Diana Shipping Inc. Q3 2009 Earnings Call Transcript.

Nov.10.09 | About: Diana Shipping, (DSX)

Diana Shipping Inc. (NYSE:DSX)

Q3 2009 Earnings Call

November 10, 2009; 09:00 am ET

Executives

Simeon Palios - Chairman & Chief Executive Officer

Anastassis Margaronis - President

Andreas Michalopoulos - Chief Financial Officer & Treasurer

Ioannis Zafirakis - Executive Vice President & Secretary

Ed Nebb - Investor Relations Advisor

Analysts

Jon Chappell - J.P. Morgan

Justin Yagerman - Deutsche Bank Securities

Gregory Lewis - Credit Suisse

Natasha Boyden - Cantor Fitzgerald

Urs Dur - Lazard Capital Markets

Omar Nokta - Dahlman Rose

George Pickerel - Stephens Inc.

Rob MacKenzie - FBR Capital Markets

Scott Burk - Oppenheimer & Co.

Operator

Good morning, and welcome to Diana Shipping’s third quarter conference call and webcast. My name is Sushanta, and I will be facilitating the audio portion of today’s interactive broadcast. (Operator Instructions).

At this time I would like to turn the show over to Ed Nebb, Investor Relations Advisor. Please go ahead.

Ed Nebb

Thank you very much. Good morning or good afternoon all, and welcome to the Diana Shipping Inc. 2009 third quarter conference call.

The members of the Diana Shipping Management team who are with us today are Mr. Simeon Palios, Chairman and Chief Executive Officer, Mr. Anastassis Margaronis, President, Mr. Andreas Michalopoulos, Chief Financial Officer and Mr. Ioannis Zafirakis, Executive Vice President, Director and Secretary.

Before management begins their remarks, let me briefly summarize the Safe Harbor notice, which you can see in its entirety in the release we issued earlier today. Certain statements made during this conference call, which are not statements of historical fact are forward-looking statements that are made 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 not prove to be accurate. For description of the risks, uncertainties, and other factors that may cause future results to differ materially from what is expressed or forecasted in the forward-looking statements, please refer to the company's filings with the SEC.

With that, let me turn the call over to Mr. Simeon Palios, Chairman and Chief Executive Officer of Diana Shipping.

Simeon Palios

Thank you Ed. Good morning and thank you for joining us today. I am pleased to report that Diana Shipping once again delivered strong results for the third quarter of 2009. Our recent performance reflected sustained profitability, continued growth in our cash position and a rock solid balance sheet with the potential to support significant growth as opportunities arise.

In addition, after the close of the third quarter, we announced delivery of the Houston, a profitable addition to our fleet. As has been the case throughout the turbulent period in the global economy we have continued to manage our business to produce ability and strength. Specifically, we have operated our fleet for maximum revenue visibility, special relationship with high quality charterers and maintain a conservative approach with respect to funding our business.

Now, I would like to point out some of the highlights of the 2009 third quarter. Then the members of our senior management team will review our market outlook and discuss the financial results in greater detail. Net income was $28.7 million with Voyage and time charter revenues of $58.2 million for the third quarter of 2009. This compared to net income of $57.6 million and Voyage and time charter revenues of $87.8 million for the same period a year ago.

We have continued to focus on building relationships with top quality charterers. During the third quarter, we enter into time charter contracts for three of our vessels, chartering the Triton with Intermarine Transport, the Naias with the J. Aron Division of Goldman Sachs and the Oceanis with Bunge SA.

Just yesterday we announced the delivery of our 20th vessel, the Houston, a Capesize new building. The Houston is chartered to Shagang Shipping Company for a minimum 59 through 62 months period at a growth rate of $55,000 per day.

These ship [Inaudible] is expected to generate gross revenues of approximately $97 million during the minimum period of a charter. We now have 100% of our fleet employed through the end of 2009. Our fleet employment remains extremely well balanced. The delivery dates on the fleet range from 2010 to 2015, and in the case of the Houston potentially into 2015. This provides a balance of current stability and future upside opportunity.

We achieved an average daily time charter equivalent rate of $32,367 for the third quarter, which covers daily vessel operating expenses by a factor of approximately five and a half times. Through our consistent earnings, we further strengthened Diana’s balance sheet during the recent quarter. Our cost position increased to nearly $252 million at September 30, 2009 or nearly $34 million higher than at the end of the second quarter of this year.

We continue to operate with far less deliverance than virtually any other company in our industry. Total at the end of the 2009 third quarter was $268 million. The results for the third quarter reflect the highly disciplined pension and focus approach that Diana Shipping has taken in the process of creating value for our shareholders.

We have more than doubled the size of our fleets from nine vessels at the time of our IPO to 20 vessels to-date. We have maintained relationship with a select group of high quality charters. Our fleet employment is well balanced to produce stable revenues and capture potential upside.

We have one of the strongest balance sheets in our industry. We have sizable cash position and very little leverage. Overall, we have clearly demonstrated our ability to deliver a profitable performance despite a volatile global economy and the uncertainties of the business cycle. We continue to believe that current industry conditions would present favorable opportunities to acquire vessels on attractive terms.

That said, we will remain prudent and cautious regarding the development of our financial resources. This has been the key to Diana Shipping strategies and the past and will guide our value creation efforts in the future.

With that, I will now turn the call over to our President Anastassis Margaronis. Thank you.

Anastassis Margaronis - President

Thank you Simeon, and welcome to all who have made the effort to join us in this morning’s conference call. The third quarter of this year has like the preceding quarter, been a rather exciting one. Developments have taken place in the dry bulk markets which are continuing today that will act as catalyst in the future direction of the dry bulk freight market.

We will be examining some of these later on during this presentation. As far as the main bulk area of industries are concerned, the Baltic CAPE Index moved from 7,122 on July 1st to 5,764 on November 9. Correspondingly, the Baltic Panamax Index has stood at 2,984 in July 1st only to close at 3,612 on November 9th. We must as usual start with a brief overview of recent world growth and most importantly, look at the most reliable predictions about future rates of economic activity.

According to the economist intelligence unit, gross domestic product is poised to shrink by approximately 2.4% in the United States during 2009. The equivalent numbers for the Euro zone are a 3.8% drop, for China 8.2% growth, India 5.5% growth and the world figure stands up minus 1.5%.

For 2010, the projections are about 2.6% growth for the United States, 1.2% growth for the Euro area and 8.6% growth for China. India’s forecasted growth stands at 6.3%, while the world as a whole is estimated to grow at around 2.3% in 2010.

Steel production is the single most important factor effecting the world’s dry bulk carrier demand. Falling drops of about 20% to 25% in steel prices in China since their August peak, output is forecasted to remain fairly steady over the next couple of quarters, with any slight decrease on the part of China being counter balanced by increased demand from the Western economies in Japan.

The long term outlook is distinctly more positive however. According to a study by McKenzie published in March this year, China is expected to build 40 billion square meters in five million buildings over the next 15 years, about 50,000 of these buildings are expected to be steel intensive sky scrapers, the equivalent of building 10 cities the size of New York.

The same study expects China’s gross domestic product to grow by a multiple of five over the same 15 year period. It is within this framework of volatility and world economic activity that we have to look at the demand for major commodities shipped in bulk.

Iron ore, according Clarksons Research Studies, total worldwide iron ore imports are estimated to grow from about 893 million tons in 2009 to a 988 million tons in 2010, an increase of 11% according to Maersk Broker, China’s iron ore imports are estimated to reach 635 million tons thus supporting the Clarksons estimates for worldwide imports referred to above.

Turning to coke and coal, forecasts are again positive, Maersk Broker foresees an increase of 7% in total metallurgical coal imports for 2010 compared to 2009 underpinned mainly by a recovery in steel production in Japan, South Korea and the European Union. The Clarksons figure of 219 million tons of imports for 2010 the presenting a 6% increase from 2009, is slightly more conservative but still within the usual margin for bearer.

Total imports of thermal coal had expected to rise in 2010 from 2009, here the estimates vary considerably among analysts, while Maersk Brokers expect a increase to be in the region of 6% Clarksons sees a demand for thermal coal increasing from 2009 levels by about 3% during 2010.

Total figures also differ with Clarksons’ estimating that about 588 million tons will be imported worldwide during 2010, while Maersk places a figure of more than $700 million. The actual figure will probably be somewhere in the middle. We should point out however, that part of the difference must be due to the method applied by the two analysts in calculating world imports of thermal coal.

Grain trades, here the forecast are not so encouraging Clarksons places the total volume of grain imports for 2010 grain season at about 224 million tons, which have realized or signify a reduction of 9% compared to the 2009 season’s figure of 248 million tons. You have to remember that the figures here run from the spring of one year to the spring of the following year as opposed to following calendar years.

The minor bulk trades which are growing in significance every year together with the Chinese costal trade are estimated to reach 973 million tons in 2010 compared to 2009, an increase of about 5% year-on-year. The above is undoubtedly a fairly rising picture with regard to demand for dry bulk transportation. An avoidable question then becomes, what will be the dry bulk carrier fleet look like in 2010, which will be called upon to carry the above mentioned volumes of cargo.

The latest new buildings statistics show that in the bulk carrier fleet, there are total of 3,264 vessels on order of about 283.3 million tons deadweight representing 63.7% of the existing fleet. Of these ships, 786 are Capes representing 91% of the existing Cape fleet and 723 are Panamax’s equivalent to 49.5% of the existing Panamax fleet. About half of all the above mentioned new buildings have been ordered at Chinese yards, 24% of the total in Japan, 15% in South Korea and about 3% each ordered in the Philippines, Vietnam and India.

During our last conference call, we mentioned that by the end of this year we will have a clearer picture about actual ship cancellations, that is new building vessels, which are canceled and will never be built. Even though the picture is clearing up as we approach year-end, things are still fairly uncertain.

The main uncertainty stems from the fact that the deliveries of many of the 2009 new buildings, which have now either being built or are at the very late stages of construction have been pushed back into 2010. This means that approximately 32 million tons deadweight of new building tonnage will not be delivered during 2009 as scheduled, but during the first half of 2010 instead, the question then becomes what if the vessels originally scheduled for delivery during the first half of 2010.

Shipyards and donors are like are not very forth coming with information on this latter issue. The fact remains that the construction of most vessels scheduled for delivery during the first half of 2010 has commenced. As stated it is most likely that all these vessels will be built.

The total comes to around 15 million tons deadweight. If these figures are correct, then unless the 2010 deliveries are pushed back towards the end of the year, next year might see about 85 million tons being delivered during the first half of the year alone. That will certainly be bad news for the freight market especially for larger vessels.

Let us have a closer look at canceled orders. To start with we must agree with the view expressed by Scandinavian shipping analyst R.S. Platou that canceling one third of the total global dry cargo or the book would be insufficient to keep rates from falling and staying depressed until at least 2012.

Clarksons estimated about 20% over the overall new building over the book have been canceled for 2009 and about 30% will be cancelled from the 2010 new building orders. In a recent study issued the last month Clarksons pointed out an interesting feature over the overall cancellation figures that most of us have failed to focus on thus far that is that cancellations tend to be inversely correlated to vessel sides.

More specifically, the firm estimates that’s only about 10% of the new building Capes or nor they will be cancelled between this year and 2011 while about 50% of the new building Handysize order book might very well be canceled.

The main reasons behind this disparity in the cancellation estimates at first, that most orders for large bulkers have been placed with established shipyards, which have the financial means to build and deliver them. And second, much larger deposits have been placed with shipyards for the ordering of Capes, then for example the Handysize or even the Handymax bulkers.

If the above assumptions are realized over 350 new Capesize bulkers will be delivered to their owners between now and the end of 2011. This will lead to a growth of the Capesize fleet by more than 42% during that period. A very unpleasant thought indeed. Furthermore, at current earnings levels, analysts are seeing cancellation plans stalled, in fact lately, there have been several instances of canceled contracts being taken over by cash rich owners, something which is unfortunate for the long term outlook of the industry and creates a structural oversupply risk.

On top of all the above mentioned issues, we have recently been witnessing a deceleration of scrapping due to strong earnings. The emergence of new orders at lower prices and the switching to bulkers of some tanker and mainly large container ship orders. Balance order which on its own and through several joint ventures extends to over 25 very large ore carriers delivering from 2011 onwards is certainly not a long term positive for the large bulk carrier sector.

Scrapping. During the first nine months of 2009, 224 dry bulk vessels or 9,191,000 dead weight tons have been scrapped. The majority of these ships were Handysize bulkers due to their age profile. Recent freight market strength has led to a drying up of scrapping candidates especially in the larger sizes.

During October only three bulkers were sold for scrap, one of which was a 215,159 toner built in 1987. This trend is not expected to change for the rest of the year as the markets seems to be holding on to recent gains, and old ships are once again making decent profits for their owners.

Port congestion has eased around the globe since earlier this year, that has recently began to reemerge at loading ports in Australia, Brazil and India. If cues in Australia were to be reduced by 50% to what would be a more normal level, such reduction could add another 8 million ton deadweight capacity to the active fleet in a short period of time. However, if cargo volumes increase as projected, we believe that port congestion will reemerge in the medium to long term and have a positive effect on the supply demand balance for bulkers.

Supply versus Demand. There is an optimistic scenario presented by Goldman Sachs in a report issued on October 13, which makes very pleasant reading indeed, and as all owners praying that its conclusions materialize. We list its main assumptions below, and leave it to our listeners to judge whether or not these are realistic. We for our part hope they are, but have serious doubts that we will see them come through.

According to Goldman Sachs, the lack of funding for new building orders heightens the risk to supply forecasts. They only expect one thirds of new building orders to hit the order which should lead to an upside pressure on rates during 2010. They also expect demand for bulkers to increase by 10.5% in 2010 versus 8% effective fleet growth, resulting in a supply squeeze, which they believe will lead to higher rates of about 25% for 2010 compared to average 2009 rates.

In 2011, they expect supply and demand to be more finely balanced, which could keep rates relatively stable. They expect coal to become an increasingly more important commodity for sea borne trade due to China becoming a net coal importer and India’s power plant expansion plans may also add support to this trade.

Similar forecasts are given by ship brokers and analysts Lorrenson and Simocov (ph) who sees strong rates during 2010, supported by a 10.4% increase in demand year-on-year with a fleet increase of only 7.4%. The assumptions here are relative about 69 million tons deadweight from the 2000 ton order book will not be delivered due to slippage and cancellations, and that 35 million tons deadweight will be scrapped during the year.

Please do keep in mind that so far this year about 10 million ton deadweight of bulkers has been scrapped, and if the present freight market persists, very few ships are expected to head for the scrap yards. Furthermore, we believe that the annual world scrapping capacity for all types of vessels, not just bulk carriers, is very close to the 35 million ton deadweight mentioned here.

Most broker on the other hand takes a more sober view of next years developments. They do see signs of economic recovery becoming more and more apparent in some parts of the world. This should help overall demand for sea borne trade increase by 6% in 2010 compared to 2009. However, they feel that this will inevitably be outpaced by fleet growth of about 18% during the same period. The assumptions here is about 20 million ton deadweight will be removed through scrapping during 2009, and a further 80 million ton deadweight during 2010.

No slippage or cancellations have been allowed for 2010 and 2011. Finally, the Clarkson’s forecasts are rather depressing. The factor in their forecast slippage scrapping and cancellation levels as they have developed year to date and calculate that the world dry bulk carrier fleet will have increased by 25.5% between the end of 2008 and the end of 2010. Over the same two year period, dry bulk trade is expected to increase by just 3.7%.

This overall figure incorporates weak demand numbers for 2009 and much stronger demand numbers for 2010. Admittedly more cancellations, delays and scrapage will assist the supply overhang going forward. However, what has to be kept in mind is that none of these beneficial developments are encouraged by a strong freight market environment except perhaps for congestion.

We hope that all these forecasts have not placed our listeners in a state of total confusion. Unfortunately, this is part of the nature of shipping. The dynamic forces presently at work affecting supply and demand balance are more forceful than ever. Relatively minor changes in assumptions about scrappings, cancellations, slippage, congestion and ton miles can have a disproportionately large effect on the supply demand balance.

We will have to watch developments with greater care than ever and formulate our investment decisions accordingly. As mentioned earlier by our Chairman and Chief Executive Officer, we are fortunate enough at Diana to be able to implement an acquisition program, which does not require certain developments happening within a set timeframe. Our balance sheet provides us with the luxury of investing at different points in the downturn and waiting for favorable developments to provide the lucrative returns on equity invested which we hope to achieve.

I will now pass you to our Chief Financial Officer, Mr. Andreas Michalopoulos, who would provide you with our company’s financial highlights for the third quarter and nine months of 2009. Thank you.

Andreas Michalopoulos

Thank you, Stassis and good morning. I am pleased to be discussing today with you Diana’s operational results for the third quarter and nine months ended September 30th, 2009, third quarter of 2009.

Net income for the third quarter of 2009 amounted to $28.7 million and the EPS of Diana Shipping amounted to $0.36. Voyage and time charter revenues decreased to $58.2 million compared to $87.4 million in 2008. The decrease is attributable to decreased average hire rates and increased off hire and dry dock days.

Ownership days were 1,748 for the third quarter of 2009 and 2008, but operating days were 1,708 in the third quarter of 2009 compared to 1,739 in 2008. Fleet utilization was 99.7% in the third quarter of 2009 and 99.9% in 2008. The daily time charter equivalent rate for the third quarter of 2009 was $32,367 compared to $48,207 for 2008.

Voyage expenses amounted to $2.8 million for the quarter. Operating expenses amounted to $10.3 million, and decreased by 6%. The decrease is attributable to decreased crew and insurance costs. Daily operating expenses was $5,898 for the third quarter of 2009 compared to $6,240 in 2008 representing a decrease of 5%.

Depreciation and amortization of deferred charges amounted to $11.2 million for the third quarter of 2009. General and administrative expenses increased by $1.1 million or 33% for the third quarter of 2009 to $4.4 million compared to $3.3 million in 2008. The increase is mainly attributable to increased compensation cost on restricted stock.

Interest and finance costs decreased to $0.7 million for the quarter compared to $1.4 million in 2008 due to lower average interest rates. For the nine months ended September 30, 2009, now compared to the nine months ended September 30, 2008. Net income for the nine months ended September 30, 2009 amounted to $93.9 million and the EPS to $1.21.

Voyage and time charter revenues decreased to $180.7 million in the nine months ended September 30, 2009, compared to $253.1 million in 2008. The decrease is attributable to decreased average high rate and increased off hire and dry dock days in 2009 compared to the same period of 2008.

Ownership days were 5,187 for the nine months ended September 30, 2009, compared to 5,165 in the same period of 2008 and operating days were 5,078 in 2009 compared to 5,151 in 2008. The increase in ownership days resulted from the acquisition of the Norfolk in February 2008 and a decrease in operating days was due to increased off hire and dry dock days.

Fleet utilization was 98.9% for the nine months ended September 30, 2009, and 99.9% for the same period of 2008. The daily time charter equivalent rate for the nine months ended September 30, 2009, was $53,444 compared to $47,098 for 2008.

Voyage expenses amounted to $9.1 million and operating expenses amounted to $30.1 million compared to $30 million in the same period of 2008. This small decrease is attributable to decreased crew and insurance costs, daily operating expenses were $5,795 in 2009 compared to $5,804 in 2008.

Depreciation and amortization of deferred charges for 2009 amounted to $33 million. General and administrative expenses for the nine months ended September 30, 2009, increased by $2 million or 19% to $12.7 million compared to $10.7 million in the same period of 2008. The increase is attributable to increased compensation cost on restricted stock awards. Interest and finance costs in 2009 decreased to $2.4 million compared to $4.4 million in 2008 due to decreased average interest rates.

Thank you for your attention. We would be pleased now to respond to your questions, and I will turn the call to the operator who will instruct you as to the procedure for asking questions. Thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jon Chappell - J.P. Morgan.

Jon Chappell - J.P. Morgan

Stacey, you gave us a lot of detail on both the demand and the supply side, and I don’t know if it was confusing as much as depressing, but could you help explain a little bit of the recent strength in the market given all the negative commentary around the supply side, it seems there have been some short term demand shifts that have led to some strength in the market.

Anastassis Margaronis

Yes, there have been especially during the last few weeks, we have witnessed a drop in the hire in our stock piles in the major Chinese port. So there is a possibility of these now being replenished. We have to wait and see what figures are going to show. But the major factor that we suspect is behind the strength in the large bulk carrier trade market the last week or so.

The fact that a lot of ships have not been delivered to their owners and there is a guesstimate, I wouldn’t even call it estimate that the bulk carrier fleet at the end of 2009 may have grown by under 4%. If the anecdotal evidence of the ships whose delivery is being delayed and postponed for 2010 are indeed realized. So we have to watch now this space and see what’s going to happen to these ships, and when they are going to be delivered.

Jon Chappell - J.P. Morgan

Okay. And given this recent strength, it seems like asset prices may have bottomed and even upticked a little bit, has this pushed back your plans for your growth initiatives, does it seem like more of a first half 2010 story?

Simeon Palios

Well, not really, because I think that maybe the second hand values have slightly increased or rather not increased, but remained somehow steady. But the new building prices are coming down very nicely for us. For example, today you can build for delivery 2010 Capes at roughly $55 million, which was not definitely the case, three months to go when the trade market was worse than what it is today.

So, for us it's quite honestly not so relevant because we have a rock solid balance sheet, which gives us the luxury of investing in different times. And that’s what we are going to do starting in about a months time or even less than that, we will be picking and choosing at the time when I think the new building prices are much lower today than what they were three months ago.

Jon Chappell - J.P. Morgan

Okay. If I can just ask one more follow-up on that answer Simeon. These Capes that you are being offered for 2010 delivery, are these slots that were ordered by someone else on a speculative basis and the shipyard is just remarketing those assets or is there spare capacity in the shipyard that’s enabling the well positioned companies to go order?

Simeon Palios

Well, the major yards today have perhaps spaces due to slippage that they can accommodate you. So, some of them are Voyage, which are created and some of them are genuine spaces they had from day one. But the fact remains that the spaces are there. So you can capitalize on that.

Operator

Your next question comes from Justin Yagerman - Deutsche.

Justin Yagerman - Deutsche Bank Securities

A few questions, I guess, following-up on what you just said to Jon, when you think about vessel purchases and timings, it sounds like your more geared towards new builds right now than looking at the second hand market and I am assuming when you are talking about 2010 deliveries you are talking about the second half of 2010 right now?

Andreas Michalopoulos

Well, that would change which are early 2010. Of course there are spaces for the end of 2010. But we should not exclude the second hand vessels either. But what is amazing is that the prices are not as attractive as the new building.

Justin Yagerman - Deutsche Bank Securities

Okay. And just thinking about the shipyards in the situations at they are in, when you look out at the broader markets, where do you think most owners are in terms of progress payments, how much have they put down and then how much are they going to have to come up with to take delivery of vessels in 2010, and I guess how does color view of how much gets delivered in that year?

Andreas Michalopoulos

Well, as Stacy said, for the bigger sizes, like the Capes and most of the Panamaxes which have been ordered in China, the down payment was almost 40%. So, the slippage will be a little bit less easy, or rather is not going to be as forthcoming the smaller size. So, I think for the bigger six, we are not going to have the same slippage as for the Supramaxes for example.

Justin Yagerman - Deutsche Bank Securities

When you are thinking about vessels, slots that are open in 2010, are they mainly Panamax then?

Andreas Michalopoulos

Well, mainly Capes and Panamaxes.

Justin Yagerman - Deutsche Bank Securities

Okay. We heard from a couple of different owners that the liquidity in the period market right now is fairly thin, and some of that was attributed to the FFA market. When you think about the prospects of buying a Cape for 2010 delivery, what kind of charter do you think you could attach that given that you guys typically fix those type of asset on a longer term basis?

Andreas Michalopoulos

Well, Justin we do not have to fix, we would arrive at this by our own strong balance sheet. Because we have other ships which we have on charter, which they counter balance the ones which are going to be free. So, we can write the ups and downs over the freight market, and that’s how our scenario.

Justin Yagerman - Deutsche Bank Securities

Just to interrupt you there, sorry. You haven’t done that to-date. I mean typically you guys have been signing Panamaxes at, I mean their market rates, but they are not in incredibly enticing rates, and when you look at it, does that imply that you guys would take a more spot oriented focus, if you didn’t think that the rate was there for a period charter.

Andreas Michalopoulos

Well, we have to create our base Justin, and what we can do today is that we can collect our fruits. So we have the base now, and the price, which we will be buying the six, we can afford to trade them on the spot market unless we see a lucrative opportunity to charter them. But there is not going to be any harm in keeping the vessels free of charter, because we have others who charter them.

Justin Yagerman - Deutsche Bank Securities

Yes, I know that’s a fair point. Last question before I let you go. You have heard some rumblings out there that as we move into 2010 the banks may get a little bit more aggressive with ship owners who haven’t necessarily made good on their loans to-date or in some kind of breach on financing side, are you in talks with any banks right now about potentially taking over assets that are distressed, is that something that’s going on, or has this market bailed out most of those owners?

Andreas Michalopoulos

We are in touch with different banks from the side of raising loans, and indeed we have financed the Houston, which we have taken delivery on the 28th of last month, and indeed we have financed the New York, which is going to be delivered to us in February 2010. We have no problem there whatsoever. Now, at the moment the banks are okay, I suppose with their covenance etc. and if they are having any problems, and they want to dispose themselves units we are here to talk.

Operator

Your next question comes from Gregory Lewis - Credit Suisse.

Gregory Lewis - Credit Suisse

Stacy, in your presentation you mentioned that, the next first half of 2010 could see roughly 85 million deadweight ton capacity delivered. I mean given the fact that you heard a date that’s been around 30 million deadweight tons of capacity, how realistic do you think that is, and sort of what’s your house view on, what we might see as you go with your deliveries next year?

Anastassis Margaronis

Well, these are guesses that we have to provide judging by what has been happening to-date. I guess it has become more accurate as we reach towards the end of the year.

The reason that I provided that during my short presentation with the number of over 80 million tons deadweight of new buildings for the first half of 2010 was to remind everybody what would happen, if the ships scheduled for delivery during 2010 in the first half, and all the ships of 2009, which has been pushed back were delivered during the first six months of next year.

If you ask us whether we consider this as being likely, I would say that no, it is not likely, it is possible. However, if what we consider unlikely happens we have to have no illusions about what will happen to the freight market. The freight market regardless of the any realistic estimates of the increase in demand cannot take that kind of flub of new buildings.

So our only hope for maintaining some sort of normalcy in the large bulk carrier freight market is to have a lot of the 2010 deliveries of the first half being pushed back towards the second half, and have this kinds of a domino effect.

Now, the strength of the market will depend of course on how many of these ships are going to be pushed back because we have to keep in mind that yards have a certain capacity in keeping ships undelivered to owners for delivery a quarter or two down the road. They cannot keep an infinite amount of ships for practical purposes if not for financial purposes as well, they don’t know where to put them in the first place, and also they have to have finances in order to continue building the ships that they have contracted to build.

So, the reason why I mentioned the number was not because we consider it a likely number of delivered ships for the first half of 2010, but to draw people’s attention as to what the market is creating in the form of a backlog of ships which have to be delivered at some point in time, because they are either built or they have started being built, and therefore will indeed be completed.

Gregory Lewis - Credit Suisse

Okay. And then looking at your fleet, it constitutes the Panamaxes and Capes, you mentioned that the Capes and the Panamaxes order books look a lot more challenging than the Handymax, given that profile and vessels that you are looking at acquire, are you looking at Handymax’s or some like you are primarily looking at Capes and Panamax?

Anastassis Margaronis

Yes, I would like to clarify here, maybe I confused you with the use of the terminology during the presentation, it is Handysizes that we feel are going to benefit most from cancellations, to a lesser extend the Handymaxes, and as we go up the size range, the benefit of cancellations becomes less and less.

So, whether we are looking at Handysizes or Handymaxes the answer is that we are looking at all kinds of bulkers, which are there to be both at attractive prices, with the only provider that if we go into a different sector than what we are already now, we are not going to stopping buying one or two ships, we would like to establish a presence in that market with charterers and operators and we will be buying more than a few ships. But the answer is, yes, we are looking at the entire spectrum of the dry bulk market.

Gregory Lewis - Credit Suisse

Okay. Thank you. My last question is for Andreas. Andreas, when I look at the fleet, the majority of your fleet has no debt on its vessels. What type of leverage would you consider taking on, on those vessels to go out and buy additional ships or do you want to keep those vessels debt free?

Andreas Michalopoulos

No, we consider the leverage that we can take on the vessels that are not mortgaged. I remind you that we have a revolving credit facility. At the moment we have mortgaged 11 vessels and mainly Panamaxes, all the Panamaxes, and therefore we have bigger vessels free. We consider that part of our file power, and therefore we are there to use those vessels to leverage out the company.

Now, if you take that question and get the overall picture, as we have said many times, during these downturn in the cycle, and that is in the next 24 months we intend to gradually increase our fleet and buys assets, and the idea for us would be to have the company fully leveraged when the market starts picking up, fully leveraged meaning, if possible, even to the extend of 80%. So, with all the vessels mortgaged. I hope that answers your question.

Operator

Your next question comes from Natasha Boyden - Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

Just from a follow-up, I know everybody has been asking a lot of questions on your potential acquisition strategy, but just one further there, you may have mentioned this, but how many vessels do you think would be a good number for you to acquire, I mean obviously I realize it depends on what subjects do you look at, but do you have a general idea?

Simeon Palios

Well, I think that something around 30 ships will be sufficient to provide you with enough vessels for a substantial return to your shareholders. At the moment we have 26 and we are about on February to take delivery of the 21st. So we have about another nine ships to go.

Natasha Boyden - Cantor Fitzgerald

So you had a preference for which sub sector?

Simeon Palios

Well, I think you have to stick, as Stacy said before, to what you have already established yourself, and I think we have established ourselves as operators for Panamaxes and Capes, and I think that this is the easiest way of investing Capes and Panamaxes.

Natasha Boyden - Cantor Fitzgerald

Okay. And given the current environment with the finance I mean are you seeing any kind of bulk deals out there or are you still seeing sort of one or two ships for sale?

Simeon Palios

I think speaking one at a time will be better for our strategy and investing over the next 30 months or so.

Natasha Boyden - Cantor Fitzgerald

Okay. And then Andreas, can you just provide us with some guidance on dry docking for 4Q ’09 and 2010, and also did you have any dry docking in the third quarter?

Andreas Michalopoulos

Yes, we did have dry docking in the third quarter. We had mainly a Motor Vessel Oceanis, Motor Vessel Protefs, and Motor Vessel Erato that went into dry dock for the third quarter of 2009.

We already had in the fourth quarter the intermediate survey done for Motor Vessel Sideris GS and the intermediate done for Motor Vessel Semirio, Semirio was in Europe dry dock and we foresee to have two additional dry docks for the fourth quarter and that is one Panamax Motor Vessel Nirefs and one Cape. So that’s what we foresee for the fourth quarter of 2009.

Now, what is the scheduled for 2010, and you understand that these figures are still are moving in general is for special surveys and to intermediate surveys.

Operator

Your next question comes from Urs Dur - Lazard Capital Market.

Urs Dur - Lazard Capital Markets

If supply is exceeding demand next year and asset values still have a ways to go, where does it become attractive to buy, one, and then the second sort of follow up to that is, does it make any sense, not buy all at once, since you say gradually in your statements, but not buy all at once but maybe averaged down as the pace goes in case you may miss the bottom?

Simeon Palios

Yes indeed that’s correct. So we are going to peak single ships over the next 30 months or so.

Urs Dur - Lazard Capital Markets

And about how much further do you think asset values have to go down here, are you still just watching it very closely?

Simeon Palios

Well, I think it’s irrelevant how they would go provided of course you start buying not at once the lot, you have to start out there a month or two months and go on for the next 30 months.

Operator

Your next question comes from Omar Nokta - Dahlman Rose.

Omar Nokta - Dahlman Rose

I just have one quick question as a follow up to your earlier comments. Did you say that within a month you actually expect to start putting your capital to work?

Simeon Palios

Yes something like that.

Omar Nokta - Dahlman Rose

Okay, so, all right. So in December we may be seeing a transaction enough?

Simeon Palios

Well, yes, or there about. There is nothing definite but we have been looking for the last three or four months now and we are getting closer.

Operator

Your next question comes from George Pickerel - Stephens Inc.

George Pickerel - Stephens Inc.

Well, thanks guys all my questions have been answered.

Operator

Your next question comes from Rob MacKenzie - FBR Capital Markets.

Rob MacKenzie - FBR Capital Markets

A follow up question on the contracting strategy, clearly Diana has a balance sheet to ride through in choosing spot market rates if you will, but with the, if you will, the supplying and demand situation you all have presented, it would seem to make sense for Diana to continue to locking up ships on time charters with substantial duration as those opportunities present themselves, is that a fair characterization? And/or how do you think of your mix of time charters with long term and short term spot going through the next year, year and a half?

Ioannis Zafirakis

Hi, this is Ioannis Zafirakis. We are accepting the fact that our strategy entails the portfolio approach to chartering meaning that in case things do not go in our way we have to hedge our bets in the chartering part of our business, and therefore, we will continue having the same chartering strategy, the portfolio approach that we set, and we have for the last year or so, meaning that every time we buy a vessel or every time we have to re-fix a vessel it has to be seen as part of the whole picture in our fleet.

For us the easiest thing will have been to fix them for the next three or four years the rates of today and take for granted that the market is not going to bereave us for the next three years, something that we said that we do not really know. So we have to continue the hedge strategy in our fleet employment.

Rob MacKenzie - FBR Capital Markets

Yes, and Ioannis on that topic, I mean how do you all think about adjusting the mix of your portfolio from one part of the cycle to the next.

Ioannis Zafirakis

No, when you have a hedging strategy you should not adjust. It seizes to be a hedging strategy. We are watching closely the short term events that influence our industry, but we are not influenced in such a manner that we adjust our chartering policy every now and then.

Operator

Your next question comes from Scott Burk - Oppenheimer

Scott Burk - Oppenheimer & Co.

I just had a follow up question on the leverage. When you talk to your bankers are they willing to support you going up to as high as 80% leverage on your fleet volume?

Simeon Palios

Well, as we said through out and when we come out of the downturn and hopefully when the cycle turns. So, we won’t go to 80% at once. But, having said that the loans that we have contracted now for Multivessel Houston and Multivessel New York are very good loans and the banks have been there to lend us money to an amount that is very satisfactory even during the difficult times for banks.

Anastassis Margaronis

And we have to keep in mind Scott that we don’t want to go to 80% finance even if it was available at today’s values because we do not consider them to be so low that they would warrant our company to leverage to that extend on ship acquisition.

Scott Burk - Oppenheimer & Co.

Okay. And the other kind of follow up question is, it seems like with that much leveraging, even 50% leverage or even just considering the cash flow you are likely to spend off in the next two years that you could purchase a lot more than nine vessels. Do you anticipate selling some of your older vessels as you go through this process of buying vessels or just trying to make mix and match that up?

Simeon Palios

It’s not the time to sell it's the time to buy. When the freight market is low I think it’s better to buy rather than to sell. So we don’t have the mind to sell and we would be buying.

Andreas Michalopoulos

With regard to the nine ships that you mentioned, I mean Mr. Palios mentioned that as an indication. I don’t think that all this is casting stone and that he might not change view, it depends on the level of prices that we are going to have ships offered to us, and the liquidity which as you correctly pointed out it will probably be sufficient to go and buy more ships without going even close to the 70-80% leverage level. You are quite right there.

Simeon Palios

I think you have in mind that we have to allow for sufficient flexibility to whether possible future capital and shipping market storms. Now, with regards to the number of ships, it depends whether you are going to buy because today there are ships given at today’s market which with nine ships you can go up to $1 billion. Anyway, to pinpoint somebody to nine ships that’s why we don’t like to say in numbers because you come and you try to tell us that it is not enough.

Scott Burk - Oppenheimer & Co.

It just seemed like it could be more, but I understand, I understand. I had one other question about the debt and that is a lot of companies are now turning to the bond market, would you guys consider that to increase your leverage potential or does the bond market seem too expensive?

Ioannis Zafirakis

Scott, this is Ioannis. For a company like ours and with the size that we have decided and the corporate track together with the strategy, the balance sheet that we currently have, we feel that there is a room for a specific amount to be drawn as a bond, something that we have not certainly have planned already. But we should not exclude the possibility of Diana having a bond in our balance sheet, not a very big portion of our balance sheet, and treat that as a perpetuity forever.

Scott Burk - Oppenheimer & Co.

And then one final question, is the Sideris, the Sideris looks like it rolls off at the end November. Is there another charter on that today I just haven’t seen?

Simeon Palios

No, see there is GS charter finishes by the end of 2010, close to the end of 2010.

Operator

There are no further questions at this time, I will turn the conference back over to Mr. Palios for closing remarks.

Simeon Palios

Thank you again for your interest and support of Diana Shipping. We will move forward decisively and prudently to realize the tremendous opportunities that we see in our market and to deliver growing shareholder value in the years ahead. We look forward to speaking with you next quarter. Thank you.

Operator

Thank you ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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