Diana Containerships' CEO Discusses Q2 2013 Results - Earnings Call Transcript

| About: Diana Containerships (DCIX)

Diana Containerships Inc. (NASDAQ:DCIX)

Q2 2013 Earnings Call

July 29, 2013 9:00 am ET


Symeon Palios – Chairman, Chief Executive Officer

Anastasios Margaronis – President

Andreas Michalopoulos – Chief Financial Officer

Edward Nebb – Investor Relations


Michael Webber – Wells Fargo

Sean Collins (ph) – Bank of America

Kevin Sterling – BB&T Capital Markets


Ladies and gentlemen, welcome to the Diana Containerships Inc. Second Quarter 2013 conference call and webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Edward Nebb, IR advisor for Diana Containerships. Thank you, Mr. Nebb, you may begin.

Edward Nebb

Thank you, Kevin, and thanks to everyone joining us today for the Diana Containerships 2013 second quarter conference call. The members of the Company management team who are with us today include Mr. Symeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Operating Officer and Secretary; and Ms. Eleni Leontari, Chief Accounting Officer.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice. Certain statements made during this conference call which are not statements of historical fact are forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may or may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ materially what is expressed in the forward-looking statements, please refer to the Company’s filings with the Securities and Exchange Commission.

Now with that, let me turn the call over to Mr. Symeon Palios, Chairman and Chief Executive Officer.

Symeon Palios

Thank you, Ed. Good morning and thank you for joining us as we report on the operational and financial performance of Diana Containerships Inc. for the second quarter of 2013. In today’s container market, which remains subject to uncertain global economic conditions, we believe that maintaining a strong financial position is the right strategic course. With financial strength comes the ability to navigate a difficult industry cycle while also positioning the Company for future opportunities. Accordingly, we have taken a number of actions in the past quarter to further enhance Diana Containerships’ already sound balance sheet.

First, however, I would like to comment on our action with respect to the dividend. Today we have declared a dividend of $0.15 per share. The Board of Directors made the decision to reduce the dividend rate from the $0.30 per share paid in prior quarters while still providing an attractive return to shareholders. In the current investment climate, we believe there was considerable uncertainty regarding the previous higher payout. Today’s actions should send a clear signal that the Company remains committed to paying a healthy dividend as a substantial lever. We also wish to emphasize that we believe we have the capacity to support our dividend policy based on our solid financial position, ongoing cash flow, and the potential to increase our revenue generation capacity over time through our fleet expansion strategy.

Now let me briefly summarize some key actions that we have taken in the recent quarter. During the second quarter of 2013, we have completed the previously announced sales for demolition of the vessels Madrid, Merlion, and Malacca, with a total sales price for all three vessels of approximately U.S. $29 million before commissions. This transaction is intended to eliminate older tonnage from our fleet and generate cash for eventual investment in more modern vessels.

In line with plans we announced to you last quarter, we initiated a market equity offering pursuant to our prospective sales registration statement. During the second quarter of 2013, the Company issued approximately 1.3 million share of common stock through the ATM offering, generating gross proceeds of approximately U.S. $7 million. Currently, we have approximately U.S. $31.8 million remaining to be sold through this ATM offering.

Also as reported to you last quarter, Diana Containerships has signed an agreement for an unsecured loan facility from Diana Shipping of up to U.S. $50 million available to fund vessel purchases and for generate corporate purposes. We have not drawn any amounts under this loan agreement.

Our actions have positioned the Company with an even more substantial balance sheet which we believe gives us the financial capacity to support our dividend policy and also to invest in opportunities for growth. At June 30, 2013, the Company had approximately U.S. $38 million in cash on the balance sheet. Stockholders equity at the date was over U.S. $189 million.

Now let me review Diana Containerships’ financial results for the 2013 second quarter. Time charter revenues for the 2013 second quarter were U.S. $12.2 million. This compares to U.S. $14.9 million for the same period of 2012. The Company reported a net loss of U.S. $5 million for the 2013 second quarter; however, excluding charges related to vessel dispositions, the results would have been a loss of U.S. $0.7 million. This compares to net income of U.S. $2.2 million a year ago.

Diana Containerships’ fleet currently consists of eight Panamax container vessels, reflecting the vessel sales noted earlier. Our fleet is time chartered to some of the industry’s leading container lines for more than 96% of the days in 2013 – that is including the first six months – and approximately 51% of the days in 2014, providing a stable revenue stream. The contracted gross revenue of the fleet is approximately U.S. $120.3 million. In summary, Diana Containerships ended the second quarter of 2013 with strong financial resources and a solid base for future growth, supporting our intentions to deliver a healthy dividend while managing the business to produce long-term shareholder value.

I will now turn the call over to our President, Anastasios Margaronis for a perspective on industry conditions. We will then follow by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview. Thank you.

Anastasios Margaronis

Thank you, Symeon, and welcome to all who have joined us in this conference call about the conditions, the present and future of the containership market.

Starting with macroeconomic news, according to the IMF world gross domestic product growth will be 3.1% this year, down from the 3.3% forecast made in April. The IMF also reduced its forecast for growth in the United States from 2% to 1.7% for 2013, while for next year the estimate stands at 2.7%, down from an earlier reported rate of 3%.

As for China, the IMF is forecasting growth of 7.8% in 2013 and 7.7% in 2014. The slow down in investment and industrial output in April and May already points to a weaker second quarter. The Chinese government seems satisfied with the current level of growth as it sees it as part of a longer term rebalancing process from investment and export-oriented growth towards growth driven by private domestic consumption.

For the euro area, growth is expected to be a negative 0.65% this year while turning positive to 0.9% growth next year. During June this year, the index of executive and consumer sentiment climbed to 91.3 from 89.5 in May. Sentiment among European manufacturers also increased to minus 11.2 from minus 13. According to Maersk Broker, the recovery of the euro area is paramount for the revival of container shipping as the euro area alone is responsible for 37% of global front-haul EU miles.

Let’s turn to trade growth now. For 2013, Clarkson predicts that the global container trade will grow by 5% with the main lane trades expected to grow by just 2.1% this year. North-south trade volumes are projected to expand by 5.3% this year but are increasingly reliant on African demand as the major economies in Latin America continue to struggle. Howe Robinson predicts growth of 7% in 2014 and 2015 and points out that this could be exceeded if there is a concerted appetite to increase inventory levels worldwide.

Global container capable supply growth is expected to marginally outpace global demand growth this year. Major carriers face an uphill supply management battle to force up freight rates from their currently low levels. As Clarkson points out, the increasing mismatch between the areas of demand and supply growth will continue to pose capacity management problems, with freight and charter rates largely determined by the distribution of supply across the spectrum of trade lanes.

According to Clarkson, the trans-Pacific trade lane remains the largest single source of employment for midsize tonnage, with a large number of Panamaxes serving the U.S. east coast ports. Over recent years, the rapidly expanding north-south trades have also supplied (inaudible) growing employment opportunities for the 1,553 containerships in the 3,000 to 8,000 TEU sector. They employed 32% of midsize capacity at the end of May 2013 compared to just 8% at the start of 2006; therefore, Clarkson concludes that with moderate fleet growth supplemented by cascaded capacity, midsize ship deployment opportunities will increasingly be found in rapidly growing north-south and intra-regional trade.

Let’s turn to the famous cascading now. According to Clarkson, since 2009 new win large containerships have replaced older, generally slightly smaller ships on the main lanes, which parlays to Europe and trans-Pacific, and have been redeployed in the fast expanding north-south trades or in some cases even laid up. In turn, medium sized units replaced by newly redeployed larger units have been moved to the fast-growing intra-regional trade or, again, laid up. According to Clarkson, the size of the average Far East to Latin America containership has now risen to over 6,000 TEU, having been just 3,175 TEU in January 2008. This has been driven by the cascade mechanism as vessels previously employed on the trans-Pacific main lane were deployed further down the route hierarchy. Given that the delivery scheduled remains dominated by very high capacity vessels, strong trade growth for north-south routes remains necessary to absorb significant levels of tonnage cascaded down from the relatively slower growth main lanes. Combined Far East-south trades are currently projected to reach 7.4% in full year 2013. They could easily outperform global trade growth. As such, these trades should play their part in absorbing this extra tonnage.

As Clarkson points out, however, charter owners need not despair at the prospect of endless rounds and years of cascading. The amount of re-deployable capacity is not infinite and at some point the small and medium size ranges where tonnage growth is limited or even negative will probably see some benefit. The question, as we will point out later on, is when will that happen?

Let’s turn to supply now. According to Clarkson, the new building order book as of July 3, 2013 looks more or less as follows: on an overall basis, there were 442 vessels on order capable of carrying 3,281,800 TEU, representing 19.6% of the existing fleet. From this total, 215 ships with a carrying capacity of 2,490,600 TEU were vessels in excess of 8,000 TEU; in other words, nearly 76% of the order book consists of vessels larger than 8,000 TEU. Those Panamax ships smaller than 8,000 TEU on order number 113 with a carrying capacity of just 162,000 TEU. This factor accounted for 15.7% of the existing fleet and just 19.8% of the total order book. Panamax ships in excess of 3,000 TEU on order were just 17, representing a mere 1.7% of the existing fleet. All other smaller categories on the order book represent less than 5% of the existing fleet in the corresponding size range.

According to Banchero Costa, the increase in the containership fleet this year net of demolitions will be around 6%. During the first half of this year, Banchero Costa estimates that 127 containerships larger than 500 TEU were delivered with a total carrying capacity of 830,000 TEU. According to Maersk Broker, another 800,000 TEU are scheduled for delivery in the remainder of 2013. They expect that some of this capacity will drift into 2014. Units larger than 8,000 TEU accounted for 68% of the capacity additions.

Orders for delivery in 2014 consist of 1,454,000 TEU while orders for delivery in 2015 have now reached a total of 794,000 TEU. About 85% of the order book for 2014 and 2015 deliveries are for ships in excess of 7,000 TEU. In our view, the eventual saturation of these large sizes is more or less a certainty, as is the shortage which will develop in the smaller sizes as a result of chronic under-ordering. The surfacing of this shortage has only been postponed by the effect of the cascade taking place for over three years now.

Let’s look at slow steaming. In order to deal with the overhang of surplus capacity, liner companies adopted the practice of slow steaming. Extra capacity has been integrated into services that are operating at reduced speed, a process that absorbs ships without creating additional running transportation capacity. This trend has been driven by high banker prices and is estimated by Clarkson to have absorbed about 1.7 million TEU of nominal capacity. We expect the trend to continue as long as bank prices remain at approximately their present levels or move higher, as many expect. It will take a significant and lasting reduction in banker prices for slow steaming to reverse course and for ships to start steaming again at full speed.

Demolition now – according to Clarkson, during the first half of 2013, 104 container vessels have headed for the scrap yard, totaling 232,279 TEU, which was the most ever seen in any six-month period, beating even the second half of 2009 in the depths of the financial crisis. Out of the total number, 37 have been over 3,000 TEU and accounted for 57% of the demolished capacity. The average age of (inaudible) demolished so far this year has been 21.5 years compared to 24.5 years in the full year 2012.

As regards laying up, according to Banchero Costa approximately 6% of the containership fleet was laid up at the beginning of this year. About half of that has been seasonally deactivated over the last two months. Almost all the idle units are below Panamax size, with the vast majority being below 3,000 TEU. Most specifically, Braemar Seascope reports that on July 17, about 318,576 TEU worth of container vessels, representing 1.9% of the containership fleet, were laid up.

New building contracting now – according to Howe Robinson, new building orders have increased sharply in the first half of 2013. A reported 130 units with a total of 1.1 million TEU carrying capacity has been ordered in the first six months of 2013 compared with 52 units of 217,000 TEU carrying capacity in the same period last year. More than half of these units ordered and 81% of the capacity are in the form of units larger than 8,000 TEU. Interest in the smaller post-Panamax design has dropped considerably with only two orders for 6,800 TEU ships and 5,400 TEU vessels being placed, a total of 10 ships.

There is a huge discrepancy between the Howe Robinson estimate and that given by Clarkson. The latter estimates that during the first half of this year, only 90 containerships have been ordered capable of carrying only 700,000 TEU. A third analyst, Alphaliner, put the volume of contracting during the same period at 827,416 TEU, so we’ll have to wait and see which figure is correct as 300,000 TEU or so differences can have an enormous effect on future supply and earnings.

According to Clarkson, there have been important changes, though, in the contracting landscape. The German order book as a percentage of the German fleet has fallen to 8%, down from a staggering 62% in March 2008. In contrast, the current Greek order book is 440,000 TEU, equivalent to 36% of Greek container fleet capacity. China’s order book is equal to approximately 39% of the Chinese fleet. This pattern suggests that the national ownership composition of the containership fleet will certainly evolve with a broader base of countries supplying significant capacity. This can only be a healthy development in what used to be a German (inaudible) driven domination of the supply of container vessels as recently as five years ago.

Let’s turn to freight rates. The general rate increases by major liner companies for this summer has led the Asia to North Europe rate to move up by U.S. $895 per TEU. It stands at U.S. $1,409 per TEU while the general index was up 205 points, or 22%. The main concern is whether or not these rate increases will be maintained. The liner companies will have to show plenty of discipline for these rate hikes to remain intact by August. As an example, according to the Shanghai Containerized Freight Index, rates for shipping a box from Shanghai to Europe fell by 4% to $1,346 per TEU on July 5. This was within a week from the above-mentioned dramatic rise of U.S. $895 per TEU.

Let’s finally turn to the outlook for the industry. Looking at the prospects of earnings of containerships in the 4,000 to 5,000 TEU size group, we agree with Maersk Broker that prospects remain uncertain for the remainder of the year. The supply of tonnage for the remainder of the year appears very high still, and therefore any real improvement in rates is likely to happen at the beginning of 2014. For the 2,000 to 4,000 TEU vessel (inaudible), Maersk foresees positive developments during 2014, initially for the (inaudible) units and eventually followed also by the (inaudible) units. About 20 vessels in this segment are over 25 years old and is essence technically and commercially obsolete. In Maersk’s view, this segment could turn around rather quickly given the right circumstances. They expect such circumstances to appear next year, especially as the cascade phenomenon starts losing steam with time.

The problem with the future, as Maersk points out, is that when things have been as poor as they have been for so long, then it is indeed difficult to imagine that things will ever get better. What can be said with certainty is that eventually they will and that the forces which will bring the recovery have been at work for a number of years now. As Clarkson points out, the ongoing lack of ordering in the smaller sizes combined with the rapid demolition rate points to a gradual tightening of supply in charter market sizes, although earnings are likely to remain depressed as long as a significant pool of title charter-owned tonnage exists and the capacity cascade continues.

Fundamentally, Maersk expects that the market will change direction in 2014 as demand growth will slightly outpace growth in supply. This forecast is based on 100,000 TEU only leaving the fleet next year due to demolition. This number is likely o adjust upwards as Maersk sees more and more tonnage having difficulties operating to the required standards after years of poor markets and the consequential continued savings in operational and maintenance expenses. The opposite is expressed by Howe Robinson, however, which is that as a result of the continued focus on ordering of large ships, the cascade will continue well beyond 2015, delaying any recovery in rate for all sizes of vessels. As they put it, with the current state of affairs, the light at the end of the tunnel in 2015 is already starting to be extinguished by the current and future ordering bonanza.

We disagree with this interpretation of the future supply trend because it simply fails to take into account the overall supply-demand balance which will prevail from next year onwards unless there is a huge influx of new building contracts being signed. What is more likely to happen is that the very large vessels will eventually take surplus tonnage which will not be able to cascade down the size ladder due to the long period over which the cascade will have been going on. Howe Robinson’s model weakness, we feel, is that it assumes that cascading is a phenomenon that can go on forever, thus ruining the market for ship sizes which have been under-ordered for many, many years. We do not see that this is a realistic scenario on which to base a long-term investment strategy.

We hope that what we have presented did not sound (inaudible). The fact is that there are several views out there and most of them can be supported by some sort of supply-demand statistics. We have attempted to apply some common sense criteria in interpreting these numbers and have come up with a cautiously optimistic scenario of the medium and long-term future of the containership industry.

At Diana Containerships, we will continue with the implementation of our fleet modernization program by maintaining a strong balance sheet and healthy cash flow. The level of the dividend that our Board declared for the second quarter is designed to provide the Company with additional funds to support our business strategy and acquire more modern vessels with attractive streams of earnings.

I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the second quarter and first half of 2013. Thank you.

Andreas Michalopoulos

Thank you, Stacy, and good morning. I am pleased to be discussing today with you Diana Containerships Inc. operational results for the second quarter of 2013 and the six months ended June 30, 2013.

Second quarter 2013 – net loss of Diana Containerships Inc. amounted to $5 million and the loss per share amounted to $0.16, mainly as a result of 4.3 million of direct sale expenses and other charges associated with the disposal of the vessels Madrid, Malacca, and Merlion. Time charter revenues net of prepaid charter revenue amortization amounted to $12.2 million compared to $14.9 million in 2012. The decrease in time charter revenues was due to decreased average time charter rates achieved during the quarter compared with the same period of last year, and the disposal of the vessels Madrid, Malacca and Merlion in the second quarter of 2013, and (inaudible) by the increase of the average number of vessels after the addition of the APL Garnet in November 2012 and of the Hanjin Malta in March 2013.

Ownership days were 906 for the days for the quarter compared to 819 in the same period of 2012. Fleet utilization was 92.5% for the quarter compared to 99.5% for 2012 and the daily time charter equivalent rate was $13,381 compared to $17,778 in 2012. Voyage expenses were $0.1 million for the quarter.

Operating expenses increased by $1.4 million or 20% to $8.4 million in 2013 from $7 million for the same quarter of 2012. Operating expenses in the second quarter of 2013 increased due to the 11% increase in ownership days resulting from the delivery of the APL Garnet and Hanjin Malta in November 2012 and March 2013, respectively, partially offset by the days lost from the sale of the vessels Madrid, Malacca and Merlion. On average, operating expenses increased due to increased crew costs, insurance and tax expenses, and this increase was partially offset by decreased repairs and maintenance costs. Daily operating expenses were $9,302 for the second quarter of 2013 compared to $8,606 in 2012.

Depreciation amounted to $2.3 million for the quarter. General and administrative expenses were $1.4 million compared to $0.9 million in the second quarter of 2012. the increase was mainly attributable to the establishment of Unitized Ocean Transport Limited, or UOT, our wholly-owned subsidiary, to act as a fleet manager effective March 1, 2013, and was partially offset by decreased Company promotion fees and compensation costs and unrestricted stock awards.

Loss on vessel sales amounted to $4.3 million and relates to the sale of the vessels Madrid, Malacca and Merlion. Interest and finance costs for the second quarter of 2013 amounted to $0.8 million, the same with respective quarter 2012 and including interest and loan fees related to our 100 million credit facility with RBS.

Turning now to the six months ending June 30, 2013, net loss of Diana Containerships Inc. amounted to $36.8 million and the loss per share amounted to $1.14. Time charter revenues net of prepaid charter revenue amortization amounted to $27.4 million, the same with the respective period in 2012. The time charter revenues increased following the addition to our fleet of the Cap Domingo, Cap Doukato, APL Sardonyx, APL Spinel, and APL Garnet in February, March and November 2012, and the Hanjin Malta in March 2013, but this increase was affected by the disposal of the vessels Madrid, Malacca, and Merlion, and by decreased average time charter rates achieved in 2013 compared to the same period of 2012.

Ownership days were 1,822 in 2013 compared to 1,467 in 2012. Fleet utilization was 96.3% compared to 99.7% in 2012, and the daily time charter equivalent rate was $14,799 for the period compared to $18,342 for the same period of 2012. Voyage expenses were $0.4 million.

Operating expenses for the period ended June 30, 2013 amounted to $16.7 million compared to $12.7 million for the same period of 2012. The increase in operating expenses was due to the enlargement of the fleet and also due to increased crew costs, insurance and tax expenses. Daily operating expenses were $9,144 for the period ended June 30, 2013 compared to $8,750 in the prior period.

Depreciation amounted to $5.7 million. Management fees amounted to $0.3 million and represented fees paid to Diana Shipping Services up to February 28, 2013. Effective March 1, 2013, UOT provides ship management services similar to those previously provided by Diana Shipping Services (inaudible). The fees payable to UOT are eliminated upon consolidation as inter-company transactions.

General and administrative expenses amounted to $2.7 million compared to $1.8 million for the same period in 2012. The increase was mainly attributable to the establishment of UOT to act as our fleet manager effective March 1, 2013, and was partly offset by decreased company promotion expenses and compensation cost unrestricted stock awards.

Impairment losses amounted to $32.6 million and represents non-cash impairment charges recorded during the first quarter of 2013 for the vessels Madrid, Malacca and Merlion. Loss on vessel sales amounted to $4.3 million, and as mentioned earlier relates to the sale of the vessels Madrid, Malacca and Merlion.

Interest and finance costs were $1.5 million for the period ended June 30, 2013, the same with the respective period in 2012. In 2013, we had increased average debt outstanding compared to 2012, but the increase was offset by decreased interest rates and commitments and other loan-related fees.

Turning to dividend policy, for the second quarter of 2013, the Board of Directors has decided to declare a dividend of $0.15 per share.

That concludes the financial presentation, so thank you for your attention. We will be pleased to respond to your questions now, and I would turn the call to the operator who will instruct you as to the procedure for asking questions. Thank you.

Question and Answer Session


[Operator instructions]

Our first question today is coming from Michael Webber from Wells Fargo. Please proceed with your question.

Michael Webber – Wells Fargo

Good morning guys. Obviously the first question is around the dividend. If we kind of backtrack to last quarter and we think about where you guys stood at that point, you had just announced the ATM, you had just brought in a loan, you were looking at $120 million of new liquidity which you were talking to using this to kind of fortify the revenue streams and the sustainability of the current dividend. That’s been in place for about two months, and now the dividend is getting cut in half. I’m curious as to what’s changed between now and then when that capital was going to be used as a bridge to support the current distribution for another quarter or two while you could go out and look for acquisitions to find more support. I’m just curious as to why the dramatic shift right after raising that equity.

Anastasios Margaronis

Mike, what we have noticed is what we have been discussing in the past with a lot of people, is that the high dividend that we kept paying, it was not appreciated as regards to our share price, and we felt increasingly that it is better to pay a dividend which is lower than the free cash flow of the Company but has much greater visibility and sustainability rather than keep scaring people with a dividend that we were paying. The 23 to 26% yield is something which is not pragmatic nowadays and should not be there.

Michael Webber – Wells Fargo

No, but that’s been in place for a couple years now and I think that the equity raise and the debt raise last quarter, that was done to do exactly what you’re talking about right now, so that’s not a new phenomenon. I’m curious as to what over the past two months has made you guys think, okay, well a 20% yield is not fun. I mean, that’s been in place probably since 2012, early ’12—I mean, it’s been in place since the beginning. Just curious as to what’s changed literally in the last two months.

Anastasios Margaronis

Okay, but don’t forget what has changed is the share price. Our share price is at very low levels and the yield is much higher than what it used to be. We were paying at a point 16%, then we went up to 18, 20, and then today we were speaking for 26%. But we cannot keep doing that.

Michael Webber – Wells Fargo

Right, sure. And how much of the ATM are you guys—how far along on the ATM process are you right now?

Anastasios Margaronis

As you have seen in our numbers, I mean, what Mr. Palios said, during this quarter we raised around $7 million but we still have remaining—with 1.3 million shares, but we did a few shares also in the next quarter, three days of the next quarter basically. So the total amount of shares, you can see from our press release where it says the 33,757,688 shares.

Michael Webber – Wells Fargo

And do you think that contributed to the downside in the equity?

Anastasios Margaronis

We are not sure about that. What we are 100% certain is that people prefer to see a logical number as the yield and as a dividend on our stock rather than this scary 26% yield. Now I think if you run the numbers with a safe assumption of the use of proceeds that we have, you will see that $0.15 is a number which is not close to the 100% of the free cash flow – much less than this, and the Company together with the ability of sustaining that, has the ability to increase that at a point when the numbers make sense again as regards the yield of the stock.

Michael Webber – Wells Fargo

Right. I mean, that was the same logic that was in place when you raised the capital last quarter, so the question is what’s different now.

Anyway, we can move on. The only other question I have is in terms of actually going out and sourcing deals, what’s the liquidity like out there in terms of those midsize assets with charters attached that you guys could then go in and kind of acquire incremental cash flow that could continue to support your lower dividend now? What’s the liquidity like in that kind of market, Stacy?

Symeon Palios

I think this has changed from last time we have purchased a vessel, and there are somehow different criteria for selling ships today which suit us better than last time we bought, and I think that will help us enormously. But there are ships around, and we are of course on the lookout.

Michael Webber – Wells Fargo

Okay, thanks for the time, guys.


Thank you. Our next question is coming from Ken Hoexter from Bank of America. Please proceed with your question.

Sean Collins – Bank of America

Good morning. This is Sean Collins on Ken Hoexter’s team. Thanks for taking our questions. I just wanted to ask – given in the last quarter you sold three vessels, can you comment on the secondary market for the sale of vessels, what that dynamic looks like and how the supply and demand is in that market?

Anastasios Margaronis

In second-hand tonnage, many things depend on obviously the remediation of the ship. Ships that are considered to be very close to the end of their useful life are attracting limited interest from certain liner companies that have specific trades earmarked for them, and they are basically there alone bidding for the ships at or just above scrap values. For younger ships, there is more competition from independent charter owners and much less from liner companies, but let’s put it that way – there aren’t many people bidding against the second-hand container vessel when it comes to market compared to the bulk carrier trades (inaudible).

So there is a reasonable flow of ships which are coming out for sale, and as we said in our previous calls, we are trying to now shift a little bit higher up on the size ranges and down in age and have more modern ships, and we feel that there ships there that are worth serious consideration with employment, which the higher the size of the ship goes, the closer the employment that you can get by chartering back the ship to the selling company is to the market rate, which means of course that the buyer doesn’t have to pay much more than the charter-free market value of the ship to buy a ship and attached employment of two or three years on her.

Sean Collins – Bank of America

Okay, that’s great. That’s helpful, I appreciate it. And second question, a slightly different question – you did cite an uncertain economic environment that we’re all fairly familiar with. Can you comment on what you’re seeing in terms of customer demand, what customers are saying, how they feel, and what the demand for shipping looks like, but also what the demand in general for the customers’ goods and products seems to look like out there.

Symeon Palios

Demand for carrying containers around the world is good. We would say that it is very strong. The problem has to do with the supply and also has to do with the logistics of the liner operators. They are slowly putting their act together, but they have not managed that to 100%, but the cargoes carried that are there. The vessels, they are carrying lots of containers, so long story short, the demand there is strong.

Sean Collins – Bank of America

Okay, that’s great. Thank you very much. Thanks for taking the time to answer our questions.


Thank you. Our next question is coming from Kevin Sterling from BB&T Capital Markets. Please proceed with your question.

Kevin Sterling – BB&T Capital Markets

Thank you. Good afternoon. Andreas, how should we think about vessel operating expenses for the back half of this year? Should it be similar to what we saw in the second quarter?

Andreas Michalopoulos

No, I think you should model for something slightly lower, around 8,800 which is something that I would model for the rest of the year.

Kevin Sterling – BB&T Capital Markets

Okay, thank you. And regarding you guys sold a couple vessels here, are you planning more vessel sales or do you think you’re done for the foreseeable future?

Symeon Palios

No, we are constantly on the lookout, as we said, and we are getting closer to announce something, to do something.

Anastasios Margaronis

Which is regarding purchasing. As regards selling some of our vessels, this is an option that we will consider if necessary.

Symeon Palios

When the time comes.

Kevin Sterling – BB&T Capital Markets

Right, right, okay. I guess—

Symeon Palios

Sorry I misunderstood you.

Kevin Sterling – BB&T Capital Markets


Symeon Palios

Yes, and also this is an option of course we have to consider when the time comes when we stop having the revenue stream for some of our older tonnage, provided the market has not improved. If the market has improved, then we will consider chartering the vessel at good levels. But if the market is at the point where we have a negative cash flow on our older tonnage, we may as well take whatever we are given for those vessels and buy something with a better revenue stream at that time. But still, we have time for that. We can wait and cross that bridge when the time comes.

Anastasios Margaronis

And taking on a lighter note, we hope that all owners follow our example as regards scrapping thus far, let alone doing more scrapping. That would take us a long way towards balancing supply and demand, but people tend to hold onto ships without good reason, they lay them up, and those ships tend to appear occasionally on the supply spectrum when there is seasonal reactivation and push down time charter hire rates.

Kevin Sterling – BB&T Capital Markets

Okay, great. And just a follow-up – it sounds like you cut your dividend because it really wasn’t reflected in your stock price, but now you’re generating more free cash to build that cash position, and I think you indicated you guys are getting closer to maybe looking at a purchase. Along those lines, how important is it to continue to build your cash position to bring to the table when you’re looking at second-hand vessel purchases?

Symeon Palios

It is equally important as creating value for our shareholders, and the dividend is something that helps us do so by attracting more equity, so the dividend is going to be there at levels which make sense; and also from the moment we still have some free cash flow to be invested, that may help the Company increase in a healthy manner the dividend and create more interest for our share. As you correctly said at the beginning, we felt that the high dividend paid was not appreciated and clearly it was not there on our stock price.

Kevin Sterling – BB&T Capital Markets

Right. And if I could just follow up, too, regarding vessel activity, what you’re seeing the market for potential purchases, it is more one or two vessels, or are you seeing maybe an opportunity to purchase a larger fleet, per se?

Anastasios Margaronis

So we’re looking based at one or two ships purchases, not a fleet.

Kevin Sterling – BB&T Capital Markets

Okay. Okay, well that’s all I had. Thanks for your time today.


Thank you. That does conclude our question and answer session. I’d like to turn the floor back over to management for any further or closing comments.

Symeon Palios

Thank you again for your interest in and support of Diana Containerships. We look forward to speak with you the in the months ahead. Thank you.


Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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