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Seaspan Corporation (NYSE:SSW)

Investor and Analyst Conference Call

June 6, 2013 12:15 pm ET

Executives

Kyle R. Washington – Co-Chairman and Co-Founder

Gerry Wang – Chief Executive Officer, Co-Chairman and Co-Founder

Sai W. Chu – Chief Financial Officer

Analysts

Ken Scott Hoexter – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Brandon Oglenski – Barclays Capital

Kyle R. Washington

All right, well welcome to the spectacular room here at the Plaza. We appreciate you all coming out of this gorgeous New York day to hear our update on Seaspan Corp. We would like to just get here more. We haven’t been here for – we didn’t get here last year, but we were certainly busy. And I’d like to introduce the two presenters, first of all I’m Kyle Washington, Chairman of Seaspan Corp. Presenting the story will be my great CEO Gerry Wang and Sai Chu our long time CFO.

So after the presentation, continue eating and you can field any questions. We do have a few directors sitting amongst you, and some other Seaspan staffs. So we’ll field some questions after the presentation. Enjoy the presentation.

Unidentified Company Representative

Thanks, Kyle. Ladies and gentlemen, while I walked into this room I was thinking it’s got to be a dancing hall in the early days. You must see the musical instruments here, the bands and the people dancing on the floor. So it’s a great opportunity to have you here and most of you have met with me, have seen me and I have met with you and it’s been long time for us to host this event and we are very excited.

So I remember two years ago we had the investor day event held at the PS Hotel and today we’re doing this thing. Together with me is my team CFO, Mr. Chu and two, three of our Board members are also here and we have also some very close advisors in our strategic team also being with us. So we have pretty much a full team here. We are very excited to be here in the room to connect with you, to share the excitement of what all we do and to tell you about the story, whether we’ve been developing. And one think I just want you to catch your attention to be honest is, I have said this thing several times, I have never been more excited than what it is today. That is really the sentiment I want to share with you. Today is a great time for our franchise, for our history.

We are very well positioned as a franchise in our sector, as the leader in the sector. We’ve been very patient. We’ve been very careful in that position ourselves for where we are today. The industry is what it is and I am pretty sure you guys are familiar with us and given our franchise, given where we are in terms of positioning to capitalize on the opportunities and I’m just very excited and our partner is excited, including the shareholder, Washington families are really excited as well. So we want to share the excitement with you and let me just go though some of the things that you see on the screen.

Seaspan for some of you that are not familiar with our franchise, we’re a leasing company like (inaudible) corporation. They deal with aircraft. We deal with container ships. So essentially we design, build, own and manage those container ships under long-term leases to the operators. People that move container boxes from point A to point B to move things from China to say Walmart, you are familiar with.

So we are essentially a leasing company (inaudible). We own a branch of very modern large container ships, we specialize in big ones. The average size of fleet is about 7000 TEUs which is pretty much to the size of a middle class aircraft carrier. Just give you guys a little perspective in terms of the size and the poise we deal with – ships we deal with.

The business was born during Asia’s financial crisis that was about 15 years ago. At that point in time our Chairman Kyle Washington together with me and Graham Porter with the support of the Washington family, we started the business with the first ship and chartered the channel shipping. Then we grew the business to 23 ships in the year of 2005, then we went public that year. We have the largest shipping IPO, a record, that record is still yet to be broken. I will talk little bit more later on. I just want to make sure if you’ve understand. As a leasing company, what is most important to us is the stability and sustainability of our cash flows.

With long-term contract, we have very stable cash flows. Then obviously we have dividend payout and Sai, our CFO would talk about the financial aspects of the business. He will talk about the stability and sustainability of our dividend, which is important to us to connect with our investors.

The other thing I want to talk about is Seaspan, as a franchise, we have a strong balance sheet. And if you look at where we were today versus 2009 when we were going through the financial crises, we’ve done a lot of things to make sure our balance sheet is as strong as ever. So we are very well capitalized and we are very happy to be where we are today in terms of capital structure and the balance sheet. Then obviously if you know where the industry is, what is the trend, what is going in the industry? I would use a very simple language. The industry is all about simply efficiency. It’s all about modernization, but it’s all about fuel efficient designs.

We started that trend by introducing, we call that SAVER design SAVER, Seaspan Action on Vessel Energy Reduction, that has unfortunately or fortunately has become unstoppable trend and that was what caused the change in terms of the container ships that are been used in carrying goods. Today I don’t think there is any Latin major who can say, I don’t need modern ships, everybody has to modernize their fleet and we are very excited to work with them and yet I was talking to one of the reporters. I was saying about Seaspan, what is the identity, what is your market share, all those things and I said to the reporter, you know what?

Let me give you one thing, in our space, in the container sector, when I deal with all the CEOs of the leading container operators, yeah I will say, none of the line operators are big ones. When they start thinking about outsourcing, tends on to use a bigger, it will be unimaginable for them not to talk to Seaspan first. So that’s where we are today. Okay. They have to speak to us, that’s just the power we have, that’s just the size we have, that’s the identity of Seaspan. So we are de facto (inaudible) just to make it very clear to you here.

Seaspan is not just one of the container ship owner, container leasing companies, we are the leading one, we’re the largest, we’re the ones everybody has to speak to. That makes me very happy. Then if you look at 10 years, 15 years ago when we were born, we were nothing, okay. We were new (inaudible) and people would say, what are those boys doing from Vancouver? I’ll pass from all the (inaudible) and the skiing all the things there. But you look at the trend that we set, the design of the ship, you look at the popular designs we have, TEU 8000, TEU 9000, TEU 13,000 TEU 14, 000 all those designs have come from us, and we have set the tone, all those designs can become the most popular design.

So we’re not just financial leasing company, but we have the technical operational know-how. I have a big team involved in designs, in operating those ships. We have about 3,000 crew members. We have about 400 (inaudible), so we are full scale turnkey operator. We provide lease to the operators. So that’s just identity of who we are, I just want to share that with you.

Talking about the development again; we were talking about three phases. Phase I, as I mentioned, there was a financial crisis; Asia financial crisis. We are trying to come up with a model that would sort of mimic aircraft living. That was part of my business school studies. There was aircraft leasing, why not ship leasing? That’s how it was born. So we are able to connect that with the real business at that point of time. We study the channel shipping. They wanted to grow the business, but didn’t have marketplace in that point of time. We became partners that we introduce the long-term leases versus their own self owning mechanism that was – that point of time of the prevailing ship owning situation.

Then we went public 2005, then we did a number of years. We added customers then when we went public we had only two customers. Then we added COSCO, we added K-Line and other customers because (inaudible) here. Then third phase is really post financial crisis. So we’ve not seen (inaudible) We’ve added Han Jin Shipping. We added MOL, added Ya Ming. But one thing I want to tell you probably you wouldn’t be able to see here. Seaspan, we’re the largest ship supply to China. We are the largest ship supply – external ship supply to Japan.

We are also one of the largest external ship supply to Taiwan. We actually operate the flagships for China, COSCOl for Taiwan and also for Japan as external operator. They just indicate who we are. We are not just financial leasing company but we are also providing the technical know-how, we are providing operational leases. And that’s our identity. We operate the world’s largest and the most sophisticated container ships, and we work with our partners or charters hand in hand to operate those ships most efficiently just that what we’re today. And that picture gives you a growth trajectory of 30% growth on annual basis and I’d say we’ll get into that in more detail.

Our business has been growing very fast and steadily and throughout 2008, 2009, we had no charter re-negotiations. I have not missed one charter hires since 2001 and have to expensive people when the story, when the situation is too good to mature over last 31 quarters, every quarter I’d say I have no contract before, I have no contract re-negotiated sometimes hard for people to believe me, but the same time, I cannot fabricate a fourth one to tell people there is a bad one, but we have not any bad one, just the bottom line why because that where do you think the little differently. When we look at a project, we look at four things I just want to share with you.

Number one, we look at the creative witness of the counter-party of the charterer, okay. We look at their ability to pay during good times and most importantly during bad times. And that’s very important. We’re not investing in the equity. We’re making money or not frankly speaking doesn’t really bother okay whether or not they can pay (inaudible) each time, is more important to me.

So that’s why we love to work with the charteres that are government back that are well institutionalized, that are long-term operators with maturity with the reputation that’s where we focused on. So our number one criterion is the creative witness of our counter-party, okay, I just want to share with you. That was one of the reasons why we did not have trouble going 2008, 2009, okay. The second thing we’re looking at is we’re not just checking market, we want to dictate what the industry should think by going forward and designing the ships that are fuel efficient, that are suitable for the operators. And so we would want to make sure the ships we invest in are the ships we want. Sometimes I’d tell some of you about the south western model, which is, we want design build ship that are homogeneous i.e. we have the same engine maybe six cylinders versus eight cylinder, same generators, the same look, all those things.

So our operational expenses would be minimized, but crew members can walk from one ship to another. So that’s the concept that we have adopted and it’s been tremendous. Our operating costs (inaudible) that’s part of the reason why we design build, which I feel – to take the homogenous approach. So that’s the second part of business. The type of ships, because we are leasing business only in the right asset, it’s far more important than just owning asset, okay. That’s something we want to get fully involved in the design, in picking the right designs and work with our charterers for the type of ships that we want to take home.

The third thing is really retain. Obviously, we are in the business of being different. I mean, we think it’s very important. But at the same time we got to take some account (inaudible) and our customers and for better credit probably we’re priced a little bit more aggressively and therefore live in less credit, probably we want to sell it with more pricing. So it’s important we want to generate good return. We are not providing free ships three services to the industry.

So the fourth part of it is really the bank ability. When we look at a project, we have to look at whether this project can be bankable. In today’s situation, what is the most important thing is to take advantage of export financing, okay. So you want to build ships in a country where they are very hungry for business. There is government support, then they’ll give you very, very good export financing. And we’ve done CDOs as we can see from here and we’ve taken advantage of very good export financing for us. For us Seaspan, our CFO Ms. Chu will talk about, we have no problem with acceptability to capital in terms of the bank financing. We are very relaxed and we have great support from export agencies and also some of the banks that have representatives here in this room. So we’re enjoying the reputation and also acceptability to capital that enables us to do things that we want to do to strike when needed.

And let me just share with you one real story that we went through last December. When we have the to negotiate with the Yang Ming lines, which is the national carrier of Taiwan for five (inaudible) to use. In the big meeting room, there were 20-30 exactly from Yang Ming. The first question the CEO asked me, so do you understand our requirement the deal has to be without subject to financing. In other words, there has to be no such a test. And my response was I’d say I loved it to be honest, I never thought about it. He said then why are you here, you didn’t know there is no requirements for financing assets to be honest, the reason why I thought about is not because I don’t know about it, it’s really – if you look our balance sheet, there are so much cash sitting there.

So do you think I need to worry about this, at this point of time, cash to pay for all those ships right away, so why do I have to worry about debt financial at this point of time. So funny part of that that was not that tone, by other operators, other owners, our competitors, they walked in and say, Gerry, can you help me arrange financing, can you do this our deal would be such is the financial abroad, we want to say, there is no such a think we don’t need such a financing as prerequisite of the condition, that’s really distinguish ourselves from others, that’s the strength we have.

Then Sai will talk about our partnership with Carlyle that enable us to do deals that we won’t be able to do i.e. scale that’s a very, very important. When you walk-in, we negotiate you can say for containerships $1.2 billion we can do it without subject to finances because we have backing of own balance sheet and also our partner in terms of equity investor like Carlyle.

So that was the reason we did the deal with Carlyle and that we fully happy with it, we are really reaching the benefits of that partnership in terms of the scale whether we can do business with and also the synergies and receipts we get from managing the ships that are owned by the Carlyle venture commercially and operationally.

So we’re very happy with venture and unfortunately recently we’re seeing some actually use that copycat but whether the way it is people are after two years others are doing the same thing pretty good we were just a little bit ahead of the curve, and we’re happy.

So I’ve been talking a lot about who we are? The developments and hopefully you understand a little bit about that who we are today and the changes and the other thing I wanted to talk about some people get confused about Seaspan’s capacity. When I talk to the reporters for interviews on [CNBC] and Globe Wire because always call ourselves, shifters and carriers that kind of things, okay. I just want to make sure people understand that we are leasing company whether that so, we provide assets. We provide ships. We are pursuing wet leases. Our ships carry our own crew members. We manage the shifts from the fuel cost, the cargo booking, (inaudible), strikes and all of the things that maybe okay.

We have no exposure to the bank escalation, okay, we get paid when our ships functioning, our crew members are performing that’s all. So that’s why I don’t really worry about the strikes and cargo volume whether the 70% onboard or empty ships or 100%, I don’t really care. They don’t pay me more, they don’t pay me less. Our container rates are fixed, okay, on daily basis. So our containers are fixed. The time charter, we are not subject to, our charter is the commercial operation, cargo booking and the fair rates and the fuel cost all those things. I just want to make sure.

But at the same time, I want to highlight the nature of our business container shipping. We’re part of it. As a part of the infrastructure, sometimes they use the expression that we’re like ocean highways, ocean railways, connecting the producers with the consumers. One day, I used the expression. I said without containerization, without container shipping, there is no globalization. There is no Walmart being what they are today, okay, and that’s just what it is. Because the container shipping is responsible for 99% of the consumable good including the iPads, iPhones, okay. And that to some extent enable China become, the global manufacturing center and to enable the United States we are focused on providing services to be in the 70% to 80% as part of the U.S. GDP.

Okay, so that’s the importance of container shipping, as the global infrastructure is the link connecting the manufacturers with the consumers. I just want to make sure people understand that part of it, we happened to be on the asset side of it. Okay, we provide asset ship that enable the transportation of consumable good from manufactures to the consumers, to goods to Walmart sometimes speaks for granted, but always remember it’s probably the sweater you were came from one of my ships, and that’s just something to keep in mind and that’s the importance of container shipping, I just want to make sure people understand.

Okay, So, I have talked a lot about who we are, our little history, and what we do and later on there will be Q&A, then I’ll talk a little bit more specifically about the questions you may have.

Now I want to hand it over to our CFO Mr. Chu. He will talk about some specific decisions on the financial side. And also, part of for the operational side. Sai?

Sai W. Chu

Thanks Gerry. Good afternoon, everyone, my name is Sai Chu. Gerry has gone through the history of the Company through years and phases. I’ve been with the Company since 2004 pre-IPO and when I joined we had five ships in the water and we had 18 on orders, we said, we got a lot of growth. Obviously we’ve outperformed over the period, for those that are new to the story, do you want us to take a step back and explain how we develop the Company, how we’ve executed, and how we’re positioning the company.

Again, welcome to new investors, our current investors, our bankers, and obviously sell-side analysts. When we talk about Seaspan, we really try to introduce the story that we’re not a [typical serving] company. We run this company as a specialty finance company. We’ll talk about the strategies that we’ve executed, and we really want people think of us very similar to aircraft lessors, expect this is a much better industry in terms of credit profile and really the strength of the charter party of the revenue contract.

I’ll talk about really our assets being our containerships. Why we collect those ship, that’s really the generator of our cash. Secondly, we’ll talk about our customers. They pay us and why do we choose those customers. Thirdly, ends up being in cash flow. That’s our job as to really drive out our long-term sustainable high-quality cash flow, and we’ll talk about our capital structure and how we execute and why we think of our capital structure differently. Then I’ll talk about what we do with the cash, and how we provide value to our investors and I’ll update you as well on our joint venture with Carlyle being GCI.

And so Gerry will get back and talk about the market, the industry, some of the dynamics that we are seeing, why this is a tremendous opportunity for Seaspan and why we position the company to be where we are today. And it’s also just a good opportunity to update everyone where the company has been in the last two years.

This chart shows you the development of our fleet from IPO of 10 ships to a fleet of 79 at 2015. From the period from IPO to 2012, we run in a compounded growth rate of 30%. At the phenomenal growth rates, going forward in our third phase, we’re taking a much more balanced and controlled growth rate, because you simply can’t go at a 30% compounded growth rate. Our goal really is to grow at a growth rate in excess of the inventory, which is about 7% to 8% to our targeted growth rate going forward would be probably 10% to 20%.

Couple of things are really important about this slide is not just the phenomenal growth that’s more importantly the utilization rates, because you can see on the bottom, that’s our revenue page break. So from day one, we didn’t pay 99.1% of the time. It’s an exceptional record back into the drydocking that happens every five years. So why that such a great paid rate? We take a long-term approach in designing and building our assets. The vast majority of the 79 ships that’s in our fleet did own from day one and designed it own with the long-term view.

If you look also at the average size of our fleet, it’s over 6000 TEU compared to the fleet average globally of less than half. Our fleet is also incredibly young as six years old. You can take out the four older ships we’ve already been told that we effectively (inaudible) less than five years.

So our goal is always on the high quality of newest and technologically advanced assets. Also, what’s notable is, for the last couple of years, we’ve focused on ships at our 8500 TEU and larger and why is that? There is a great opportunity that by distressed assets in this industry, that’s an argument for a long time.

We’ll talk about why Carlyle co-invested with us. The focus is really on the new assets, very similar to the airline industry. We are seeing a lot of orders for the new planes and more fuel efficient assets and that’s what’s happening in our industry as well.

So our customers being the liners, they want to initiate, because they really can’t control the market, but what they have to control is the asset class in lowering their cost base in addition to loadability of that asset. Here is the expert on ship though. That’s a bit of the background of why we target specific assets. Servicing at affordable is, it is in a very diversified piece although again it focuses with larger ships, okay. Next slide, this is really about our customer portfolio. And it’s important, because they are the guys who pay it. I’ve put why those are cash flow.

On average, we’ve got long-term contract with each of these customers. It’s also what we call risk adjusted our focus credit risk. We are primarily in Asia and there is a reason for that. Over 90% of our revenues are from Asia. They are the best credit in this industry. We target the largest liners in the top 20. But we are going to notice about each of these customers are – they are crucial to global trade for their respective country.

And we really view it from a sovereign risk point of view. Many of them are – maybe not an investment grade, but they really do demonstrate the credit strengths of each country and what we’ve seen is that if there is an issue the respective countries do step in. So again we never experienced any issues with any of our customers who were very happy with this customer list. And I can tell you our commercial bank will be very happy, because these customers facilitate exceptional financing for us that other companies that we can achieve.

From my field we started out with two customers. We diversified it recently as Gerry mentioned. We’ve added Yang Ming, which is really a national carrier for Taiwan. It’s also added a clean carrier with Hanjin and we’ve done some more business with MOL.

Okay, this slide is difficult to see, but it really demonstrates how we think of our business in terms of risk and portfolio management. We’re probably the first guy to say, we’re not going to be smart enough to tell you when the cycle happens. What we are trying to do is manage risk care and diversifying the portfolio assuring that we don’t have concentration in any particular year, because shipping and containership, they go through a cycle. So on the upside you might necessarily see some good profits, but on the downside you are protecting yourself and your shareholders. Okay, so we have today fixed shifts that are up to reach out in this year or next year that really is not a significant portion of our revenue, so not a lot of exposure.

The other thing that’s notable about this chart is the fact that on average we have about six years for the length of our charter going forward for the new ships it’s generally about 10 to 12 years, so again a very high quality predictable cash flow.

To fourth slide what is that I will translate into, we are investing these high quality assets we get the business with the best customers translates into cash flow. So this demonstrates the buildup in the cash flows of the business in 2009 to 2013. It’s notable that two years ago at 2011, we still had 40% of our fleet to deliver and we delivered it. You can see that our revenue top line is about $700 million, EBITDA is about $500 million, distributable cash is about $300 million, the dividends that we pay is also noted here. So then our target and our goal is to deliver a high quality long-term stable cash flow.

Okay, the fourth slide, the capital structure. This is something that our team has spent a tremendous amount of time line and we are very focused on it. We recognize this from a very beginning. If you look at the history of the company, back in 1999 when Gerry placed some orders with downtime. And then in 2001, Gerry has a largest newbuild order book in the world with 44 ships worth $2.5 billion. but being a new upstart company, despite the backing from the Washington Family and having this, China Shipping. at that point, China was not a great risk and essentially could not finance all those ships. So, there was an observation that we really needed to diversify our sources of the capital and that’s really affected our thinking from day one.

As we went through and went public that opened new access to tap into us, and going through that financial crisis is also affected our thinking about how we execute on our capital structure. So there has been a very clear strategy and a very thorough thought process about the capital structure, which we believe it is different approach to most of our peers.

Secondly, we talked about the diversification. we’ve diversified our balance sheet significantly and our access to capital.

And the third aspect is really about the cost of capital for and managing it. At the end of the day, our job is really to deliver on the business and build relationships with investors and capital providers, being obviously the banks and investors. We tend to be firstly reverse in the capital markets but innovates and going to the new interim.

And for us, we really want people that invest money with us to make money. We want to start out and be first movers and earn the credibility who watch a fair cost of capital recognizing this model that was executing on, the strength of the assets. the credit risk profile of our customers, and how the company is performed, throughout our history.

And why did does that matter? so when Gerry is out negotiating to new ship. the thought core of China Shipping at billions of dollars, we need to understand our cost of capital, at the end of the day, it has to be competitive. We believe that we deserve premium relative to our competition, because how we executed. So that we can ultimately deliver returns, economic returns to our common shareholders, which we’ve achieved, okay. The evolution of the capital structure over the last several years from high field we had a very simple straight forward capital structure of common equity and a $1 billion revolver with group of 17 year (inaudible).

Every progress you can see how it’s expanded today the capital structure is $7 billion. We develop new relationships in Asia, today one of our largest lenders and we started with the first deal, locally small today provides close to $900 million of debt capital to a very favorable terms because of the cost per risk.

But we ventured into new and different products throughout the course of our history and also notable that we opened up a new markets during the first non-financial preferred issued in 2011. And just reasonably we also did the perpetual preferred in December. I think that you can now we have done four different preferred series including that a transaction with the Washington, so I think that it’s incredibly important for us running this business and we continue to diversify and open up the market through our capital.

This slide just demonstrates the execution; again $7 billion worth of transactions since 2005. We are very disciplined, if you look at it and we go and execute growth we will go out and raise that capital. It’s hard to believe but in 2007, we executed on about $2 billion worth of capital.

In 2009, you will notice we did deal with the Washington Family which was a very company in shareholder on the transaction. We didn’t raise any debt 2009 because we didn’t need it, going through currently we’ve done about, we’re going to target over, target an over $500 million this year. But we’re still working on transactions we’re continuing to build more capital into the system. I think one of the key lessons that we learned through the financial crisis, I think that it was a very challenging period for our shareholders and for the Company, but what important is we indicated very clearly and transparently about our funding needs, we had a plan, we identified eight solutions, we knew when it had to be done and we successfully execute on six of eight transactions.

And more importantly, we protected value for our shareholders, because we knew there were some easy solutions, but they were high dilutive for our shareholders. I think it is important that the company is executing the manner that looks at long-term value for all of the shareholders and has been committed to doing things perhaps in the hard ways, but it hopefully protects the value.

And obviously, one thing that’s really crucial for us, it’s being ahead of our funding needs. So we’re funding just because we know that we have transactions coming. We never really want to be short of capital again.

GCI, this is our joint venture with Carlyle. Recently customary they have been in news, it’s a company that we hold in higher regard and respect admire, and they’ve recently done a transaction. We did this transaction two years ago, again on the back of moving to our experiences and diversifying our capital structure. But also as we have the strategy of executing prior to the financial crisis, we identified the fact that as we grew bigger after certain size it will be important to bring a financial partner into the business help fund it.

And obviously with the financial crisis Carlyle, they saw an opportunity to achieve, who want to buy this distressed asset. I’ve discussed with people before but reality in shipping is generally you don’t see a lot of distressed assets on M&A and that’s primarily two reasons; banks and the owners, which are typically sounding like companies, aren’t terribly constructive or realistic about value to their shareholders.

So the banks, they don’t want to realize losses. But getting back to why Carlyle stepped in, they were looking for the best partner in shipping to do the business with. And Carlyle is whatever, top five or top three private equity fund, it’s here they’re probably seeing the top fund in the world.

If you look back at the strategic rationale, why we did it, first off, Gerry thought the opportunity one or two years ago that the prices were coming down, so liners would be looking for new business and new ships I should say. So having the financial scale, go out there and do deals is really important. Also managing risk was very important to us from a funding perspective, but certainly also managing the customer cost inflation.

Having the flexibility to choose which ship is really important to us. So when we structure the transaction, the Carlyle, Tiger and the Washington family, we have certain objectives. So we’ve achieve that. I think we’re really pleased with the relationship with GCI. It’s performed as we expected. We’ve been able to achieve about $2 billion worth of growth between Seaspan and the joint venture, which will be mitigating our financing risk. That’s allowed us to open up new markets for our capital and it has put us in the competitive advantage, which we have enjoyed and now we’re seeing people also replicating that.

So we’ve achieved the economies of scale in terms of our operations now because we got more ships to manage and we generate returns for our shareholders as well. And we really don’t have to put out a whole lot of capital. So those ships are within the joint venture. However, what’s important for banks and investors is a Seaspan managed transaction. So our commercial team, technical team, operational team, supervision team negotiate with the yard, negotiate with the customers. We build that asset. It goes through an independent process. Our financial team does the analysis. It has to pass Seaspan’s Annual Report very well. Those are independent conflicts to me. It gets approved, then it goes into the joint venture. So it’s worked very well. I think we’ve been quite pleased with it.

Okay. Next part, I think is also very, very important, shows the history in 2005 to the current date. This chart shows the price and yield relative to our stock. So full volatile nature of shipping. We can’t really control that to certain extent, but what we can say is despite all this volatility we go back. What have we done? We generated enormous amount of cash as a business. So obviously you have four choices; you pay a dividend, to buyback stocks, reinvest in the business, pay down debt. So clearly we’ve provided what investors have told us and as we came out this is the yield vehicle and we paid to-date over 31 quarters dividends every single quarter, cumulative dividend of $9. So that’s fairly a value to our shareholders.

We’ve also grown the business and retain cash for that. We did a tender offering here, which is executed just about a year and half ago. We bought back $170 million of stock at 15 and we did the analysis. We determined the good opportunities, provide value to shareholders and we’d achieve that return. So I think we’ve been pretty pleased with how we’ve executed. Many things are not within our control in terms of sensing them above the market, but all we can do is really focus on what we can do with and that’s about running the business, delivering the cash flow, building a model that’s sustainable all the time.

The other thing is payout ratio is quite low. It’s at 17% on a cash basis. The Washington family is in a drip. So the full payout ratio is about 34%. And again, we’ve learned from our history that we never ever really want to cut back dividend gain. So it’s a very manageable dividend and we’ve got room to grow it, but we have many opportunities to reinvestment in the business today.

So I think that concludes my presentation. I’ll turn it back to Gerry. Thank you.

Gerry Wang

Thanks. Let me just go to next section of our presentation, which is about market overview and recent development. Well, it’s out of my control now, still again. I know people are concerned about the overall demand and supply appreciation. There is a lot of coverage about the oversupply, too many ships [blah blah blah], obviously little different. You look at the minor supply picture. Economically numerically speaking frankly there is a pretty good banner. So you have a global achievable goal anywhere, between 5% to 7%. Our order book is about 20% for next three, four years. So that gives you probably 5%, 6% a year. So from that perspective it’s a fair advantage and also I want to information, the order book has expanse today, the lowest in history. So we have never had below 20% of order book on the supply side.

So why are we seeing all the depressing fairways, why are the fairways so low? I just want to mention this for you. this thing gives the overall demand and supply, but certain ship lanes, there are always more ships than necessary. There are always not enough ships in that kind of a situation.

If you look at the ACO per se. The beginning of this year we had several big ships delivered by some lease operators. obviously, they wanted to fill up their ships. Thus started the price fall that caused the fairways to come down. Frankly speaking the ships are still loading 75%-80%. So one of the things that I’ve said to you, a couple of CEOs say, what is happening today in the freight markets? there’s only one word I want to say to you; you are stupid, because we will carry more than 75%, 80%. So you look at the fairway, okay, you got a little bit. I shouldn’t say that because it’s not allowed. okay, but we can talk about it. Really at the end of the day – off the records please. And that’s just the way it is. if you’re loading more than 75% for any other business, for airline business, probably you’ll check up your fairways a little bit.

So the fall business unfortunately, someone used the right expression there is because of some stupidity amongst the operators. They’re competing that. It’s still prematurely with the marketing shares. So they reduce that fairway and partially because why they’ve used in the fairways, because they really want market share, probably half of the year’s, partly because with the new ships the unit costs, this is much lower and at the $600 per TEU for the 18,000 (inaudible) you can make some money. But for the older vessels, smaller vessels it’s $1,000 per TEU to break even. That shows again why people really hungry for new big modern ships, the fuel efficient ships.

So, in other words, for big ships, fuel efficient ships there is no shortage of demand, okay. The market is very strong and there’s no shortage of – there’s no oversupply. And when you look at all the older ones added together, yes, there is probably oversupply in there, but modern new ships are in good demand. And I wish I could have some [trends] on to using new design today. Unfortunately our new ships wouldn’t be available to next year. Recently, I had a discussion with the industry with several liner majors about the probability of having that 2014 deliveries. You know what I got seven leading charters coming through [Nigeria]. We would like to consider that. For your new (inaudible) available next year, but, okay I’d say I’ll go and talk to you, the ship builders and the existing chargers to talk about it, to see what happens.

So that just shows the desire and appetite for modern new ships is very strong, as we’ve all mentioned that thing. So you look at the big picture. It gives you a different scenario. If we look at within that sector, within the real business in terms of new ships, it was those ships, demand and supply. There is always a niche, there is always an area that is different that wouldn’t be evident from the picture you see here. That’s what we specialize on, okay. Apart from 5%-7% growth from demand that would because part of the global GDP growth, the international chase and other things that (inaudible) is talking about. Shipping will be rather demand with the introduction of chase, which is also direct amount of international economy. But we’re also focused on penetration with new ships to replace older ones. That is a big deal to us. We set the trend to modernize the ships, the fuel efficiency so important.

Let me just give you a little analysis about why is it important. Today you look at the pent on to use the old one. The actual cost, the charter rates probably own our account for 15%. The fuel cost, band cost would account for 35% to 40%. Then the remaining 50% is ship regarding cost, box cost, overhead, booking cost paying for the fees to the brokers with all those things and also paying for the lawyer sometimes. I am sorry our content is low. So, but the single largest cost item is the bank review, which is 35% to 40%, okay. Everyone knows the only way to drive the unit cost is to work very hard on the fuel consumption.

Our new design (inaudible) would deliver approximately 20% to 30% fuel efficiency. So that’s the driver behind it. It is the fuel efficiency that causes the trend of modernization that generates business across. We first saw that and we’re positioned for that and then we’d be leading that process and obviously we are benefiting from that process right now.

So the adjustments just want to share that with you partly because of the global, growth, demand, growth that kind of things, but partly most importantly as this modernization process. Will because in part of it and we take advantage of that. Okay, I just want to share that. That’s the reason why I’m so excited, I’m so busy because we have too many inquiries, too many projects working on and I talked about the criteria the (inaudible) vessels is the type of vessels, to retain the bankability. So we are applying those criteria to each and ever project. Then we obviously pick the best that we want and fortunately we are in a position to be able to do a little bit cherry-picking and so that’s what we have and where we are today.

Okay, so next one I just wanted to show you a little picture here, where we are today in terms of the ship price. This chart doesn’t the price back in the Asia financial crisis, which was a little bit above the $10,000 per TEU back in 2009 – year 2000 and our business was born that time, that splendid time, and I was talking to you (inaudible) about potential entry as the factor. We saw the opportunity of very attractive pricing of new ships. Then we made a slash there and we started our business.

Today after almost 15 years, 14 years, we’re entering another low cycle of very attractive ships. One thing I have said to you people, a few caused that. Dennis Washington, he asked me why now, but this is very simple. You look at today’s situation; ships are the cheapest, lowest in history, okay. We have the best design and fuel efficiency and financing cost is low. I have never seen that combination, these three things happening at the same time. So that’s where we are today. That’s why we’re so excited. We know if we can grow today, we’ll bet off. We can generate value over the long-term. Then we can make this dividend thing as something that can be easily handled almost stable and sustainable basis. That’s the reason why we want to grow our business, it’s very important to capitalize on the opportunities, give our technical and operational strength on that.

As I said, I cannot imagine there would be a line of major big one, targeting big vessels without talking to Seaspan. that’s where we are today and obviously, you’ll get, I’m sure more than the market share. If you look at 2014, 2015 in terms of big shift, overtime frontiers, we have market share of over 15% for Seaspan alone. And obviously, we’re working on several other projects that would make that percentage of the market shares even higher.

So that’s what we are, that’s why we want to see you and share with you about the excitement. and this historical point, you look at Seaspan as a franchise, we are so well positioned in terms of taking advantages of the opportunities. Next one please?

Just want to give you, just a brief look for some of you that are not familiar with the industry. Generally speaking, we used 50% as the group percent, 50% is owned by the operators or our counter parties, and the 50% is owned by people like ourselves. And for the out of the 50%, Seaspan has approximately 6%. So we are 3% of the world’s fleet, 6% of the 50% is owned by the independent owners. That’s we are ranked as the largest in the sector and we have the youngest fleet. and obviously, probably arguably we have the most healthy balance sheet in the sector. That’s why we’re very excited and that’s another reason why people have to talk to us and for new shift, big shift. Okay, next one.

I’ve talked a lot about our vision and as people say you’ve been in part of this domain for almost 10 years, and you went through ’08, ’09 and what is your vision, what do you want to do going forward space in a long-term basis. And always talk about the growth, growth, growth, when do they we want to make sure. We are not seeing growth for the sake of the growth. I used the expression controlled and balanced approach. Those part of is, because of the Carlyle joint venture that enabled us to be able to do that.

Okay, it’s very important because these are ones that grow out of control. Okay. because when do they have few deal with the financing both equity and debt. And so that’s you always in a healthy situation because who knows that there was some, at somewhere down the road is not next year the after next. Do we have to be very cautious and that’s why use the expression we want to grow our businesses through our controlled and the balanced approach.

So that’s we are not getting to a situation and there is too much on the table to eat then that would be healthy.

So next one, part of our DNA, our business is funded under long-term contract, fixed rates. They will continue to pursue that. So we have never, Seaspan have never ordered ships of speculation. I don’t think that will change, the key for that is, when you get into order book speculation then you’re highly expose. Because we really don’t know what the charters want in advance, what is they really want our ships, then you are totally fixed.

For us is all about new building contracts on third-parties. The signings have always been simultaneous, when I see simultaneous, I do mean within 5 minutes new building contracts inked chart projects fine. That’s just as simple as that. Then sometime we would have pretty much the main sense of financing phase.

So obviously, it’s very simple, we deal with charters, we deal with ship builders and we deal with our banks. Okay, the three parties that critical to our business model. So, we want to make sure, we have continued to execute according to our long-term strategy, our D&A which is new building contracts talked about financial all those things in place, and we don’t speculate. And all those ships with our contracts in place.

But first thing I wanted to talk about is dividends. As Sai has mentioned you look at last 31 quarters, we’ve always delivered dividends and we’ve never change from that, and Seaspan that was born as a dividend vehicle, and it continues to be so. I just want to make sure, people understands the nature of our business is part of our D&A, which is dividend, and our payout ratio is very well. The effective payout ratio is about 17%, 18%, 19%. That gives us the flexibility. To look at our things, growth, future protection and all those things.

And obviously when we grow over our business, cash flows will grow accordingly and I’m pretty sure I have several board members there and we’ll decide to look at growing our dividend. That you look at our historical chart that’s being the case, and I’m pretty confident that we’ll be able to do that given the growth of our new business given deliveries of new ships in the future.

Then financial strength and flexibility always a big deal. Okay, so we are, as Sai, said we are a leasing company, financing is a big part of the business. So when I talk about our franchise, I’d say half of it, it’s technical operational owning ships, building ships, managing the ships, crew members, charter parties all those things. Another half of it is to deal with that banks, to deal with the investors, to deal with our financial side of the business, it’s 50-50 both extremely important to us and they go hand in hand. And that’s the nature of business and another some financial institution that was getting, but I won’t tell you probably it’s a little bit more difficult than I think.

On the other hand, you imagine that those line of operators, you operate their flagships, I don’t think they would allow that to happen to have a partner that has no experiences in operating those big ships, just as simple as that. We specialize in big ships, smaller ships maybe, but on big ships, probably they will look at your track records, they will look at your experiences in operating the big ships, they will look at if you have the right crew members to operate those big guys and that’s the difference. The operational access of those big ships is just as important as charter rates.

As I said, charter rates only account for 10% to 15% of the operating cost. So its’ not a big deal per se. We’ve won orders ships, charters that for our charter rates are a little higher than what others offered. Why they choose us is because we have the financial, technical operational strength. And so we will continue to enjoy that.

I just want to make sure the nature of business we guys understand ourselves a little bit better, so we are not just so called ship owner, we’re also a financial management company as well. We just want to make sure people understand Seaspan in two phases, one is technical operation, which is one another as the financial management per se.

Long-term shareholder value, as we grow our business, obviously revenue top line will grow and EBITDA will grow and our distributable cash flow will grow and hopefully you guys will know what we’re growing, but that will be the dividend and we were on to give a little bit more value to our shareholders. We understand being partners of dividends to our shareholders and that’s what we do, and I think at the end of the day, growing the business, especially at this point of time is very, very important.

We imagine the values will drop in the future. This is something I wanted to reiterate to you. We’re excited, we’re convinced to capitalize on the opportunity with a very strong healthy body we’re going to grow and as a predator, we’ll drop some trade and it will do some difference. That’s really the end of our presentation. And I really appreciate the time you’ve taken here and hopefully we have shared with you the excitements and the things we do and now the next is you have to share with me about what you think in Q&A.

Question-and-Answer Session

Gerry Wang

We need the mic. If otherwise the webcaster wouldn’t able to hear it.

Unidentified Analyst

Okay, Gerry.

Gerry Wang

Okay.

Unidentified Analyst

A question about the preferred C share, there was a dividend step up, if it’s not called in January of ‘16, I think, could you explain is that each quarter it will be a step up or by ’17 if it’s not called? And where would you get the replacement financing for the preferred if you need to replace it once it’s called?

Gerry Wang

So firstly, Sai, can you handle that please?

Sai W. Chu

That of course doesn’t happen until January 17, and it happens every quarter, after that, if the plenty of alternatives for clearly going back to the preferred market.

Unidentified Analyst

Every quarter it would increase by 25% starting with first quarter ’17.

Sai W. Chu

You got to be here and take it out, so sometimes go, what’s really important is, there is a lot of room in our capital structure in terms of what at type of capital to grow places, so I would say it’s only solely it’s going to required to be preferred capital or common, we could use that as we wish, so whatever makes sense at the time.

Unidentified Analyst

If you ever speculate what rate, if you think you’d be able to replace that if you were speculating at this point?

Sai W. Chu

Well maybe you can tell me where rates will be in four years…

Unidentified Analyst

If you can, then that helps my decision making.

Gerry Wang

What you have imagined is going to below what the preferred rate was?

Sai W. Chu

I think fair enough, it’s very difficult to predict where rates are going to be, I think that what’s important is, we have flexibility in our capital structure to take it out regardless so I am quite comfortable if that’s being an issue for us.

Unidentified Analyst

If I could ask one last question, in the turnover of leases inflation adjustment, measurement as leases turnover, could you give us a sense over what you’re replacing them with, are they at the same level, are they higher, are they lower and what do you see in the near term…

Sai W. Chu

You mean in the re-charter market?

Unidentified Analyst

Yeah.

Sai W. Chu

Well I think Gerry I think you better…

Gerry Wang

Yeah, please, please, you go ahead please.

Sai W. Chu

Sorry so the charter rates, I just want to make sure I understand the question.

Unidentified Analyst

Long term leases if they expire, you replace them with perhaps the existing client or new client…

Sai W. Chu

The long-term charter, that we have with our customers…

Unidentified Analyst

Exactly.

Sai W. Chu

Well, I think that’s subject to market condition, in the way that we structured the portfolio, again is that, it’s not going to have a significant impact. Today we’re seeing somewhat of a distressed market in the (inaudible) ships, which are the Panamax. So we do have six ships that were subject to the charter market. What’s important is that the long-term average for those ships is about $18,000 to $20,000 a day. We’re not seeing any ships being done in that segment beyond a year. The ships are being done or at about $8,000 to $10,000 a day. So the spot rates for those ships has been as low as $4,000 in 2009, but have been well over $40,000 a day. So what it’s telling you is it is a distress market, so subject to recovery because if we were a liner, you would want that ship for 10 years at $4,000 a day or $8,000 a day. The reality is no one is getting it for more than a year.

Unidentified Company Representative

Okay, to answer your question and to add a little favor to that, when those leases, they come out, our status is very simple, if market that point of time is low, then we just stand with the spot market for three months, six months or whatever it is. If market is high at that time, try and go and sell them, why, because those assets will have reached the age of 10, 12 years old and that we are known for own and operate modern ships. Average age is only a little over four, five years old, if we check out the four other vessels that have already been dealt with. So that is really our strategy, but the key is during that time you are able to (inaudible), you are able to hold on to the assets, so that you can go through the low point of the cycle. This is business charter market has always been cyclical. So our strategy is really full time being aware of four to six four times to use the in the spot market for this year, next year. We’ll continue on to operate them in the spot market and as market picks up either we fix them long-term or we just have, and so then is – that’s our strategy.

Ken Scott Hoexter – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Thank you. Gerry, hi. Ken Hoexter from Merrill. Can you talk about the fuel efficiency shift of the vessels and what does that mean to your older vessels again in relation to when they come up for flee renewal when you look at the 50 older vessels and you look at the 4,000. Are they permanently impaired when you start thinking about the decreased efficiency in the newer carriers’ desired to go larger?

Gerry Wang

Well, this is a very interesting question that at the end of the – as a leasing company, one of the things that you have to be very careful about which is to continue to modernize the fleet. You will have to mould the vessels come out, okay. And then you need new vessels to come in. And the key is growth. Growth can take care of that problem. If you are – you do nothing, your existing fleet will become older and older and then that is the real impairment come in.

The four vessels, the oldest is 10, 12 years old, okay. We’ll just continue for a couple of years (inaudible). And the average age of the fleet in the word is about 10.5 to 11 years old. So there is still some room for us in terms of reaching the industry average. So we’ll see how things go. We look at our fleet and we do have some older vessels compared with industry, we still far away. And when we add new vessels coming and that far we’ll become less. So that is really the answer to the question because everyone knows the older vessels become old. They are not as good as the new vessels. But there is a key to be able to add new vessels. So that the (inaudible) key part of it. So we’re in a – we’re still different interval, because our long-term sustainability is dependent – is determined by our ability to buys ships.

Ken Scott Hoexter – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Okay.

Gerry Wang

Okay. Otherwise, this long-term model won’t be sustainable. So that’s the key and we worked very hard to bring that (inaudible), to make our balance sheets good enough, so that we’ll be in a position to capitalize on the opportunity. So the answer to your question is the key thing is growth, growth and growth. Growth can take care of them. Without growth, you’re pretty much, again, I use a static phrasing, you’re dead horse and it’s just unfortunate, as the nature of our business gives, we have assets that have technical life of 30, 35 years, economical life depending on which point of the cycle you are at. At this point of time, can hopefully ships that are 25 years old. Under today’s situation, we are good as where we are, okay, but when time is good, ships can operate as long as 35 to 40 years. Technically, they have no problem, but then the fuel cost although are same, so I the balance for that question is at the end of day, to deal with that is really two goals.

Ken Scott Hoexter – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Okay. Can you turn it to the CFO; in about two years, the International Financial Reporting Standards are possibly going to be changed with regard to leasing, is that going to have any impact on you or your customers?

Sai W. Chu

Well, I think most of our companies or customers already are under IFRS. So generally under IFRS (inaudible), we don’t believe it really has an impact on our debt choice are already grandfathered that (inaudible) time. So I think economically that really at the end of the day, we like the decision we’re making, it’s not necessarily accounting, whether our customers own their ships or the outsourced it to providers like ourselves.

Unidentified Company Representative

Let me just add to that. The off-balance sheet, I did not mention at all in the whole presentation. That was an important factor in the past, but it is no longer an important factor at this point in time. The key is really fuel efficiency, modernization, operating costs, (inaudible). It’s all about improving the unit costs till that during good times, you can make more money and during bad time you loose that, that’s what it is. Off-balance sheet features not as important today and as Sai mentioned, most of our charters are Asian based, they’ve adopted long time ago. So no worries and I don’t think there would any impact to our business model.

Unidentified Company Representative

Yeah. I guess, again our customers, again being, if they have to make a decision between real capital, they’re going to avoid that decision economically because they have to consider accounting for it. Real capital is important because that’s one of the key reasons reflected in the way in their operations as these (inaudible).

Unidentified Company Representative

Well, maybe I will generate a question myself. Ask myself a question. Why outsourcing? These guys ships the ship in good pricing cost, why would they all the ships from ourselves, why they charter from us? That’s something that I want to share with you. You look at the industry, since 2008, 2009, 2010, 2011, 2012 there was only one year that made money, that’s 2010, okay. So the balance sheet probably don’t have as much retained earnings as they wish. And at sometimes, I am talking like this, during good times; we are competing against the CFOs of our counter parties or charters. And during bad times, we are negotiating talking with the planners of the operators.

As this point in time is all about driving down the unit cost, that just can’t fall to all the other ships themselves. And they need us to invest on much more than during this times. So, sometimes I am just joking during good times, frankly what I do, I play more Gulf. And there – in bad times, unfortunate to have more Gulf meetings, I call it pre-meeting. That’s just momentum of business you know and at is point of time I want to mention everyone of them. This doesn’t have the strength of the balance sheet to be able to do things themselves. They need us more than ever for big ships, for good CapEx items. And our balance sheets probably are not has important at this stage of the game they consolidate them anyway and (inaudible).

So that’s part of the reasons why the industry had 60% of the ships owned by people like us, this fund of time. I would say for bigger shift probably there is a higher percentage of outsourcing than smaller ships. Go ahead please

Ken Scott Hoexter – Merrill Lynch, Pierce, Fenner & Smith, Inc.

Yeah, Jerry you touched on the strength in the market and sort of as you see fuel efficiency development to move towards larger scale vessel. And through the presentation, you talked about the strength of your balance sheet clearly there is a lot of cash on the balance sheet, ample liquidity. And then sort of time that into Carlyle, which the scale of the Carlyle gives you. Do you think that the JV is able to fully utilize what it can do? Is that something that’s going to happen over the next one to two years or is that something more along the lines for the next three to five years. And really what I am wondering is at what point, where we’ll be in a period where we see more than just the handful of new build orders coming into the market.

Gerry Wang

Well, at the end of the year, as I mentioned collectively with the Carlyle, we’ve added $2 billion in our business, call it forecast fleet and the $1 billion with retain by ourselves and obviously growth will continue. I don’t think that trends will change. I think at the end of day, obviously, we have deals in the pipeline. There is no doubt about it, and I know that – I know there would be more deals to them before the end of the year for sure. And I’m very certain about it and obviously, hopefully we can do more business, since I’m making sure they meet all the criteria that’s laid out.

And as far as Carlyle is concerned they are super happy. They are very, very happy because nevertheless they would be able to grow the business into $1 billion with the cost centers, with the type of assets they own with infrastructural overtime. Okay pretty sure, there is a lump in the dollar agreement to something that’s much bigger and our partners are very happy and expand as well as benefit from that and as it fit our market share is 15%, 17%. So it’s a good shift and I only see that percentage of the market share continues to be even larger because I don’t know what I’m talking about. First thing, I cannot share the deals that are working on, I can tell you I’m super busy, and I have never been busier than this. And I think some of the deals will happen.

It takes time because we are talking about big transactions that are very conservative, that are very careful about what they do, but I’m very confident you will see that the deals come out over the next three, six months and the trend will continue at least for next year because sometimes, I don’t think the ship prices will raise up in a hurry over next four months. So that will give us a little bit more time to do more things and given where we are today, given the strengths of our balance sheet as we mentioned, we’re very well positioned and we get many phone calls from the operators which sometimes we have to be careful about which one to be partners if we’re.

At the end of the year, to grow in a balanced fashion, in a controlled is this just as important. I’m trying to give you some flavors but unfortunately the struggle with me is not to tell you which deals I am working on because I’m not allow. We have always in the room, they won’t allow me to talk about those things. Otherwise I’ll be more than happy to tell you what on work on the deals, why we do this why we do that? The only thing I can tell you of course that you’re seeing the pipeline, and we’re very optimistic about our growth prospects. I think that gives you probably the summary.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Hi, Justin Yagerman from Deutsche Bank. You mentioned about seven mines or so interested in 2014 deliveries. Our 2014 deliveries are available and does that kind of demand change as you go for 2015, deliver.

Unidentified Company Representative

Yeah, 2014 deliveries are very scares, partly to combine and there are couple of deals we are looking evolving to 14 deliveries could on speaking, we want to 14 deliveries, why because then our capital can be deployed quickly. We get our cash flow we get the retain on our equity coming soon right. And but sometimes you ask you to deal with the things that I am talking about and there is the (inaudible), and to retail all those things. The only that I can say is we are working on couple of things for 14 deliveries, couple of opportunities we look out and this point of time the only thing I can tell you is we’re working on it.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Our 2014 deliveries I guess for 2014 your thoughts more available in China or can you still get Korean.

Unidentified Company Representative

This deal is working on evolving both China and Korea depending on the sizes and things and things. So you’re getting me to disclose one and one. Soon they will be asking which shipyard we’re targeting on?

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Just one more if I may is there a preference for Korean build ships or Chinese build ships or do they just say it as you spend the money.

Unidentified Company Representative

It’s more system and they know our technical standards, they know when we build in China the specification won’t be compromised. That’s the main driver that we have developed and our strategy is very simple but any thing over 10 times to use will build out in Korea and even less than 10 times, increase 10 times. We build it on in china that still for that’s the division and going forward is that my chance but they were with me and the Korea the advantage of building in China is probably we have better export financing package with Korea probably less headache in terms of your supervisions and the chance of design and technical capability of the builders, but you have less support from the export agencies in terms of financing.

So it’s pros and cons that we’ve managed them out. Then if you have a strong charterer to back you up probably export financing is not as important. So all those things are dynamic. So we evaluate every transaction different today. And at the end of the day, still circle back to four criteria. (inaudible) is the type of vessels that retain and the bankability. Those four things bare with me everyday. That’s how we look at the projects and it’s just our D&A. So, okay. good question. I almost disclosed the names of charteres on the shipyard. Our board members would kill them.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Yes, hi, Gerry. I want to ask you about the question between larger ships and smaller ships, I understand your growth plan is mainly focused on larger vessels we say higher TEU capacity and fuel efficiency. Still you have approximately 30% to 40% of your capacity in the smaller vessels, how did you plan to address the current struggle of this segment of the market in the future? How do you thinking of potentially divesting these vessels not to redeploy capital to larger vessels and then how do you think that the Panama Canal expansion will impact trade between smaller and bigger ships?

Gerry Wang

Well, just on the time the reason why we like big ships is probably two key reasons, one is more tax intensive. As we grow our business, we want to make sure we are getting to sort of the situation where we are focusing more, focus on more capital intensive assets, well if you look we’re with leases so we have crew members in all (inaudible) in it.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Okay.

Unidentified Company Representative

As it chips bigger and a higher value the OpEx becomes less and less important. The fluctuation of crew wages and little things becomes less and less relevant to the day-to-day costs and that’s the one reason. Another reason is because we specialized on big ships typical big ships are associated with more that we’re creating within this in terms of our (inaudible) so that gives us better investment and also those ships are more important to all charters and then the smaller vessels. So we get security from that and for us designing building big ships is also our expertise and we are know for building and designing big ships.

So the smaller one, today we look at those spaces that we are creative in the time and once again we just have to dance with the market when they come up for renewal. That’s the reason why we have restructured the deliveries, the expiries and month and size, shapes so that every year we would have 4 to 6 ships coming out for renewal and as the market is technical I am sure we will hit couple of good year and then we are also in a couple of bad years, engine barriers which is operated in the stock market and as a good year probably make sense for another long term or just sell them to people that wanted to draw IPO. So we’re just – see how things go. So the important thing is if you have a balance sheet that would enable us to handle that. So that during bad times we are not becoming a foreseller, but that’s the most critical part of our business. But given this equality, if we can hang on during some bad times then we’ll be doing fine.

And I know situation probably is quite interesting, people think Panama canal causes the paradigm ships. It’s might be there has an impact, but probably is not take us time that canal saved themselves because they want what to friends wants more business you want be sure that the Panama Canal is more important than what it is.

If we look at the case, brilliance of Panama Canal for container traffic, no there is not much as you think. For arbitrate tankers business started why U.S. historically fundamentally designed for U.S East coast and U.S. west coast. U.S. west coast is so dominant, even the railway on those things. In most case from Asia, we come from Asia with west coast and the railways and highways would connect with the cities in the United States.

East coast historically has been design for taking goods from Europe. And is shift well, U.S. east cost fixed about five days just smaller vessels they deploy. So bigger vessels funded in the near future. We want to go to U.S. east coast from Asia, even though the Panama Canal can handle anywhere to from (inaudible). So I don’t see that happening right way, maybe a small through U.S. east cost to South America east coast to Caribbean areas.

And also U.S. east coast have its own problems, we are sitting here in New York, the Downbridge, Port Elizabeth and they also look at (inaudible). We have some restrictions in terms of the height, the bridges, we go through and also the water depth and the terminals. In other words, U.S. East Coast is not that suited yet for bigger ship from Asia. And occasionally you have some (inaudible) is coming with a reduced drop passing through U.S. East Coast to South America and that’s all. So the impact to the business to the container shipping is not as dramatic as anticipated or articulated by the Panama Canal.

Brandon Oglenski – Barclays Capital

Good afternoon, Brandon Oglenski from Barclays. Gerry, we’re seeing one of your peers pursue a similar strategy here with a joint venture on the capital side giving them to the large vessel class in the market that you are playing in. And I know you feel that you have a very large competitive advantage here, but are you concerned that in the future your returns are attracting more competitors?

Gerry Wang

I think I’m not well that concerned. To be honest, when that joint venture was announced, I was quite happy, because at the end of the day, sort of validated what we did, we did that two years ago. And obviously we’ve already done very well on that platform. The business is big enough and we cannot eat all the cakes on the table, and we’ll just do cherry-picking using our strengths and we’re specialized in big ships and modern ships and that we’ll continue to do so.

And as a matter of fact, there were new players and more players coming, probably that would reduce the average return, but at the same time, that generates more interest and at the same time probably there would be some more catches, sorry to say that, then probably we will be the traders at that point in time. So those things go hand by hand for us. We just continue to do what do we do and our competition is healthy. And probably the most important thing you look at the competitive landscape, it is the struggle of KG owners. KG has used the comp incentive 5% of our business, but the KG setup is no longer valid as we know very well.

So that clears landscape for us, those are the reason why we get 15%, 20% on market share, and for that part to make it up for that path with the new investments coming, they it takes sometime plus we are already on the way, and I’m not saying the chain has already lapped, but at least we are ahead of them at least two years by two years. So we’ll get a fair share more than fair share of the business. There is no direct impact yet the cut itself.

Brandon Oglenski – Barclays Capital

Well, I think through that end I gave a pretty good outlook here. What are your intentions as far as free flow goes for the common share create a little bit more of a liquidity essentially get a larger institutional base especially with potentially pretty upcoming Preferred A class conversion. What’s the intention on free flows?

Gerry Wang

I’ll hand over this question to CFO, Sai Chu, can you handle this question?

Sai W. Chu

Yes certainly. Well, I think that we demonstrated that we do things that make sense for the long-term and we are not going to issue equities just in the safe of itself. It has to be a fair cost to capital and also have fitted in with our growth plans and our expansion. We recognized and we pursue to do that for investors that proposed low. But having said that I mean you have to do the right thing for your shareholder, the current weaker shareholders.

Gerry Wang

Okay, anymore questions? Some of the questions they’ve never been rehearsed well. So we said (inaudible) probably the investor team to be a little bit more, to prepare the questions a little bit better. Anyway so once again I appreciate the time you have spent with us, all the questions, all the attention to our franchise.

As I said many times, we will continue to execute, what we have said and we will execute it all the things we said in the past and that’s part of our creditability. And we continue to work with you to listen to you as well and to build this franchise to be truly something real on all products, not just the management team, not just me and Kyle and Graham and people who are sitting here are board members, but also for you, because we want to deliver quality. We want you to make money, and that would make us happier, and then you have the vehicle and platform. So that you can co-invest with that, so that we can generate a return for your capital whether your own capital, whether the capital from your customers.

So that’s really the ultimate goal. We want to create this value for you – with all of us shareholders together. So I just want to hand this over to our Chairman Kyle to say a very few words hopefully and to conclude this event. And thank you. Kyle please?

Kyle R. Washington

I think (inaudible) thank you all for the time and (inaudible).

Gerry Wang

Thank you.

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