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Executives

Ioannis E. Lazaridis – Chief Executive and Chief Financial Officer

Jerry Kalogiratos – Commercial Officer

Analysts

Jonathan B. Chappell – Evercore Partners

Michael Webber – Wells Fargo Securities LLC

Ken Hoexter – Bank of America Merrill Lynch

Urs Dur – Clarkson Capital Markets

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Capital Product Partners L.P (CPLP) Q4 2013 Earnings Conference Call January 31, 2014 10:00 AM ET

Operator

Thank you for standing by and welcome to the Capital Product Partners Fourth Quarter 2013 Financial Results Conference Call.

We have with us Mr. Ioannis Lazaridis, Chief Executive Officer and Chief Financial Officer of the Partnership. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you the conference has being recorded today, Friday, January 31, 2014.

The statements in today’s conference call, that are not historical facts, including our expectations regarding developments in the markets, our expected charter coverage ratio for 2013 and 2014 and expectations regarding our quarterly distribution may be forward-looking statements, as such defined in Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statements about the performance of our common units.

I would now like to hand the conference over to your speaker today, Mr. Lazaridis. Please go ahead, sir.

Ioannis E. Lazaridis

Thank you, Jerry and thank you all for joining us today. As a reminder we will be referring to the supporting slides available on our website as we go through today’s presentation.

On January 22, 2014 our Board of Directors declared a cash distribution of $0.2325 per common unit for the fourth quarter of 2013, in line with the management's annual distribution guidance. The fourth quarter common unit cash distribution will be paid on February 14 to unit holders of record on February 7, 2014.

The Partnership’s net income for the first quarter 2013 was $2 million including a $7.1 million loss from the sale of the motor tanker Agamemnon II to unaffiliated third parties and a $0.6 million loss related to the settlement of the Partnership's claims against OSG and certain of OSG’s subsidiaries in connection with their voluntary filing for relief under Chapter 11 of the U.S. Bankruptcy Code. To remind you in the second quarter 2013, we received $32 million from the sale of the OSG claim to Deutsche Bank and net charge of $0.6 million is again net amount and we do not anticipate any further charges.

The Partnership's operating surplus for the quarter amounted to $29.2 million, was a $6.7 million higher than the $22.5 million from the fourth quarter of 2012 – from the fourth quarter of 2013, common unit coverage for the quarter stood at 1.2 times.

During the quarter we have increased the Partnerships' senior credit facility from $200 million to $225 million. The facility is non-amortizing until March 2016, and will be used to fund up to 50% of the charter free value of future acquisitions of medium range product tankers and Post Panamax container acquisition.

As of today $150 million remain available under the facility. As previously announced the Partnership entered into two separate agreements with non-affiliated third parties to acquire an eco-Type MR product tanker. The 2013 built Aristotelis and to sell the 2008 built tanker Agamemnon II. The Agamemnon II was delivered to its new owners on November 5, 2013. The Partnership took delivery of the motor tanker Aristotelis on November 28, 2013, which shortly thereafter commenced its period time charter for $17,000 gross per day for 18 to 24 months with Capital Maritime.

The acquisition of the motor tanker Aristotelis was funded with proceeds from the sale of Agamemnon II and approximately $6.3 million from the Partnerships' cash balances. In addition our sponsor Capital Maritime & Trading has chartered our two 2008, Universal built Suezmax crude tankers, Aias and Amore and the MR product tanker Arionas for a minimum period for one year. As a result and as of the end of the fourth quarter 2013 the average remaining charter duration of our charters stood at 8.8 years, with approximate charter coverage of 84% for the total days of 2014.

Turning to slide two, revenues for the fourth quarter of 2013 were $47 million, compared to $38.3 million in the fourth quarter 2012, the increase is being mainly a result of the Partnership's increased fleet size and improving employment day rates for certain of the Partnership's vessels. Total expenses for the fourth quarter of 2013 were $32.7 million, compared to $26.3 million in the fourth quarter of 2013 the increase mainly the result of the increased fleet size of the Partnership. General and administrative expenses for the fourth quarter of 2013 amounted to $1.4 million compared to $2.3 million in the fourth quarter of 2012, the decrease resulting from the Partnership's Incentive Compensation Plan becoming fully vested in the third quarter of 2013.

Total other expenses, net for the fourth quarter of 2013 amounted to $4.7 million, compared to $3.8 million for the fourth quarter of 2012, the increase resulting from higher interest cost as a result of the increased indebtedness of the Partnership. After taking into account the loss from the sale of the Agamemnon II which we talked about earlier and the preferred interest in net income attributable to the unit holders of the $18.9 million plus the Convertible Preferred Units outstanding as of December 31, 2013, the result for the fourth quarter was $0.02 net loss per limited partnership unit.

Moving on to slide three, you can see the details of our operating surplus that determine the distributions to our unit holders compared to the previous quarter. Operating surplus is a non-GAAP financial measure which is defined fully in our press release. Adding certain non-cash items back to net income we have generated approximately $29.2 million in cash from operations before accounting for the Class B preferred unit distribution.

After adjusting for the Class B unit distribution, the adjusted operating surplus amounted to $25.2 million, which translates into 1.2 times common unit coverage. On slide four you can see the details of our balance sheet. As of year end the Partners' capital amounted to $781 million which is $207 million higher than the Partners' capital as of the end of 2012. This increase primarily reflects the issuance of 13.7 million common units, which raised the gross proceeds of approximately 126.5 million. The issuance of the 9.1 million Class B Units, which raised gross proceeds of approximately $75 million, combined with the payment of $88.2 million in distributions since December 31, 2012 and the net income for the 12 months period ending December 31, 2013.

As of the end of the fourth quarter the Partnership's total debt has increased by $124.9 million to $583.3 million, compared to total debt of $458.4 million as of the end of 2012, as a result of the loan advances in connection with the acquisition of five 5000 TEU Container Vessels acquired during 2013. Overall our balance sheet remains strong with a net debt to capitalization of 37% and with Partner's capital representing 55.7% of our total assets.

Turning to slide five, you can see our fleet profile. The Partnership's fleet is built in first year yard and at high specifications and is comprised of 18 product tankers, seven Post Panamax container vessels, four Suezmax tankers and one Capesize bulk carrier. It has more than tripled it size since our IPO in 2007. The average fleet age stands at 5.8 years compared to 9.4 years for the industry average.

Turning to slide six, we are pleased to have chartered two of our crude Suezmax’s, the M/T Aias and M/T Amoureux to Capital Maritime for one year at $24,000 gross per day plus 50/50 profit share on actual earnings settled every 6 months. The earliest redelivery under the new charters is in November and December 2014, respectively. Both vessels were previously under charter with Capital Maritime at the same rate.

The motor tanker Amore Mio II entered into a new charter with Capital Maritime for a minimum charter term of one year for $17,000 gross per day after its charter expiration to BP Shipping, which was for a gross rate of $17,500 per day. The earliest redelivery under the new charter is in November 2014.

Finally. the motor tanker Arionas extended its employment with Capital Maritime for an additional charter term of a minimum of 12 months for $14,250 gross per day plus 50/50 profit share for breaching Institute Warranty Limits, which is $450 per day higher than the previous employment day rate. The earliest redelivery under the new charter is in October 2014. All charters were unanimously approved by the Conflicts Committee of the Partnership.

Turning to slide eight and taking into account, the new charters of Aias, Amore, Amore Mio and Arionas. The average remaining charter duration is 8.8 years. We have eight product tankers that will see their charters expire over the coming 12 months. Period fixtures in the product tanker market have continue to improve and we expect to take advantage of the attractive fundamentals of those market, the increased activity in terms of period fixtures as well as the better period market to secure favorable employment for these vessels.

In addition, we have recently seen strong signs of recovery in the spot crude tanker market, which we are optimistic that may translate into an improved period market and allow us to employ our Suezmax crude tankers at higher level.

On to the next slide, we will review the product tanker market developments in the fourth quarter 2013. Spot earnings for the fourth quarter were modestly weaker compared to the previous quarter due to the lower rates on the transatlantic trade. However, increased activity out of the U.S. Gulf and increased demand in Atlantic towards the end of the quarter saw an improvement in product tanker spot rates towards the year end. Overall 2013 saw strong returns for the product tanker spot market with average earnings rising to the highest level since 2008 with ship owners and operators in reality enjoy even stronger return than the traditional indices suggest through the regulation.

The positive momentum in the market was mostly driven by the solid rates within ex U.S. Gulf. The U.S. oil in conjunction with rising product demand in Latin America and also higher exports to Europe, so U.S. product exports surging to more than 3 million barrels per day in 2013 thus offering substantially higher employment opportunities for medium range tankers compared to the previous years. The record exports on the U.S. Gulf contributed to a solid increase in product from our demand last year estimated at approximately 4.3% in 2013.

For 2014 analyst expect demand growth to increase by 4.2%. The product tanker period market experienced increased activity in the fourth quarter and throughout 2013, in response to the strengthening spot rate environment and the positive outlook for the sector, while period rates rose to the highest levels since July 2009. The number of period fixtures for product tankers in 2013 is estimated to have reached their highest level on record. We expect the positive development in the product tanker market to continue in 2014 on the back of stronger oil demand, rising exports from the US Gulf and favorable changes in the refinery landscape.

On the supply side, net fleet growth for product tankers for 2014, is forecasted to come below the month growth at 3.4%. The product tanker order book continues to experience the slippage year-to-date, as approximately 33% of the expected MR delivery and handy size tanker newbuildings were not delivered on schedule for the full year of 2013.

In addition, the MR order book seems to have stabilized with most product tanker shipyard capacity until the mid of 2016 being accounted for. We believe that the current MR product tanker order book at 18.6% of the total fleet in combination with the demand fundamentals and the order book slippage should not affect the rising trend of the spot and period charter rates going forward.

Turning to the next slide, the Suezmax spot rates improved significantly in the fourth quarter of 2013 rising to the highest level since the first quarter of 2012. The momentum of the Suezmax spot market continued well into January 2014, which saw the highest average monthly spot earnings since July 2008. The IEA forecast of global demand growth for 2013 has been revised upwards at 1.2 million barrels per day for 2013, improving to 1.3 million barrels per day in 2014 as the macroeconomic backdrop improves.

Suezmax tanker deadweight demand is expected to grow by a solid 4.8% for the full year 2014 on the back of increasing market share for Suezmax’s on the back of increased volumes to Europe and the Far East. On the supply side, analysts expect 2014 net fleet growth of 2.4% to be below Suezmax’s demand growth.

The total Suezmax order book now stands at 10%, the lowest in percentage terms since 1996. Slippage continues to affect tonnage supply, and it is on the increase as approximately 54% of the expected Suezmax's newbuilding year-to-date during 2013 were not delivered on schedule. Finally given the market backlog, very few new Suezmax orders have been placed over the past 12 months, which should help improve the demand supply picture going forward.

Turning to the final slide, our full year 2013 common unit coverage excluding the $31.4 million gain from the sale of the Partnership's claims stood at 1.1 times, it was 1.6 times including the proceeds from that sale. We believe that common unit coverage distribution is well supported going ahead. The Partnership has good revenue visibility as 84% of the 2014 days are fixed and the remaining duration of charters stands at 8.8 years following the recent acquisitions. As of the fourth quarter the Partnership can benefit from the full contribution of the five 5,000 TEU post panamax eco containers which were acquired during 2013. The product tanker market fundamentals remained positive as the dislocation of refinery capacity and increased U.S. oil exports positively affect product tanker demand going forward.

The Partnerships' shorter term and staggered employment strategy for our product tankers positions us well to capture improving product tanker period rates as a number of our product tankers and crude charters expire over the next 12 months. The Partnerships may potentially grow its unit coverage through accretive acquisitions in the product in container market. And finally the Partnership boasts a strong balance sheet and liquidity and has no newbuilding commitments.

I would like to conclude by reiterating our commitment to the $0.93 per unit annual distribution guidance going forward and to the continued enhancement of our financial flexibility and distribution coverage. We believe that the improved distribution coverage, the better tanker market fundamentals and potential growth opportunities provide a solid base for the upward revision of our annual distribution guidance in the future.

And with that I am happy to answer any questions you may have. Jerry?

Question-and-Answer Session

Operator

Thank you very much indeed sir. We will now begin the question-and-answer session. (Operator Instructions) And from Evercore Group, your first question comes from the line of John Chappell. Your line is now open, sir.

Jonathan B. Chappell – Evercore Partners

Thank you, good afternoon Ioannis.

Ioannis E. Lazaridis

Hi, Jonathan.

Jonathan B. Chappell – Evercore Partners

I want to start on those last two points that you made both potential acquisitions and the balance sheet. So with the increase in the credit facility to $225 million and as you think about excess cash generation relative to the current distribution, what you kind of view your liquidity as for potential acquisitions as we entered 2014?

Ioannis E. Lazaridis

Look, we have been able to increase our facility towards year end, which means that now we have available $150 million that can finals up to 50% of medium range product tankers as well as containers. You know that in the previous call we had, we have identified the certain vessels from Capital Maritime, but potentially we can find the way to the Partnership, which amount to three containers and up to eight medium range product tankers delivery starts from 15. And I believe that as I mentioned to you towards the end of the call that the fundamentals are there to see continued good distribution coverage going ahead. So, we believe liquidity will be there and will be robust. And we will be able to execute our transactions.

Jonathan B. Chappell – Evercore Partners

Yes, so if you think about 2014 as a transitional year before those 11 ships delivered to Capital Maritime or there any other kind of second hand non-drop down possibilities. I would think that given your structure you would prefer assets that had time charters, but you probably don’t want to sign new charters at this point in this cycle or long-term. So is there anything like that out there, do we kind of have to wait that we’ve closed in 2015 before there is more growth?

Ioannis E. Lazaridis

We have been transacting over the years not only with Capital Maritime you saw recently we bought the vessel from the third party. And we have chartered that to Capital Maritime, as there are opportunities out there. There is a number of owners that will probably be looking to sell. So we’ll evaluate its particular transaction on its merits and on its accretion. So nothing out there for bid us or prevents us from acquiring vessels prior to 2015.

Jonathan B. Chappell – Evercore Partners

Understood. Just two last quick ones on the Suezmax chartered extension to the Aias and the Amore. Those had options at 28,000 a day with profit shares. Can you just talk about what went into extending at the current rate as oppose to the options that were already embedded in there. And then also the six month profit share. Can you just kind of walk through the logistics of that and when that would show up in your accounts?

Ioannis E. Lazaridis

I’ll pass you in a second to Jerry Kalogiratos just to give you a little bit of the backdrop of the Suezmax market. But be aware that the 24,000 that these vessels were earning up to the end of the last year and there will be earnings today. It’s quite attractive compared to what we’ve seen of late even after the Suezmax market has bounced. And I also want to say that these – fix this by annual profit settlement base on actual is the same exact feature that we had as in the previous charters and be aware that in the previous quarter we booked approximately $200,000, $300,000 from one of the Suezmax as a result of that. Be aware of the Suezmax they are operating at well above this base rate.

Jonathan B. Chappell – Evercore Partners

So just to be clear well above in the first quarter, is that going to show up in the first quarter results or is that all kind of aggregated to the first six months that will show up in your June results?

Ioannis E. Lazaridis

We have to wait for the June results.

Jonathan B. Chappell – Evercore Partners

Okay. Thank you.

Jerry Kalogiratos

[Indiscernible]

Ioannis E. Lazaridis

Okay, hi Jon.

Jonathan B. Chappell – Evercore Partners

Hi. Jerry.

Ioannis E. Lazaridis

As you know the Suezmax spot market was quite depressed for a while and as a result we have seen very few period fixtures and a few period fixtures that you have seen were closer to $14,000, $15,000 per day until late November that was also the time that these fixtures that Capital Maritime were negotiated and concluded.

Even after the recent spike in spot rates in the Suezmax market that is in December and January onwards, we have seen again very little fixtures actually only coupled for six months which were in the high-teen [indiscernible]. So even if you compare this fixture to 24,000 plus profit share which is as you pointed out could be potentially very important element. This again compares very favorably to the current period rate which period market which will continue and these are very liquid until I think product market participants are convinced that is spot rates with they are sustainable.

Jonathan B. Chappell – Evercore Partners

Very helpful, thank you, Jerry. Thanks Ioannis.

Ioannis E. Lazaridis

Thank you, Jon.

Operator

Thank you sir. Now from Wells Fargo, you have a question from the line of Michael Webber. Please ask your question, sir.

Michael Webber – Wells Fargo Securities LLC

Hey, good morning guys. How are you?

Ioannis E. Lazaridis

Hi, Mike.

Michael Webber – Wells Fargo Securities LLC

Ioannis, I wanted to follow-up on the couple of Jon’s questions, first around potential growth and you mentioned that that mostly the assets deliver a year out and then we’re looking at 2015 where none of them are going to be delivered or potentially chartered. And I just wanted to kind of clarify on your comments when you mentioned the capital obviously has a history of supporting the MLP and clearly this quarter we’ve seen capital stepping and then taking on more assets. Is it possible that you could see capital apparent to charter dropdown assets with CPLP even take them back on charter to facilitate that growth a bit earlier than actually deliver – actual delivery and kind of free up capital to take a bit more risk in the market.

Ioannis E. Lazaridis

I didn’t really get the last part of your question, I mean if you look that there is a several elements in your question. Number one 2015 is not that far away.

Michael Webber – Wells Fargo Securities LLC

All right.

Ioannis E. Lazaridis

And certainly we are very, very pleased about the distribution guidance we had during the quarter also for 2013 and I gave you a little bit of backdrop why we deliver the distribution guidance will it remain robust in 2014.

Michael Webber – Wells Fargo Securities LLC

Right.

Ioannis E. Lazaridis

And also I think that if you look at the charters at Capital Maritime has on the MRs with Capital Products they are attractive, but they are not necessarily very different from what you see in the market today. If anything today you’ll see rates moving above $15,000. So certainly there is attractive charters and attractive charters out there. And one reason in the past why we wanted to have Capital Maritime as the counterparty is because of the flexibility that they gave us that it was not asking for optional gears unlike some charters used to ask in the past at the same rate.

Today, this has changed, you see many more fixtures that have the second-year as a high rate, we recently had actually one of our vessels to be fixed like that. So I believe that as we go closer to the 2015, you will see a more about the fixtures that potentially this must come and get and based on how they look then we will evaluate whether they – we can buy the [indiscernible].

Michael Webber – Wells Fargo Securities LLC

Right. Yes, I guess, effectively just trying to ask a little bit about the – that charter back philosophy was available for the vessels any assets that are currently the parent. I think that – I think you are saying that it is. In terms of actually getting out and kind of laying out what assets CPLP would look at from the parent kind of building out a potential drop down timeline or giving a degree of visibility obviously delivering a year-out, but you have a fair amount of visibility in terms of what’s there.

How do you think about kind of weighing that out for the market and maybe kind of giving a past to what your future fleet might look like in terms of drop downs? How you think about starting to actively talk about that and kind of weighing it out and talk about dropdowns?

Jerry Kalogiratos

I think we will be able to talk to you later this quarter – in the second quarter about this past. I also see – I also mentioned a couple of things in the press release as well as in this call regarding the forward guidance, where we say that they improved distribution coverage, with better market fundamentals, and the potential growth opportunities provide the solid base for the upward revision of our annual distribution guidance.

So I think we’re generally positive and I think that if you look at the vessels that we have the three containers and the number of the amounts, these are starting to deliver from the very early part of 2015. This is what, that’s far away, if you think, if you buy a vessel today in MR, don’t expect that this is going to be delivered in the next few weeks, it’s going to take a few months in any case. So 2015 is not that far away.

Michael Webber – Wells Fargo Securities LLC

All right. Okay, that’s helpful. In general it seems like just about everything is working for you guys right now in terms of either drybulk rates, or you have any real exposure there, but crude rates part of tanker rates and there seem to be a pretty fair amount of demand for containerships, so it seems like just about everything is available in one way is your performer and other as opposed to couple of years ago.

When you look at either what’s out in the market or what’s at the parent today and again, I don’t want you to jump the gun in terms of actually laying out that path. But is there preferences CPLP when you think about adding to your asset base, which markets you would prefer to get exposure in?

Jerry Kalogiratos

We will have these assets, but awful lot of best accretion, so that will be the criteria that we will use.

Michael Webber – Wells Fargo Securities LLC

Fair enough. And when you look at the different markets that you are in right now and on a forward basis, what you think actually offers you the best accretion right now?

Jerry Kalogiratos

I think if you look at the containers we have, we will be able to communicate you in they are not too distant future certain charters for them. We will probably communicate certain charters potentially for the MR, and then we will be able to give you this stuff away, but as I said this is going to happen later in the quarter or in the second quarter. So you will be able to see better what happens. The trade facility in any case allows us to buy either Post Panamax containers or product tankers, so and that’s what we build on Capital Maritime, so it’s pretty straightforward what we will be looking at.

Michael Webber – Wells Fargo Securities LLC

Fair enough. Great. Thanks for the time guys.

Jerry Kalogiratos

Thank you.

Operator

Thank you very much indeed. Now from Bank of America, your next question comes from Ken Hoexter. Your line is now open, sir.

Ken Hoexter – Bank of America Merrill Lynch

Wonderful, good morning, Ioannis. How should we look at the increasing reliance I guess on Capital Maritime, it seem like one of vessels when off-chartered a BP and you are adding another vessel on to Capital Maritime is there a reluctance of charters to sign up for the shorter term charters in the market. I’m just trying to understand why we’re seeing an increasing flow towards Capital Maritime rather than out into the market with the end users?

Ioannis E. Lazaridis

Ken, I wanted to say couple of things, the percentage of revenue that was Capital Maritime in the quarter was 28%, in the third quarter was 33% and the year ago was more than 45%. So certainly in actual numbers the reliance to Capital Maritime is decreasing not increasing, and certainly if you look at the number of MRs that we have with Maritime as fewer as they were before. I think we have nine, now we have seven, but we have the Suezmax’s that we fixed, think I mentioned or just I mentioned some numbers that I think these are attractive charters and they have profit sharing agreements, so this today are not available from other parties. BP have the Amore Mio for a particular trade, this trade has finished and the rate that they were offering was not as attractive as the rate of Capital Maritime, so that’s how it is, but overall the reliance to Maritime is decreasing.

Ken Hoexter – Bank of America Merrill Lynch

Can you give us any update on the health of Maritime?

Ioannis E. Lazaridis

I think I mentioned to you in the previous quarter some numbers Maritime doesn’t have any updated financial, so for the six months as I mentioned the assets of Maritime are close to billion, it has a very strong cash position and it’s total equity as a percent of the total assets was more than 60%, it’s leverage is very little, so I can reiterate that today.

Ken Hoexter – Bank of America Merrill Lynch

Wonderful and then you kind of went over the order books for the MRs obviously its scaled up quite a bit I guess over the last couple of months, any thoughts on if that’s beginning to impact or maybe capped the potential of rate increases or is that do you still see it moving in terms of the growth of global demand given the shale development and the produce demand or do you see capping rates?

Jerry Kalogiratos

Hi Ken, this is Jerry, I think up to now we have seen an improving period market and especially if you see it from our perspective because period market tends to be a bit more stable than the spot market and you look what has happened over the last few years, you would say that from 2010 where we had an average one year rate for MRs at 13,160, today 2013 the average one year rate was 14,350 and if anything today we are around 15 or above. We have seen the recent fixtures to continue to look in MRs for one year at around $14,750 to the $15,000, while three to five year charters are between 15.5 to 16 which are old numbers that you haven’t seen since 2008, 2009.

In addition to that which I think is the probably the most encouraging sign is that there are number of charters out there that continue to take tonnage so in 2013 we had 250 fixtures, in 2012 we had 180 and just in 2012 it was only 85, so there it continues to be appetite. So until now we haven’t seen any, we haven’t seen supply affected the day rates if anything I think you know that rates are still on the rise.

Ken Hoexter – Bank of America Merrill Lynch

So I don’t disagree with anything you’ve just said, I mean that’s kind of obvious and we are seeing what’s going on the rates right now, so and I understand the increased fixtures, I’m talking about the excitement that you’ve had I guess for being in this market relative to the sale and size of which we’ve seen, the order book grow for 2015, 2016 deliveries. Do you now, does it temper kind of your growth potential into those years given that the sizes and scale of the order book ordering that’s gone on over the last year?

Ioannis E. Lazaridis

There are two sides of these one of its supply and there continues to be slippage which is something that we have discussed in the past and while the slippage in 2011 and 2012 might have been closer to 50, 2013 is was still one third of the expected order book. So maybe the order book has grown, but supply probably is not going to be what it looks like that’s one thing. Secondly I think what makes us feel comfortable with the market is demand.

I think the demand story continues to be very robust, so that way demand continues to be above expected fleet growth and you know we felt comfortable with the demand when the story was about to find out dislocation. The added demand that’s coming from the excess crude production in the U.S. as well the exports that are coming under the U.S. growth means that demand will continue to be robust over the next couple of years. So I think we feel pretty comfortable despite the increased order book.

Ken Hoexter – Bank of America Merrill Lynch

Okay, I’ll move on, but I guess if you’ve already seen the slippage go from 50 to 33 I presume that’s going to continue to decrease given that the market is improving and people want to take deliveries and so again I think you are going to see an increased scale there. So I just want to – but again it doesn’t matter because right now you are seeing a good pricing on the market. The new build commitments, Ioannis you talked a bit about what capital Maritime has. Would Capital Product Partners ever be the one to place the order or will it always go through Capital Maritime or secondhand vessels and then – and get the charter already in by the time you take deliver or would you go ahead and make any new build commitment?

Ioannis E. Lazaridis

No it will be Capital Maritime; Capital Products would not place new builds.

Ken Hoexter – Bank of America Merrill Lynch

Okay and is there any, you mentioned the vessels that Capital Maritime has coming, there is no update or any additional vessels that we’ve seen since then, right it’s just the ones that…

Ioannis E. Lazaridis

No.

Ken Hoexter – Bank of America Merrill Lynch

Okay.

Ioannis E. Lazaridis

Three containers and eight of them are for the figures.

Ken Hoexter – Bank of America Merrill Lynch

Wonderful, I appreciate the time.

Ioannis E. Lazaridis

Thank you.

Operator

Thank you very much. Now from Clarkson you have a question from the line of Matthew Phillips. Your line is now opened sir.

Urs Dur – Clarkson Capital Markets

Thank you, hi Ioannis its Dur.

Ioannis E. Lazaridis

Hi, how are you?

Urs Dur – Clarkson Capital Markets

Sorry to beat a dead horse in the product tanker market, but the spot rates in particular has obtained bit of nose dive for the past six weeks or so and it’s traditionally one of the tightest time for the year. I mean do you expect that to complete over into the period market at all or do you view this as more of a short-term blip?

Ioannis E. Lazaridis

Dur we mentioned just a moment ago we haven’t seen that that means we have seen very strong activity we have seen rates going up. So really we have not seen that.

Urs Dur – Clarkson Capital Markets

Has there been any significant Ice Class premium or is that been in line with historical averages mostly.

Ioannis E. Lazaridis

To be honest, there hasn’t been much I mean if this not yet the time to see if anything in the next quarter we will see, if we see any.

Urs Dur – Clarkson Capital Markets

And also could you comment on the employment update for the ships for this quarter, there is a bit of a delta between Aias and Amore Mio, it was – that just function of the slippage?

Ioannis E. Lazaridis

Certainly and the consumptions.

Urs Dur – Clarkson Capital Markets

I’m sorry.

Ioannis E. Lazaridis

And the consumptions.

Urs Dur – Clarkson Capital Markets

Okay, great. Thank you.

Operator

Thank you, sir. Now from Deutsche Bank you have a question from Justin Yagerman. Please ask your question, sir.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Hey, Ioannis, how are you?

Ioannis E. Lazaridis

Hi, Justin, how are you?

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Fantastic, trying to think about the distribution here obviously coverage’s improve the containerships helped out a lot, are you guys just waiting to get through the rechartering which you have in the first half of the year and feel more confident about the market. I’m trying to figure out what’s holding you back for raising the distribution. It seems like you have the fire power with your facility to do what you need to do and coverage is good, so what’s the way?

Ioannis E. Lazaridis

Well, that’s a good question I think that we try to communicate a bit more clearly what our intentions are and I think we have pointed to our intention being that in the future we’ll be increasing our distribution guidance, so we have to put that in black and white, but we also in some questions that they asked us earlier is also regarding the dropdown of the vessels in 2015, probably some people would like to communicate is how we see this going ahead and that will be important also for you to see what will happen afterwards.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

I’m not sure I follow that so basically you still considering what kind of dropdown activity will take place in 2014, so in the mean time I mean that wouldn’t clearly add to your coverage. So you want higher coverage in order to increase the dividend or a distribution or you comfortable where you are or you are just waiting to get through what the first half market looks like?

Ioannis E. Lazaridis

I think we also want to offer you a better visibility, so you can also have better ability to guess what future distribution increases can look like.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Okay, so I don’t want to put words in your mouth, but it sounds like the coverage needs to go up for you to raise the distribution?

Ioannis E. Lazaridis

No, I think that’s what you understood if anything else I mentioned to you is that the factors that affect the coverage point to an improvement in 2014 anyway. So the better rates that we have in product tankers and the better market compared to the rates we have that will allow for better chartering of the products, as well as the fact that will have full year contribution from the containers and that will certainly help. I think that what I was saying, so that points to a better coverage anyway, what I was saying is that for any impact on the evaluation because that’s what we want to see is to see and to have this improvement in the guidance give you the sustainable and given as we potentially can add a number of vessels to the Partnership. We will like to structure it in a way that you will be able to see and calculate the sustainability, that’s what I am saying.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

That’s lot clear and I appreciate it. So what’s target leverage then when I think about how you do about doing that you guys are early low leverage. I think you probably want to stay at lower leverage given that you have this distribution coverage need. So where we going from with the $150 million that you have at your availability, will future acquisitions be financed fully through that or should we expect a mix of equity and debt?

Ioannis E. Lazaridis

As I mentioned, this facility allows for up to 50% of the value of the assets. So, by definition it will provide only half of the funding. So the other half we have to, as I say, find it and structure in a way that will be accretive.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Okay, great. Now a more technical question, when I think about the charters that you have in the product tanker market and many of them do have profit sharing on them. One thing that we’ve noticed in the recent product tanker market has been that the benchmark rates TC2, TC14 are not necessarily indicative of what’s going on in the broader market from a spot standpoint. How do you think about that when structuring profit sharing is right now and do you feel like you’re using stale benchmarks to judge your product profit shares?

Ioannis E. Lazaridis

If the profit shares that we have in our product tankers relate to IWL. So effectively they apply mostly two routes throughout that IWL prevails i.e. routes that are mostly escaped [ph].

Justin B. Yagerman – Deutsche Bank Securities, Inc.

Okay.

Ioannis E. Lazaridis

So this is the profit share we have.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

So it’s just a nice issue. Last question and I think Ken, asked this a little bit, but maybe getting out from a different angle. Is the rational behind the re-charters to the capital even though you got an express desire to lower the exposure? Is that added flexibility in your mind if the market really takes off, do you think capital would release their shifts and allow you to go a third-party as, I think, you have in the past?

Ioannis E. Lazaridis

I think that it depends, if we n Capital agree and the Conflicts Committee agrees for that to happen and that’s number one. But I think what I mentioned earlier the exposure to capital is reduced evidence on quarter-on-quarter [indiscernible] certainly compared to 2012. But I want to say that if you look in the past, in the recent past, when you wanted to fix with a charter most of the time they were looking for an optional year in their favor at the same rate. So the flexibility that Capital Maritime was offering us was that this particular rate, this particular optional year that didn’t request. So that effectively allowed us to create this staggered exposure that every year as the market increased to fix the vessel at a better rate. Had we not had that then we’ll have stuck over the past two years, for instance, at the low rate compared to what we will have had or what we had with Capital Maritime.

Justin B. Yagerman – Deutsche Bank Securities, Inc.

That’s very fair. Now it’s not the time to give away options. Thanks for the time. Appreciate it.

Ioannis E. Lazaridis

Thank you.

Operator

Thank you very much indeed. (Operator Instructions) Mr. Lazaridis as there are no further questions I’ll pass the floor back to you for closing remarks.

Ioannis E. Lazaridis

Well, thank you everybody for finding the time to participate and thank you once again. Bye.

Operator

Thank you, sir. With many thanks to our speaker today that does conclude the conference. Thank you for participating, you may now all disconnect. Thank you, Mr. Lazaridis.

Ioannis E. Lazaridis

Thank you.

Operator

Thank you, bye-bye sir.

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