happen; but what is your exposure today and what will be by March this exposure, how much it reduces?

Polys Hajioannou

I think this exposure as of now, mostly they were five-year period charters we have don with them, and the average remaining period as of March 2013 will be less than one year. So as you understand, the exposure is very much reduced.

Fotis Giannakoulis – Morgan Stanley

How many vessels are this?

Polys Hajioannou

We don’t declare exactly the number of the vessels, but it’s—if you go in back filings, you will find that it’s something more than five vessels.

Fotis Giannakoulis – Morgan Stanley

Okay. And just to clarify, these contracts, they are quite strict, I assume, that any change will have to be with your consent. Is that correct?

Polys Hajioannou

You know, I guess in my experience is that Japanese charterers, when they want to discuss things, they approach the customers and they try to have amicable discussions. So I don’t think that if they want us to do something that they would do it abruptly. They will do it with mutual consent, you know, the discussions, et cetera. But as I tell you that the risk is decreasing simply because the charter rates, the vast majority of those charters have been already performed.

Fotis Giannakoulis – Morgan Stanley

You mentioned about your expectation for next year of around $7,000 for Panamaxes and $10,000 for Capes. I saw that your newest acquisition find a charterer at a higher level around $9,000. Is there a reason why you managed to get a higher rate, or the market right now is at $9,000 or at $7,000?

Polys Hajioannou

Yes look, the $7,000 a day is the expectation of the FFA market, and I use this rate for what (inaudible) for Panamaxes for 2013. So this is the average of the four routes, so includes the Pacific route, the Atlantic, the trip out and the trip back. So the vessel we took delivery, the Koulitsa, was fixed with a Japanese charterer in the spot market in the Far East, which happened to be the best market at that point, so she was fixed at $9,000 per day. So the other (inaudible) Panamax is around $7,000, but in the Far East you can do around $9,000, in the Atlantic around $5,000, so that’s why she got the better rate – because she was delivered in, let’s say, the hot area of the market at that point. Of course, $9,000 not a hot market, but she was delivered in the hot area of that particular moment. But that’s a spot picture of, you know, 30, 40 days duration, so the expectation for the whole year, I don’t say the market will be 7. I don’t expect it to be that low, but I say that the numbers that people are paying in the market and based with major charterers are planning—now doing their period fixing is perceived to be around the $7,000 level next year for Panamaxes.

Fotis Giannakoulis – Morgan Stanley

Okay, thank you very much for your time.

Operator

Thank you, sir. Now from Credit Suisse, we appear to have another question from Gregory Lewis. Please ask your question. Your line is open, sir. Please go ahead.

Polys Hajioannou

Hello, Greg?

Operator

No sir, I’m going to release that line. I’m sorry. Your next question from Iberia comes from David Beard. Please ask your question, sir.

David Beard – Iberia

Hi, good morning and good evening, I guess. My question related to how much cash you would like to build in the company. When you look at the dividend saving you 30 million a year and you’re going to generate operating cash flow from your charters through ’13 and ’14, just to reconcile that with the fact that you said the ship values had dropped by 150 million, do you need to build the whole 150 million in cash back or a fraction of that? How should we think about the cash level you’re comfortable with?

Loukas Barmparis

Yes, that’s where you see that we have liquidity in the company but we have also a CAPEX and order book which we have spread it out over three years, so there is liquidity there. The other thing we have to monitor is the drop of asset prices. There are no guarantees that it will stop in this quarter. We believe that this will continue for the next two or three quarters, so we never expected five-year Panamax to be sold at 18 or $19 million in this year. It happened, and since it happened, we consider it also that it was a good entry point for our company in the second-hand market. So some of these cuts will be used for ship acquisitions, some of the cuts will be used to keep the banks happy because we want to be correct with all our counterparties, and especially the banks which we have a very, very good financing arrangements, and we will pay some dividends as we have declared to the shareholders. My family also is complaining about the reduction of the dividend, and you know, as a company we want to keep the family happy as well.

But because of the uncertainty of the economic environment, we want to be always on top of our game, and to be on top of the game, you have to have the liquidity. You do not know where exactly you will use that liquidity. I want the company and the Board wants the company to be able to move under all circumstances and to be able to do things, so to generate more opportunity and more benefit to the shareholders in the long run. You know, for one or two or three quarters, it’s not the market to generate the extra dividend in expense of the health of the company.

So because we don’t know when the economies will recover, it is no good to calculate always on the past charter rates and on previous good business. We have to see where the future is, and we have to see that the future is on low assets. These opportunities appearing first time in the last six years, seven years, low assets, and the company should be able to participate on second-hand acquisitions at the low cost vessels that could easily be sold when the market changes, could easily be sold at 50, 60% premium to what the company will be paying for these vessels.

So it’s a combination of these factors that requires us to have the liquidity because this second-hand acquisition will be done on cash basis, it will not be done on a financing basis.

David Beard – Iberia

Right, no that’s helpful. And then just when we look at your CAPEX schedule, do you have any additional flexibility to push deliveries out, or are we really talking a few months here or there but nothing significant?

Loukas Barmparis

I think what we did was significant and maybe is not rightly shown on the graph. I think it’s significant because we don’t have any new build to be delivered before the second half of 2013, and then we have two ships in 2014 and two ships in the second half of 2015. So we spread it out almost three years from now six ships—over the next three years, so I think it’s very well and finely spread out, and you will see on the Page 19 of the presentation that, let’s say, the remaining CAPEX is $200 million. Of course you know some of it is on the Cape that the company has the option to cancel it because she is delayed, but you can see that this CAPEX is evenly spread out over the next three years.

Now we don’t really have more flexibility there because the 2013 ships at a certain point early next year will start construction. The 2014 ships, before next summer they will start construction, so there’s not much more we can do there. But I think what we have done is very comfortable, and we already took our measure there because, you know—I mean, if the market picks up earlier and comes back up strongly in 2014, the easiest part is to find a shipyard and to do additional ships. The difficult part is to make the rearrangement at a later stage. Now, it was an early stage, we could do this rearrangement.

David Beard – Iberia

Okay, great. That’s helpful. Appreciate the time.

Operator

Thank you, sir. And now from Merrill Lynch, you have a question from Wilson Chen. Please ask your question.

Ken Hoexter – Merrill Lynch

Hey Polys, it’s Ken Hoexter, actually. Good evening. Just two things. I wanted to follow up on that—you mentioned the dividend cut. Was that something you did on your own, or were you mentioning that the banks had discussions with you about it and you got more comfort by cutting it, or was it your own decision?

Polys Hajioannou

Can you repeat, Ken? What did you ask?

Loukas Barmparis

It was our own decision completely. It’s our—

Polys Hajioannou

What was the question?

Konstantinos Adamopoulos

If the dividend cut was asked by banks.

Loukas Barmparis

It was on our own, and no bank, I think, expected this and no bank even dared to suggest this to us. You know, we have a truly working Board and free independent Board members, and even admit that I have a big interest to keep the dividend higher. I follow the recommendation and the proposal of the other Board members because I saw also that in uncertain times, and we see around what is happening with the other listed companies, you know, one after the other, we have to be cautious. I mean, we don’t want our company to be—if the market doesn’t recover in 2014 and it recovers in 2015, to be in any sort of difficulty. So I thought that this move is prudent.

There is the thing the market to prove us wrong and recover faster, and I’ll be the first to propose an increase of the dividend. So be rest assured about that, and I’m there to constantly remind them of that. But we want to see real change of conditions.

Polys Hajioannou

You have seen all the time all these years from Safe Bulkers is consistency, and through shipping cycles we managed to make a lot of money by—not only through operations but also by acquiring assets when the market is low and selling them when the market is high. So I think it’s a game that we know very well. We have maintained all our strategies intact, so we have not changed any strategy. We did what we always did to invest and to maintain money in the company when we did invest, and to give the dividend when the charter market is high. So I don’t think that someone should expect that when the charter market is prolonged—the charter market, let’s say, the pressure is prolonged for so long, to maintain a dividend and not to prepare the company to invest and to deleverage in order to be ready for the next upward shipping cycle.

And this decision is only ours. I mean, we are responsible for the company. We have said clearly from the beginning—I mean, (inaudible) strategies and I think that we have received a certain comfort from all our investors about that.

Ken Hoexter – Merrill Lynch

Wonderful. And then just on the cost side, are there further—given the lower rates, are there options for cutting costs further, or with the aging of your vessels and second-hand vessels, should we see internal operating costs start to continue to climb upward?

Polys Hajioannou

Yes, look, if you see Slide No. 17, over the last five years we have more or less kept the cost—you know, running cost management fee around the 5,400 level, give and take. So the average age of the fleet is 4.3 years after the second-hand acquisition, and even if we add two or three more second-hand vessels in the low part of the market next year, still the average age of the fleet will be around 5.5 years old. I think we are in a position to maintain the low cost base. Over the years, we are known, but we are the experts in running ships at low cost. I believe it’s one of the secretes of this company to keep all the costs low, including the management fees and the G&A, and the shareholders get this benefit year-in, year-out from this company. So I’m confident that we will keep a low cost operation.

Ken Hoexter – Merrill Lynch

Wonderful. Appreciate the time.

Operator

Thank you very much. I notice there are no further questions at this time. We now pass the floor back for closing remarks to Dr. Barmparis. Please go ahead, sir.

Loukas Barmparis

Thank you very much for being with us and discussing with us our financial results, and we are looking forward to seeing you on our next quarterly results. Thank you very much.

Operator

Thank you, sir, and with many thanks to all our speakers today, that does conclude our conference. Thank you for participating. You may now all disconnect. Thank you, gentlemen.

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