Diana Shipping's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Diana Shipping, Inc. (DSX)
by: SA Transcripts

Operator

Greetings and welcome to the Diana Shipping Fourth Quarter 2013 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Edward Nebb, Investor Relations Advisor for Diana Shipping. Thank you sir, you may now begin.

Edward Nebb

Thank you, Melissa and greetings to all. Thanks for joining us for the Diana Shipping Inc. 2013 fourth quarter and year-end conference call. The members of the Diana Shipping management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Executive Vice President and Secretary and Ms. Maria Dede, 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 under the Safe Harbor provisions of the Private Securities Litigation Reform Act. The forward-looking statements are based on assumptions, expectations, projections and beliefs as to future events that may not prove to be accurate.

For a description of the risks, uncertainties and other factors that may cause future results to differ from the forward-looking statements please refer to the company’s filings with the Securities and Exchange Commission.

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

Simeon Palios

Thanks Ed. Good morning and thank you for joining us. In 2013 Diana Shipping continued to pursue the strategy designed to position the company for future opportunities and an eventual upturn in the drybulk shipping cycle. In particular we significantly expanded and diversified our fleet during the year. Recently, we also strengthened our balance sheet with a preferred share offering giving us further capital to support long-term growth.

And we continue our balanced and prudent approach to chartering maintaining relationships with well-established high quality charterers. As a result of our fleet expansion activities we ended 2013 with a fleet of 36 vessels with five more under construction for delivery in next two years. This compares with a fleet of 30 vessels and two under construction a year ago.

During 2013, we took delivery of two Capesize vessels, two Kamsarmax vessels and one Panamax. At this time vessels under construction includes two newbuildings ice class Panamax vessels expected to be delivered to the company during the first and second quarters of 2014 as well as two newbuilding Newcastlemax vessels and one Kamsarmax newbuilding expected to be delivered during the second quarter of 2016.

We continued to manage the fleet in a prudent manner that promotes a balanced of Time Charter maturities and produces a predictable revenue stream. Currently, our fixed revenue days are 66% for 2014 and 20% for 2015.

Earlier this month we launched a public offering of 2.4 million shares of 8.875% Series B cumulative redeemable perpetual preferred stock in an underwritten public offering at US$25 per share. The gross proceeds from the offering were $60 million, before the underwriting discount and other offering expenses payable by the company. Even before this preferred offering our balance sheet was one of the strongest in our industry.

The company’s cash position at December 31, 2013 was nearly US$241 million. We operate with a very manageable degree of leverage. Long-term debt, including current portion and net of deferred financial growth was $431.6 million compared to stockholders equity of over US$1.25 billion.

Now let me review our financial results for the fourth quarter and full year 2013. Time Charter revenues totaled $39.5 million for the fourth quarter of 2013 and $164 million for the full year. Net loss to Diana Shipping, Inc. was $9.6 million for the fourth quarter of 2013 and $21.2 million for the full year.

In summary Diana Shipping is continuing to pursue the strategy that has maintained our stability and financial flexibility in a volatile industry environment while investing in the assets that will generate long-term growth. We will continue our program of selectively and gradually adding to our fleet as market conditions permit us to acquire vessels at attractive prices.

We will operate our fleet according to balanced and prudent chartering policies that promote a predictable revenue stream and that enable us to sustain profitable operations. And we will continue to monitor our balance sheet to provide financial flexibility, provide the capacity to support growth and maintain an acceptable degree of leverage.

With that, I will now turn the call over to our President, Stacey Margaronis for a perspective of industry position. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Anastasios Margaronis

Thank you Simeon and we are glad to be participating in yet another quarterly conference for the Diana Shipping Inc.

The last quarter of 2013 and subsequent development in the drybulk market since the beginning of 2014 are certainly main headlines and are noteworthy in spite of their predictable seasonality. Fluctuations in earnings across the size ranges have been very soft and subtle. For example the Baltic Dry Index started the fourth quarter of last year at 1,994 reached a high of 2,337 in December and we actually closed at 1,130. The Baltic Cape Panamax Index stood at 1,786 on October 1, reached a high of 2096 during December and closed yesterday at 1,308.

The Baltic Cape Index moved 3,816 to a high 4,291 on 12 December 2013 only to close at 1,625 yesterday. On 17 February, yesterday the average cost of time charter rates for Capes stood at $8,849 per day. For Panamax the rate was US$10,485.

Let’s turn to microeconomic development. The IMS revised its forecast for global growth in 2014 as growth in the United States and United Kingdom accelerated. The global economy is projected to grow 3.7% in 2014 compared to an estimate of 3.6% given in October 2013. The U.S. economy is expected to expand 2.8% this year; the UK economy expected to grow by 2.4% this year but there is a latest estimate, in fact they are now predicting growth at over 3% for 2014.

China is expected to grow by 7.5% in 2014. Chinese DWT reportedly grew by 7.7% year-on-year in the fourth quarter of 2013, which was marginally slower than the 7.8% year-on-year rate of growth experienced in the third quarter of last year. In a time that domestic demand in some sectors is still very strong sales of new homes in China grew by 21% year-on-year to US$1.1 trillion last year, both despite the government effort to cool the property market.

The euro area is expected to grow by 1% this year and 1.4% in 2015, which indicates that finally recovery will materialize in the back of the year in Eurozone. In January, economic activity in the euro area according to Maersk broker expanded at its fastest pace in 30 months as the manufacturing Index increased to 53.9 from 52.7 in the prior month. The JPMorgan global manufacturing EMI which measures global activity within the manufacturing sector was 52.9 in January, slightly down from 53 in December, this means that activity is expanding but at a slightly lower rate.

Certain analyst now believe that the main risk to growth will not come from instability in countries such as Argentina and Turkey but from deep [defense] problem similar to what we are witnessing today in time. These analysts are particularly concerned by the size of the unofficial banking sector in China which appears to be responsible for just under $3 trillion in loans and debt obligations at various time, and which accounted for 30% of all such debt obligations at the end of 2013.

The problem that could develop from a breakdown in the orderly operation of this informal banking sector are unthinkable, more so as the percentage of world GDP coming from developing nations is now at 40%, which is a 18% higher than it was two decades ago. A similar theme has commented on in a recent article which appears in Time magazine in mid-January.

To summarize the author of the article pointed out that China has built up economic imbalances for some years and in his view they’re are not sustainable for much longer and need to be addressed by the authorities pretty soon. The basic problem in his view is that for almost a decade China’s economic growth has been fueled by cheap credit and government spending a classic developing nation’s problem.

As a result of this China’s growth rate has averaged more than 9% per annum in the past few years. However the price has been high. According to Morgan Stanley China’s total private and public debt is now 215% of GDP an unprecedented level for any developing nation. The argument runs that without serious changes that gradually shift large sectors of the economy off cheap credit relatively soon. This is a bubble that is going to burst as it part of a model that cannot keep performing forever. Particularly worrying is the fact that local government’s debt which stood at a massive US$1.7 trillion in 2010 move to US$3.3 trillion at the end of 2012. It is probably it’s even higher than today.

All the above factors dictate that is imperative that China’s present leadership manage to transform the economy from one in which growth is to a large degree dependent on cheap credit to one in which growth is based on a more a sustainable and realistic business model. If they succeed than China will emerge and more stable and definitely become the largest economy in the world. If they fail, then at best China will face a slump, one that will look a lot like those of other high flying developing nations such as South Korea and Taiwan, which have ended the period of rapid growth and settled into a more normal growth path. In many of those cases though slow growth coincided with right [perestroika] and the opening up of the political system.

The consequences of such dramatic social, political and economic changes in China will be profound across all industries. As for shipping the effect from growth in the transportation of bulk commodities could be quite serious and most growth models predicting a favorable supply-demand balance will look unrealistic for a number of years. This is will lead to a freight rate slump until supply adjusts to the new demand growth figures.

The worst case scenario of failure to address these imbalances is something that nobody wishes to serious contemplate as in fact the world’s economic growth and the financial system as a whole would be devastated.

Now turning to more positive matters we can look at steel. According to Howe Robinson world’s steel production reached at 1.6 billion tons in 2013, up slightly from 0.5% compared to 2012. The growth came mainly from Asia and the Middle East, while crude steel productions in all other regions decreased slightly compared to 2012.

Annual production in Asia increased by 6% while Chinese production reached 779 million tons, up 7.5% from 2012. China’s share of world production increased from 46.7% to 48.5%. The European Union reported a decrease of 1.8% compared to 2012. Stockpiles of flat and construction steel products in China have according to Commodore Research increases for seven competitive weeks and stands at 15.4% million ton. We are moderately above last year’s level.

Iron ore now. According to Clarksons world seaborne imports of iron ore increased by 7% in 2013 from the year before and they are forecast to increase by a further 7% to $1.27 billion metric tons this year. China’s imports are predicted to increase by 9% to 895 million metric tons this year. Brazilian exports are projected to expand by 3% this year to 336.6 million metric tons after registering a 1% increase in 2013. As for Australian exports these are projected to increase by 11% this year and reach 643.8 million metric tons.

We would have preferred to predicate the percentage increases to be the other way around as we got the effect on tonne-mile demand for Australia. Chinese iron ore stockpile have kept rising for 18 consecutive weeks and as a consequence reached 96.9 million tonnes. Commodore Research pointed that at this last year iron ore stockpile stood only 67.5 million tonnes.

According to Commodore Research in the long-term most new iron ore come into the import markets from new mine developments will create pressure on iron ore prices and simply cause China to consume a greater proportion of imported iron ore rather than domestically produced iron ore. If newbuilding orders do not flood the markets with vessels this will certainly be a positive factor for Capesize earnings going forward.

Coking coal now. Clarkson’s predict that in 2014 World seaborne import of coking coal will increase by five to ten compared to last year and reach to 180 million tonnes. In 2013 China overtook Japan to become the largest importer in the world of coking coal by importing 59.3 million metric tonnes of this commodity. In 2014 the imports are estimated by Clarksons to increase by a further 12% and reach 6.3 million metric tonnes. This quantity compared with a mere 3.7 million metric tonnes China imported in 2007.

As for thermal coal. Clarkson’s are forecasting an increase of 4% in the quantity of steam coal that will be imported on a worldwide basis in 2014. From this total China is predicted to import a 157.4 million metric tonnes which is slated to be 5% more than they imported in 2013. As a general comment it would be worthwhile noting that the low quality Indonesian coal has a negative impact on pollution level. If pollution limits are reinforced then China may become increasingly reliant on Australian thermal coal in coming years which could be good news for large bulkers. However some concern is caused by the reported coal stockpiles in Qinhuangdao, China’s largest coal port which has now risen to an 11 month high and stands at 8.2 million tonnes, very close to the port’s maximum storage capacity of just over 9 million tonnes.

Furthermore coal stockpiles at power plants stood at approximately 82.5 million tonnes at the end of last month. Commodore Research reports that Chinese demand for imported thermal coal cargo has recently come under pressure due to the high stockpile mentioned above.

Turning to grain products now, it is estimated by Clarkson’s that world imports of grain products increased by 6% during the 2013-2014 season compared to the previous seasons during which they probably shrunk by 3%. According to the United States Department of Agriculture maybe as many as 341.7 million tonnes of grain will be exported worldwide during the 2013-2014 grain season. Howe Robinson predict that global wheat production in 2013-2014 will come in at a record level with Canada is expected to produce and export record volumes of this crop. If this materializes, it should be good news for Panamax and Supramax vessels. Chinese imports are expected to grow by 111% to 19.2 million metric tonnes.

Let’s turn to supply now and developments to the fleet. According to Clarkson’s at the beginning of this month the overall dry bulk carrier order book stood at a 149.7 million tonnes deadweight which is 21% of the existing fleet. The most overbuilt sector are the handymaxes with 24% of the existing fleet on orders. Howe Robinson estimates that the bulk carrier grew by 6% in 2013, about 813 vessels were delivered totaling 52.3 million tonnes and 437 ships of 22.8 million tonnes deadweight were scrapped. This year they predict that both delivering and scrapping rates will slowdown.

Analysis by the Korean Shipping Messenger agree at least to the scrapping predictions and warn that unless demolition activity picks up significantly from the low levels seen thus far this year all estimates of a healthier market going forward could be at risk in spite of the slowing down of newbuilding deliveries. Clarkson’s are estimating that the Panamax fleet may grow by 9% this year and reach 195.7 million deadweight tonnes. On February 1, the newbuilding order book for these ships stood at 35.4 million metric tonnes, which represents 18.9% of the existing fleet.

As for Capes the Clarkson predication is that by the end of 2014 the fleet will have grown by 5% and reached 304.5 million deadweight tonnes while the order book as of February 1 stood at 64.5 million tonnes deadweight representing 21.8% of the world fleet. [inaudible] have point out that last year’s late rally made owners overoptimistic and about 900 bulkers were ordered three times as many as in 2012. From this total a 115 were Capesizes and over 370 were Supramax.

The risk therefore is that even though 2014 is likely to be more rewarding for owners than last year the newbuildings are bound to cause some dark clouds over the medium term. As for slippage, according to Maersk Brokerage slippage in new-building deliveries during 2013 was just under 30%. Most analysts expect that the slippage might be similar this year. As for vessel prices, the three month trend of prices of modern cape is up around 10% and for Panamaxes about 8%. Clarksons predict that this year’s supply demand forecast materialize and according to their [pricing] scenario asset values that could appreciate up to 50% by the end of 2015 from where they are today.

We find such predictions pointless in view of the large number of unpredictable factors that affect asset prices particularly psychology, future expectations and shipyard newbuilding capacity.

As for the age profile according to Banchero Costa less than 8% of the existing Capesize fleet has been built before 1994. In the Panamax sector about 11% of the trading fleet is over 20 years old. This is not practically encouraging as we drive the potential candidates for scrapping going forward.

Talking about scrapping, during 2013 about 22.2 million deadweight tonnes were scrapped from which 8.2 million deadweight tonnes were Capes and some 4.5 million deadweight tonnes Panamax. So far this year Clarksons reports significant drop in scrapping across the size ranges. We hope that this trend will not continue for the rest of the year.

Congestion now, since our last report there have no significant changes in congestion at the main coal and iron ore loading ports around the world. The only noteworthy exception was a sudden jump according to Howe Robinson in congestion in the Brazilian grain port. They calculate that at the end of last month there were around 114 vessels waiting to load only soybean. Howe Robinson attribute these delays partly to hangar maintenance and dredging coinciding with new crops starting to arrive at the loading port putting plenty of pressure on port infrastructure. Howe Robinson adds that this time last year there were hardly any hold ups for delays at these ports.

Finally we turn to the outlook in the shipping market on a sector-by-sector basis. According to Gibson Shipping Energy this year has the potential to be a better year for Capes than 2013 even if China continues to grow at a slightly slower pace. Nevertheless they predict that the Capesize freight markets may continue to show considerable volatility because vessel chartering will depend not only on the price of iron ore and the levels of stockpiles but also and maybe more importantly on the availability of credit to Chinese steel mills and/or the import agent of these commodities.

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In the Capesize sector 67 vessels are scheduled for delivery this year as-well-as 56 ships in the 200,000 deadweight plus size range. Even though some of these ships will not be delivered in time the low average age of the Capesize fleet raises concerns about the number of suitable scrap candidates over the next two years or so. Gibson conclude that even though Capesize time charter rates will be better this year compared to 2013 it’s unlikely that they will cross the US$20,000 per day mark. However they also point out much higher rates per day cannot be ruled out during the quarter short lived spikes in the freight market.

On Panamaxes Gibsons are much less upbeat. With about 250 vessels scheduled for delivery this year they conclude that unless there is significant increase in world seaborne trade these new buildings will probably struggle. And any long term improvement in Panamax freight rate is unlikely.

Commodore Research agree with its forecast and add that in the near term Chinese demand for imported thermal coal will come under pressure and that this will in-turn put further pressure on the drybulk market in general and the Panamax market in particular. In the medium term and long term we remain cautious due to the fact that Panamax fleet growth is said to remain the largest out of the whole four drybulk carrier classes this year and it might take a while for these ships to be absorbed by the market.

Finally we can close by reiterating that the policy of Diana Shipping Inc., has not changed and the [position] of ships will continue on the basis of we cannot and we will not even try to predict at the point in time when the market will turn in a sustainable manner and ship values will move up steadily with earning.

As demonstrated by a recent corporate activity in the equity capital market we’ll continue to take the necessary steps to protect the strength and integrality of our balance sheet, will put the company in the best position to be able to finance future acquisition until the market turns and drybulk shipping starts moving towards this next [speed].

I will now pass the call to our CFO, Andreas Michalopoulos who will provide us with financial highlights of the fourth quarter of 2013 and the all of our last financial year. Thanks.

Andreas Michalopoulos

Thank you Stacey and good morning. I am pleased to be discussing today with you Diana’s operational results for the fourth quarter and year-end December 31, 2013.

For the fourth quarter of 2013 net loss amounted to $9.6 million and the loss per share was [inaudible]. Time charter revenues decreased to $239.5 million compared to $49.4 million in 2012 a decrease that is attributable to decreased average timer charter rate that we achieved for our vessels during the quarter compared with the same quarter of 2012 and yet generated amortization of prepaid charter revenue amounting to $3 million due to the earlier delivery of m/v Houston.

This decrease was partially affected by revenues derived from the vessels Polymnia delivered in November 2012, Myrto delivered in January 2013, Maia delivered during February 2013, Baltimore delivered in June 2013, Artemis delivered in August 2013, and Myrsini delivered in October 2013 and P. S. Palios delivered in December 2013.

Ownership days was 3,241 for the fourth quarter of 2013 compared to 2,710 for the same period of 2012. Fleet utilization was 99.5% compared with 96.3% in the quarter of 2012 and the daily time charter equivalent rate was $11,694 compared to $17,681 in the same quarter of 2012.

Voyage expenses were $1.8 million for the quarter. Vessel operating expenses amounted to $19.9 million compared to $19.3 million in the fourth quarter of 2012 and increased by 2%. This increase was attributable to the 20% increase in ownership days resulting from the enlargement of the fleet. The increase was also due to increased crew cost and insurances and was offset by decreases in all other operating expense categories. Daily operating expenses were $6,155 for the fourth quarter of 2013 compared to $7,128 in the same quarter of 2012 representing a decrease of 14%.

Depreciation and amortization of deferred charges amounted to $16.1 million. General and administrative expenses increased to $7.4 million compared to $6 million for the same quarter of 2012. The increase was mainly attributable to increased salaries and bonuses, legal fees and employees’ retirement obligation.

Interest and finance costs were $2 million for the quarter compared to $2.1 million for the same quarter in 2012. This decrease was attributable to decreased average debt in the fourth quarter of 2013 compared to the same quarter of last year offset by increased average interest rates from 1.58% during the last year’s quarter to 1.79% in this year’s quarter. Interest and other income amounted to $2.9 million compared to $2.2 million in the same quarter of 2012 the increase was due to the interest and finance fees deriving from our loan agreements with Dianna Containership Inc.

Loss from investment in Dianna Containership Inc. amounted to $2.1 million representing our share of the company results during the quarter deriving from our 9.5% ownership of its share capital as at December 31, 2013. This compared to a gain of $45,000 in the same quarter of 2012 representing our ownership of 10.4% of the company’s share capital gain. For the year-ended December 31, 2013 now, net loss for Dianna Shipping Inc. amounted to $21.2 million and the loss per share of $0.26 which includes a 6.1 million loss or $0.07 loss per share from Dianna Containership Inc.

Time charter revenues decreased to $164 million compared to $220.8 million for 2012. The decrease was attributable to decreased average hire rates during 2013 compared to 2012 and the $5.3 million amortization of prepaid revenue compared to $3 million last year and was partly offset by revenue derived from the enlargement of the fleet in 2013.

Ownership days were 12,049 compared to 10,149 for 2012. Fleet utilization was 99.3% compared to 98.7% for 2012 and the daily time charter equivalent rate was $12,959 compared to $21,255 for 2012. Other revenues amounted to $0.4 million and derived from the management agreement with Dianna Containership Inc. terminated on March 1, 2013.

Voyage expenses were $8.1 million for 2013, vessel operating expenses amounted to $77.2 million compared to $66.3 million for 2012 and increased by 16%. The increase was attributable to the 19% increase in ownership days resulting from the enlargement of the fleet. Increase was also due to increased crew cost, insurances, taxes and other operating expenses and was partially offset by decreased stores, [fares] repairs and maintenance cost.

Daily operating expenses were $6,408 for 2013 compared to $6.561 for 2012 representing a 2% decrease. Depreciation and amortization of deferred charges amounted to $64.7 million for 2013. General and administrative expenses amounted to $23.7 million compared to $24.9 million in 2012. The decrease was mainly attributable to decreased expenses for bonuses compensation cost on restricted stock award and company promotion.

Interest and finance cost increased to $8.1 million compared to $7.6 million in 2012. The increase was attributable to increased average interest rates and increased average debt during 2013 compared to 2012. Interest and other income amounted to $1.8 million compared to $1.4 million in 2012 and the increase was due to the interest and financing derived from our loan agreements with Dianna Containership Inc. offset by decreased interest income due to the reduction of our average cash back.

Loss from investments in Dianna Containership Inc. amounted to $6.1 million and this compared to a loss of $1.8 million in 2012. Thank you for your attention we will be pleased now to respond to your question. And I will turn the call to the operator to instruct you as to the procedure for asking questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Gregory Lewis – Credit Suisse

Hello?

Simeon Palios

Hi Greg.

Gregory Lewis – Credit Suisse

Hey Ioannis. So clearly Diana’s balance sheet is right where you guys wanted to be plenty of cash, you have the preferred in your back pocket. When we think about Diana building on its fleet and taking advantage of where we are in cycle over the next I don’t know, I guess what I would wonder is could you quantify over how many years do you think you’ll have opportunities to be buying assets at these levels and just we’ve heard some conversations about limited shipyard availability? Could you sort of talk about placing an order today a newbuild order at a quality yard, when that delivery would come through and then also what types of opportunities you are seeing in the second hand market for tonnage?

Simeon Palios

Well I think you’re placing a new order today most likely the delivery will take place at the end of 2016 but don’t forget that meanwhile maybe there will be some opportunities for re-sales. So the resales will be much earlier than that. So it will depend and probably to how the freight market will develop. So we think that maybe there will be opportunities as we are going along to pick up ships from now until the end of 2015 which could have given as earlier deliveries and still the newbuildings from the yards so you have two avenues to go, one is in building that also the resale.

Gregory Lewis – Credit Suisse

Okay and so and then just what about the availability of existing vessels on the water, the second hand is that something I mean clearly you have shown the ability to do that in the past. Is that market just been overbid where there is just too much demand and not enough supply and that’s sort of making prices…

Simeon Palios

There some ways of availability maybe the prices will be 5% or 10% more as Stacey said but the availability will be less provided you are willing to pay the extra cost. And I think that now that the China – what you call the Chinese New Year is finished I think that ships will become maybe at higher prices but they will be avail yes, and we are looking every day we are on the lookout to buy something.

Gregory Lewis – Credit Suisse

Okay great and then just I mean Stacey thank you for the detail in your outlook. Could you touch on what is going on at Colombia, with the German coal facility and sort of what your outlook is for that and maybe anything that you’ve been hearing about what’s their potential is when that comes back online and how maybe the markets are trying to position itself for that?

Anastasios Margaronis

I don’t see any news for the last three or four weeks about that so what I will say is dated, as what we have got is that we are trying to bring this back online and potential it will be positive because of the vessel position of that port but unfortunately I don’t have latest information on that to give you, sorry.

Gregory Lewis – Credit Suisse

That’s quite all right. and then just one final one from me guys when I think about operating expenses on a daily vessel basis I mean clearly you are doing a good job lowering costs it seems like on a daily vessel OpEx basis that came down nicely. Is that sort of a run rate that we think the fleet can go and continue I don’t think it’s been this low in a couple of years is that sort of a fair number or were there certain events in this quarter that maybe kept daily vessel OpEx a little bit lower?

Andreas Michalopoulos

I think, yes I think if you take a daily number of 6,408 per day per vessel it’s a better figure than the quarterly number of 6,155. So if you take between 6,400 and 6,500 going forward as a run rate you will be more in-line with what we believe is going to happen in 2014.

Gregory Lewis – Credit Suisse

Okay perfect guys. Thank you very much for the time.

Simeon Palios

Thanks Greg.

Operator

Thank you. Our next question comes from the line of Michael Webber with Wells Fargo. Please proceed with your question.

Michael Webber – Wells Fargo Securities, LLC

Hi, good morning guys. How are you?

Simeon Palios

Good morning.

Michael Webber – Wells Fargo Securities, LLC

Well so for the first time in a long time I have got some capital markets related questions for you guys around the pref and just anything you can walk us your top process around the idea behind raising the new money especially when you got [$849] million sitting your balance sheet, earnings 1% or something like that so to come out and raise 9% paper can you just walk us through the thought process there how quickly you think you can put to work whether there is a business theme like there is anything in the pipeline that would require an immediate need of that capital, so maybe just kind of walk us through that thought process?

Ioannis Zafirakis

Hi Mike. This is Ioannis. The same way you have seen us last year and a half buying assets with equity together with new debt you should consider this preferred for our stockholders being similar to debt and we always said that we want to have some leverage to our investment. So basically what we have done with the preferred is we have increased our dry powder on the one side and at the same time, we still have the leverage that we want to have on our investments.

As regard to the timing, as you know very well at the timing of such issuances does not depend it is not a much of the company choosing when to do it but also the availability of such finance in the market. So basically we took, we were ready waiting for that to happen and from the moment we show an open window as regard to the ability of company’s like ours to issue preferred equity through perpetual preferred equity we were there and we did very quickly.

Michael Webber – Wells Fargo Securities, LLC

I guess that’s where I’m coming from is that if you were to finance an asset, the availability of bank debt would more or less be there on demand or it seems like it would be resilient with your balance sheet so if you don’t put that capital to work for a while that’s a pretty high carry cost and it’s a window that open.

Ioannis Zafirakis

We have to compare apples with apples here Mike and you know very well that a bank debt is not the same as preferred equity. You have different covenants, you have covenants, you have mortgages, you have amortization of debt and you have the loss. You have something which is not perpetual, you don’t have an option as a company does try to deem it after year, five or not. So basically comparing the two the 9% will be 3% or 2.5% of the bank loan is not the same.

We want to remind everyone what has happened on the upper part of the cycle again we have been criticized for accepting equity which was at that time a rather it seemed to be to most of the people rather expensive at 11% or 12% and we were asked why don’t you take debt at 1% or also even less, and we were saying at that time, that difference between the two is just the price and clearly you are going to see that we’ll have the price of the cycle.

So basically we’re having a similar situation here where people they don’t see the eight point something and they will try to compare it with bank rate which is not the same.

Michael Webber – Wells Fargo Securities, LLC

No, I think that’s fair I think the key difference is you didn’t have $250 billion of cash on your balance sheet the last year and we can go through it later and they certainly seem like that you manage to stepping into the market I guess to a degree. When you think about the relationship I know again these are not apples-to-apples but those are the fact that you now have a yield your overhead security within your capital structure does that change anyway shape or form your thought process around potentially reinstituting a common dividend down the line?

Simeon Palios

No, as we have said paying dividend or decreasing our equity is going to happen when we are on the part of the cycle where we consider that the use of proceeds is not proper to be, the use is not proper to be on buying more and more assets but doing something else. And therefore, we do not consider introducing a common stock if we don’t end up at this part of the cycle.

Michael Webber – Wells Fargo Securities, LLC

Right. Now that’s what I figured just wanted to make sure. All right, great. That’s all I have got, thanks for the time guys.

Simeon Palios

You are welcome.

Operator

Thank you. Our next question comes from line of Fotis Giannakoulis with Morgan Stanley. Please proceed with your question.

Fotis Giannakoulis – Morgan Stanley

Yes, hi, gentlemen and thank you. I also want to ask about your acquisition strategy. I think that, Stacey mentioned earlier that you will continue with the same pace acquiring assets. Just want to clarify is there a point that you see right now that the prices might not be attractive. We have seen over the last few months second hand asset prices they have gone up good enough at around 15%. Would that be – at what point do you think that the prices are expensive and you are not going to investment further?

Ioannis Zafirakis

Fotis, we will consider whether the prices are expensive or not, but this should not be judged only by itself. We have to consider where we stand on the cycle as regards to time carter rates, spot rates, market psychology and certainly fundamentals like supply and demand. The fact that there has been an increase in the price which is based on an anticipation that we don’t know whether it going to materialize or not, is not going to make us believe that we have suddenly ended up at the upper part of the cycle.

So we have to have concrete evidence that we have moved to the upper half of the cycle before we start buying assets. Of course, by buying at the steady pace as we have said there will be a point where we will have not more money to spend without having left some money aside but this is our strategy and we have to believe that within the next year and half or two years that we will be buying assets. That will be sufficient for the company to be invested at the right time in the cycle before it start being…

Fotis Giannakoulis – Morgan Stanley

Feel more confident that we are at a upper part of the cycle and I am asking both in respect to additional acquisitions but also in respect to the dividend that you mentioned earlier.

Ioannis Zafirakis

The signs include stuff like sustainable increasing demand and sustainable less increase in supply. We do not base our thesis on incremental changes but we want to see big changes in fundamentals like lots of scrapping, no ordering of new vessels. We will have to see clearly demand being stronger than the existing supply of vessels and good macroeconomic situation. At the same time we have to make sure that the yards do not have available slots and capacity to change that very quickly by overproducing vessels, and there are lot of other secret parts that based on experience will make us think that we have ended at the upper part of the cycle.

Of course, we do not claim that we can predict that when this is going to happen, but we have proven in the past that we know very well where we stand at the cycle at any moment, and that’s the most important thing.

Fotis Giannakoulis – Morgan Stanley

Thank you Ioannis. I think that last year you have bought around 10 to 12 vessels. Is this pace of acquisition going to stay stable going forward for 2014? And also if I remember well about a year ago you were buying assets because they were extremely underpriced compared to historical but these assets were not generating sufficient returns. Do you fell that right now any further acquisitions they generate returns and I am asking also in relation to this new preferred issuance that they have nearly 9% cost. Do you think that the current rate they can pay down this additional cost and do you foresee that you might need additional preferred equity in order to fund your future growth?

Ioannis Zafirakis

Fotis, first of all the pace should not change 10 to 15 vessels is something that we will presently like to achieve during 2014, but you know logistics always are not easy for that to happen but that’s the target the same pace. Now you said, at the beginning you said that, we were buying assets that we considered them to be very lowly priced which may be correct but that was not the reason why we’re buying the assets. It was because we were at part of the cost. We have discussed in the past that shipping industry start that makes give the opportunity to good people and shareholders of a good company to make much, much higher returns of almost 9% that you referred to.

So secondly, we do not have something in mind imminently at the present but this goes together with our total portfolio this existing vessels and the new ones that are going to coming into the company and the 8.875% recourse is the cost of an instrument that in shipping is to do it the right way, it gives us the leverage that you want in order to produce very good returns for your shareholders.

Fotis Giannakoulis – Morgan Stanley

Thank you Ioannis, and on last question regarding your operations, you have expanded considerably in the last year and it seems there is more to grow. How ready are your operations in order to access additional vessels and what could be the maximum amount of vessels that you can accommodate based on current set up? And if you are going to need additional people and how would that affect your G&A expenses?

Andreas Michalopoulos

As you can see, we have increased – we have actually increased our operations to be able to accommodate more vessels, and we have also increased our infrastructure in terms of software, the use and various tools that we use in the office. So we feel very comfortable that with the current set up we can manage a fleet that is expanding at it is. Having said that, we have also increased the head count as we already said according to plan and according to the vessels we acquired.

In terms of real numbers, you have seen also that our G&A and our especially per vessel G&A are constantly going down. We feel those will stabilize as we go along and as we increase the headcount to be able to service all of vessels. So we feel very comfortable that for the next two years with our expansion plan, we can accommodate the vessels with a steady G&A per vessel.

Fotis Giannakoulis – Morgan Stanley

Thank you very much, Andreas.

Andreas Michalopoulos

You are welcome.

Operator

Our next question comes from the line of Justin Yagerman with Deutsche Bank. Please proceed with your question.

Justin Yagerman – Deutsche Bank

Hi. Good morning guys. Few questions here one in general so far in 2014 market lows are higher than what we saw in 2013. Obviously we’re still early on in the year. You guys have said in the past that you are, I think somewhat confident that we would test OpEx again from the standpoint of where rates are going to go and that you would have a shy at potentially lower asset values, how are you guys thinking about that now?

Do you still think that you could potentially buy ships lower than where we are today or do you think that the market has turned to a point where you’re probably buying ships from here at or above where current vessels are being quoted?

Simeon Palios

Justin we may feel that opportunities like this may arise and we may see this at even lower prices in 2014. However, start talking about potential problems in demand or start making assumptions about how many vessels are going to get delivered finally or not is something that is going to end up as a secular discussion something that we’ll go on and on but we – the bottom line of what we have said is that we do not share the same view with most of the others. We are not so enthusiastic about the prospect of 2014.

And therefore we should not exclude the probability of buying vessels cheaper than the prices of to-date. But of course if you see for example there is a very big discrepancy today with the spot rate compared to the a year time charter or two year time charter, the spot rates are at the bottom there we are talking about $8,000 a day for a Cape and you can still charter a vessel for a year at $22,000 or $23,000 per day or even for two years, something like this.

So basically that also view that the psychology that everyone seems that things in 2014 are going to be better. But if you look back we have seen that things do not go the way everyone wants to go and there is plenty of wishful thinking in that way of thinking. So we should not exclude the probability of asset prices being lower than what we see today at the middle of 2014.

Justin Yagerman – Deutsche Bank

Fair enough. Along the line the question that was just asked Andreas the $7.5 million G&A in the fourth quarter with a company that’s now managing more ships and you have newbuilds that you are dealing with and you also have comps involved. How should we think about your run rate for G&A going forward as we look in 2014?

Andreas Michalopoulos

I think if you go forward into 2014 you should take [and little bit] of same answer I am going to give that for operating expenses here. You should take the full year G&A and that is $23.7 million as a full year and if you put around $25 million max for the year 2014 you will be in the good ballpark. The fluctuations you see within the quarters are normal fluctuations for us and depend on various events that happened from annual meetings to what have you that happened during your quarters and that showed us fluctuations. The year-end number is more appropriate.

Justin Yagerman – Deutsche Bank

Okay. And finally just an update I am assuming that the issues in the quarter with the Houston or some of what caused some of the revenue shortfall, may be an update on where you are in that process, do you have litigation against the charterer, do you have any expectation of how things are going to go from that side with Shagang on recovering any of that lost charter hire?

Simeon Palios

Yes Justin, we are going through the process which had been agreed with charter party for resolving disputes which involves mediation and arbitration and we are confident that at the end of this process which should not last too long, we will be in a position to recover the funds that are due to the company as a result of the early delivery of the ship to her owners. So all this is happening in Hong Kong now.

Justin Yagerman – Deutsche Bank

Okay, great appreciate the time, guys, thanks very much.

Simeon Palios

You’re welcome.

Operator

Thank you. Our next question comes from the line of Chris Combe with JPMorgan. Please proceed with your question.

Nishant Mani – JPMorgan Securities LLC

Hey good afternoon guys, this is Nish Mani on for Chris. Just want to follow up on one quick question regarding your preferences, the Capesize segment versus Panamax you noted earlier that both you and Clarkson share slightly bullish optimistic outlook for Cape versus Panamax, I want to get some more color on that and see if your acquisition strategy in the future would be geared to more Capesize (inaudible)?

Simeon Palios

We, as we have said, that we – most of the analysts, the shipping analysts they expect the Capesize to be in a better position than the Panamaxes but if you read between the lines you will see that this is something that may happen for the short-term and we know very well being in the industry for many years that in the medium to long-term all the types of vessels are following the trend.

So basically we should not show a preference to Capes or Panamax or bigger vessels or Kamsarmaxes. And don’t forget also that whatever you are buying market prevails as regards to the price that you are paying. And there is a reason why Panamaxes seem to be cheaper today than Cape. And this is why someone may consider to buy Panamax compared to Cape, to a Capesize vessel.

So the answer is no we will not show a preference as regards a type of vessel. But of course we stay put in our strategy to buy everything above, anything above Panamax including the Panamaxes.

Nishant Mani – JPMorgan Securities LLC

And you guys noticed a noticeable volume right now higher volume among one class versus the other in the secondary market or more sellers interested in getting rid of Panamax tonnage versus Capesize or do you kind of see it as being generally being inline the same?

Simeon Palios

No there is no particular difference here. Well by definition and numbers of ships that exists are greater in the sub-Cape sectors and the Panamaxes, Kamsarmaxes and post Panamaxes combined of course are lot more in number than Cape, but at this point and time there is generally a lack of sale candidate at least of the technical specifications and quality that we are looking for. So we are not seeing any difference but we are seeing very few sale candidates. So the sample is so small that we can’t draw any conclusion.

Anastasios Margaronis

That would have been the case if there was a fixed price. Now that the price as we said earlier changes in the asset that are available for sale you should not see more or less being offered because this has been taken care of by the price decrease or increase of each of the size. If you had a fixed price yes, you could have noticed something like [with].

Nishant Mani – JPMorgan Securities LLC

That makes sense. And then finally just turning to the balance sheet, just a quick question on leverage and targeted leverage going forward, as we noted we are towards closer to the bottom of the cycle than we are towards the basically the middle or top So do you guys see this as a time to lever up on incremental transactions or are you going to continue to maintain just kind of the 50% to 60% incremental leverage for each additional vessel?

Simeon Palios

We’ll continue to maintain around 50% leverage -- that we have had as a strategy as steadily as we acquire vessels we will increase our leverage as well at this part of the cycle.

Nishant Mani – JPMorgan Securities LLC

Okay, that’s very clear. Thank you so much for your time guys. Appreciate it.

Simeon Palios

You’re welcome.

Operator

Thank you. Our next question comes from the line of Rune Sand with Nordea Markets. Please proceed with your question.

Rune Sand – Nordea Markets

Good morning everyone. Rune Sand from Nordea Markets, most of my questions have already been answered actually more or less with one question perhaps. If you could give some more color on why the [CTAE] rates declined by as much as 10% for the quarter, despite you adding 5% operating days during the quarter, if it’s just as simple as the lower rate on the new charter contract or are there any other changes in the quarter that we need to take into consideration?

Simeon Palios

You see, it all depends on how many vessels we had available for re-chartering during that quarter. And we as you know very well we are trying to have an equal distribution of the vessels that we are opening in every quarter in order to be very close to the average. However, sometimes it happens that we are not there for example, previous quarter we didn’t have Capes to re-charter and it was a Capsize market that’s moved up and basically the distribution of the Capes that were coming for new charters was not evenly spread through the period and this is what happened.

But constantly this is very flexible way of doing it and we are looking into this constantly and we’re trying our best to be diversified as regards the types of vessels that they are opening, within the cycle and within the quarter. In this quarter we didn’t manage very well not having Capes for re-charter.

Rune Sand – Nordea Markets

Thank you. That makes good sense. And that’s it from me.

Simeon Palios

You’re welcome.

Operator

Thank you. And there are no further questions at this time I’d like to turn the floor back over to management for closing comments.

Simeon Palios

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

Operator

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

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