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Diana Shipping Inc. (NYSE:DSX)

Q3 2011 Earnings Call

November 23, 2011 9:00 AM ET

Executives

Edward Nebb – IR Advisor

Simeon Palios – Chairman and CEO

Anastasios Margaronis – President

Andreas Michalopoulos – Chief Financial Officer

Ioannis Zafirakis – Executive Vice President and Secretary

Maria Dede – Chief Accounting Officer.

Analysts

Michael Webber – Wells Fargo

Justin Yagerman – Deutsche Bank

Gregory Lewis – Credit Suisse Group

Fotis Giannakoulis – Morgan Stanley

Sal Vitale – Sterne, Agee

Gary Chase – Barclays Capital

Michael Pak – Clarkson Capital

Lambros Papaeconomou – NYFEX Asset Management

Operator

Greetings. And welcome to the Diana Shipping Incorporated Third Quarter Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edward Nebb, IR Advisor for Diana Shipping. Thank you Mr. Nebb, you may begin.

Edward Nebb

Thank you, Rob. Good morning or good afternoon all. Welcome to the Diana Shipping Incorporated 2011 third quarter conference call. The members of the 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, which you can see in its entirety in today’s news release. Certain statements made during this conference call, which are not statements of historical fact are forward looking and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act.

Such forward-looking statements are based on assumptions, expectations, projections, intentions and beliefs as to future events that may not prove to be accurate. For a description of the risks, uncertainties and other factors that may cause future results to differ, please refer to the company’s filings with the Securities and Exchange Commission.

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

Simeon Palios

Thanks, Ed. Good morning and thank you for joining us. Diana Shipping delivered respectable financial performance during the 2011 third quarter, despite operating in a dry bulk marketplace and the economic cycle that continue to be extremely challenging. While the overall market environment remains unsettled, we believe that the outlook for the balance of this year and into 2012 is for continue pressure on rates.

In this difficult environment, shareholders should be rest assured that we will continue to follow our time tested strategies, managing our chartering operations in a balanced and conservative manner, prudently expanding our fleet and our revenue generating capacity, and maintaining a sound balance sheet.

We continued to pursue chartering policies that promote a balance of time charter maturities and sustain a predictable revenue stream. Currently, our fixed revenue days are 100% in 2011 and 79% in 2012.

Significantly during the first quarter we enter into time charter agreements for our two Newcastlemax newbuildings, the m/v Los Angeles and the m/v Philadelphia through 2016.

Last week, we announced a further expansion of our fleet with an agreement to purchase the MV Vathy, a 2010 built Panamax dry bulk carrier of 81,297 tonnes deadweight for a price of US$32.25 million.

The vessel to be renamed Leto is expected to be delivered to the company by the sellers during the first quarter of 2012. With this new acquisition, as well as our two Newcastlemax newbuildings our fleet would consist of 27 dry bulk carriers.

We have continued to emphasize a focused balance year with strong liquidity and minimal leverage. Our cash position at December 30, 2011 was in excess of US$395 million or about US$50 million higher than at year end 2010.

Long-term debt including current portion was US$374.8 million, compared to stockholders equity of US$1.19 billion. This solid financial position helps to ensure stability in a volatile market and this also a source of support for continue growth initiative.

Today, we also announced the Board of Directors has authorized a new share repurchase program for up to US$100 million of the company’s common shares which maybe repurchased from time to time until December 31, 2012.

The new authorization replaces the company’s previous share repurchase program which was scheduled to expire on December 31, 2011. The company has not repurchased any shares under the prior buyback authorization.

Now, let me review some of the key aspects of our results for the 2011 third quarter. Net income was US$26.4 million for the third quarter of 2011, compared to US$33.8 million a year ago. Time charter revenues were US$64.2 million, compared to US$71.6 million for the same period last year.

The revenue comparison primarily reflected the consolidation of Diana Containerships Inc. and the decrease in time charter rates which averaged US$27,957 for the 2011 third quarter versus US$31,593 a year ago, partially offset by the addition to the fleet of the Alcmene in November 2010 and the Arethusa in July 2011.

Our expectation is that the present challenge in industry environment caused primarily by the supply/demand imbalance will continue for the near-term. In such an environment we believe that our balance chartering approach, proven operations and solid capital position will deliver predictable cash flow and permit us to continue our efforts to gradually and opportunistically expand our fleet through vessels acquisitions.

With that, I would now turn the call over to our President, Stacy Margaronis for a perspective on industry conditions. We will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a financial overview. Thank you.

Anastasios Margaronis

Thanks, Simeon. And welcome to all the participants on this third quarter 2011 conference call. During the past quarter, the freight market was certainly as volatile as the equity markets have been, which is indeed the result of the prevailing fine balance between supply and demand.

The Baltic Dry Index stood at 1,422 points on July 1, 2011 and having reached a high of 1,928 on September 26th, yesterday closed at 1,854. The Baltic Cape Index was the main component of this volatility, which started the previous quarter at 2,045 points reached 3,344 on September 26th, while closed yesterday at 3,146. The Baltic Panamax Index was much less volatile during the period starting from 1,590 reaching 1,748 on September 15th and closing yesterday at 1,848.

World economic growth according to the IMF is expected to stand at about 4.3% in 2011 and 4.5% in 2012. The U.S. is expected to grow by 2.5% this year and 2.7% in 2012. These figures are slightly higher than the U.S. government’s latest estimates.

China is expected to grow 9.6% in 2011 and 9.5% in 2012, while India is expected to grow at 8.2% in 2011 and 7.8% in 2012. There are several positive signs in China at the moment.

Thermal coal demand has remained extremely strong and electricity production is expected to set new records once the peak winter demand season begins. Retail sales have also remained robust.

One of the biggest causes for concern however, is the Chinese steel production appears likely to decline. While we do not expect that production will come under very long period of pressure, steel profile probably need to come down by about 1.5 million tonnes before production can rebound.

According to the World Steel Association, steel use will increase by 6.5% on a worldwide basis during 2011 and further 5.4% in 2012. China’s manufacturing shrunk for the third month in August, the longest contraction since 2009.

A slump in global investor confidence and heightened the risk of recession in the United States and the eurozone economy are also weighing on the outlook for Chinese exports. China’s export growth declined to the slowest rate in seven months during September.

Finally, according to Maersk Broker, foreign direct investment in China grew at the slowest pace in three months during September and companies paired spending and it concerns that the global recovery is faltering. Turning to Europe, the eurozone is expected to grow at a rather anemic 2% this year and 1.7% in 2012.

Let’s look at iron ore now. Exports of iron ore are expected by Clarkson Research to increase by 6% to 1.056 billion tonnes during 2011 and further 3% in 2012. As have been the case for the last few years, China’s growing population and economic growth are still expected to support an increase in seaborne iron ore imports in 2012 with the current projection standing at 703 million metric tonnes.

According to Commodore Research approximately 92.7 million metric tonnes of iron ore are currently stockpiled at Chinese ports. Stockpiles remain close to the record 94.4 million metric tonnes that was stockpiled at the beginning of August 2011.

Japan is expected to remain the second largest importer of iron ore in 2012. Although, lower economic growth could limit steel production and reduce imports by an estimated 5% during the year.

On coking coal now, Clarksons are expecting global exports to grow 2% this year and reach 240 million metric tonnes with Australian exports projected to reach 141.5 million metric tonnes, down 11% year-on-year. Preliminary estimates for Australian exports during 2012, currently stands at 148 million metric tonnes.

On thermal coal, Clarksons forecast an increase in total exports to 687 million metric tonnes this year and 718 million metric tonnes in 2012. These increases represent year-on-year increases of 3.8% and 4%, respectively.

In China restocking for winter is usually completed by mid-November and major ports in consuming regions appear to have already created large stockpiles of imported coal limiting their capacity to import more. The slowing of China’s economic growth and industrial production may also reduce coal purchases by that country.

Grains now, grain shipments are expected to remain steady during 2011, 2012 grain season at around 244 million metric tonnes. Nevertheless, earlier this month, the US Department of Agriculture raised their 2011, 2012 global grain forecast to 285.4 million tonnes. This compares to the 279 approximate million metric tonnes estimated to have been exported during the previous 2010, 2011 marketing year. Therefore, according to the USDA, the 2011, 2012 grain trade is expected to increase by 6.6 million metric tonnes or 2%.

Let’s look at the supply of tonnage now. Out of the total 2,581 carrier vessels of 213 million tonnes deadweight currently on order, more than half are being built at Chinese yards.

Japan still holds the second largest order book for bulk carriers with a quarter of all orders placed in the country. South Korea, their shipyards sold 16% of the current bulk carrier over the book while the Philippines sold 4%, and India and Vietnam form 1% each.

The Capesize sector has about 41.2% of the current global fleet on order while the Panamax sector is burden with an order book amounting to around 43% of the existing fleet.

Congestion now, we should also look briefly at congestion which is still supporting the demand/supply balance for large bulk carriers. Of the 116 vessels congested at major Australian and Brazilian coal and iron ore port, approximately 110 of them are Capesize vessels.

In comparison, a 110 Capes were anchored outside major Brazilian and Australian coal and iron ore ports only a week before that. According to DnB NOR about 4% of the existing bulk carrier fleet is tied up and congested port around the world.

Demolition, the age profile of the large bulk carrier fleet and the state of the freight market have been the prime factors affecting the decision of whether or not to sell an old bulk carrier for scrap.

In the Panamax sector, about 16% of the existing fleet is over 20 years old, while a near 11% of the existing fleet of Capesize bulkers is over 20 years old. This truly indicates that the limit exists in the number of large bulkers that can be scraped going forward, as continue scraping will reduce more and more the number of older vessels till trading. Clarkson is estimating that 15 million deadweight of Capsize vessel will be scraped in 2011 and the further 10.3 million tonnes deadweight in 2012.

As for Panamax tonnage, 1.2 million tonnes deadweight are estimated to be scraped in 2011 and the further 800,000 in 2012. According to Fearnley, as regards Capes, assuming deliveries remain in line for the rest of the year with what we have seen to date and scraping has maintained at current level, the fleet will grow by more than 14% year and about 5% next year. This, however, number exclude the large number of post 200,000 deadweight bulkers scheduled for delivery over the next two years.

In addition, a large number of very large coal carriers, in other words are entering the market over this period of time affecting the earnings of Capesize vessels. Including these VLOCs, the Clarkson figures goes up to 15.5% and 10.1%, respectively for 2011 and 2012.

As for Panamaxes, assuming deliveries remain in line with what we have seen all this year and scrapping is maintained at current level, Clarkson expect that the fleet will grow by more than 12% this year and 13.2% in 2012.

Let’s look at actual newbuilding deliveries. According to Clarkson during 2010, about 64% of all bulk carriers vessels scheduled for delivery were actually delivered, while by the end of September, about 73% of the vessels scheduled for delivery this year were actually delivered.

On an overall basis, contracting volumes have gone down during 2011, particularly in the dry bulk carrier sector. Many yards are starting to worry about filling up capacity from 2013 onwards, especially if contracting levels remain weak. Consequently, it is very possible that we may start to see downward pressure on newbuilding prices in those sectors, where compacting levels have dropped off the most.

Let’s turn to the all important supply/demand balance now. During the first six months of this year, the bulk of fleet has expanded by 323 vessels or 30.8 million tonnes deadweight, which equates of growth of 5.6% in deadweight terms. This is despite an upturn in scrapping with 248 vessels demolished during the year-to-date, compared to 133 during the full year 2010.

We agree with Clarkson that over 2011 the Capesize fleet will grow by 15%, while demand is unlikely to grow nearly as fast. Therefore the short to medium-term outlook for the Capesize freight market remains negative.

The problem here according to Gibson shipbroker is that the freight market has to rely on China and the BRIC countries to keep up demand while most of the developed world is in recession mode.

The (inaudible) thought for 2012 are first, more steam coal and iron ore will come to the market which will absorb more Capes than anticipated. And second the contrary view which is that China went on a one to two month stockpiling run recently and will retreat back to the schedules in a traditional way.

In this latter scenario the expected increase in iron ore production next year maybe slower than expected and the actual growth in trade will not be enough to keep the Cape market at today’s levels.

As for Panamaxes, the fleet is still expected to grow according to Clarksons by 12.6% during 2011, so over capacities likely to remain a significant problem for Panamaxes in the short-term.

The Chinese coal demand thus pickup over the coming winter months and large import volumes are resumed. This could help to absorb some of the excess capacity. The recovery of Australian coal exports to normal levels should also be positive for demand.

Therefore, in -- all in all the future does not look particularly positive for large bulker, despite the significant increase in scrapping we have been witnessing this year. However, shipping is indeed the full of surprises and we can never be sure that strong positive forces might not surface over the next few quarters and help absorb what now appears to be a significant future surplus of tonnage.

We at Diana have said all along as we cannot foresee the exact timing of a market peak all for that matter a market trust. Therefore, as our Chairman and CEO mentioned earlier on, we are still on track to implement our plan of growing the fleet in an orderly manner and chartering our acquisitions at market rates for periods which fit the staggered time charter maturity of the fleet time charter contract.

Even though we anticipate asset value to grow further, we do not intend to wait for the bottom of the market to make our acquisition simply because as mentioned above we do not know when that bottom will come.

As for newbuilding contract, there is no doubt as I’ve mentioned earlier, prices will come under pressure as yards try to fill up their empty slip ways for 2013 and 2014. The competition between yards is heating up and we will be looking at newbuilding opportunity as well over the next few quarters.

Now, I would like to pass the call to our CFO and Treasurer, Andreas Michalopoulos, who will provide you with our third quarter and nine month financial highlights. Thanks.

Andreas Michalopoulos

Thank you, Stacy, and good morning. I’m pleased to be discussing today with you Diana’s operational results for the third quarter 2011 and nine months ended September 30, 2011. Third quarter 2011, net income for Diana Shipping Inc. for the third quarter of 2011 amounted to $26.4 million and the EPS was $0.33.

Time charter revenues decreased to $64.2 million, compared to $71.6 million in 2010. The decrease is attributable to decreased average time charter rates that we achieved through our vessels during the period compared with the third quarter of 2010 and also decreased revenues due to the deconsolidation of Diana Containerships Inc. The decrease was partly offset by revenues derived from the vessels Alcmene and Arethusa added to our fleet in November 2010 and July 2011.

Ownership days were 2,202 for the third quarter of 2011, compared to 2,200 in the same period of 2010. Fleet utilization was 99.7% in the third quarter 2011, the same as in 2010. The daily time charter equivalent rate for the third quarter of 2011 was $27,957, compared to $31,593 for 2010.

Other revenues for the third quarter of 2011 amounted to $0.4 and consist of revenues derived from the management and administrative agreements between Diana Shipping Services S.A. and Diana Containerships Inc. Voyage expenses were $3.1 million for the quarter.

Operating expenses amounted to $14.1 million and increased by 8%. The increase is attributable to increased crew costs, insurances in stores and spares, and was partly offset by decreases in repairs and maintenance and miscellaneous costs.

Daily operating expenses were $6,387 for the third quarter of 2011, compared to $5,962 in 2010 representing an increase of 7%.

Depreciation and amortization of deferred charges amounted to $14.1 million. General and administrative expenses decreased by $0.2 million or 3% for the third quarter of 2011 to $6.1 million, compared to $6.3 million in 2010.

The decrease was mainly attributable to the deconsolidation of Diana Containerships Inc. and office rent and annual meeting expenses that existed in the third quarter of 2010 and did not exist in 2011. The decrease was partially offset by increased salaries and compensation costs on restricted stocks.

Interest and finance costs were $1.2 million for the quarter, compared to $1.5 million in 2010. This decrease is attributable to decreased average interest rates during the period and the deconsolidation of Diana Containerships Inc. and was partially offset by costs on increased average debt.

Loss from derivative instruments amounted to $0.4 million for the quarter, compared to $0.8 million in 2010 and includes both realized and unrealized interest costs relating to our $100 million of notional amount you call as [SWAP] agreement terminating May 2014.

Income from investment in Diana Containerships Inc. now the gain from our investment in Diana Containerships Inc. amounted to $0.4 million.

Nine months ended September 30, 2011. Net income for Diana Shipping Inc. for the nine months ended September 30, 2011 amounted to $87.3 million and the EPS was $1.08.

Time charter revenues for the nine months ended September 30, 2011 decreased to $198.3 million, compared to $202.5 million in 2010. The decrease is attributable to decreased average hire rates during the nine months ended September 30, 2011, compared to 2010 and the deconsolidation of Diana Containerships Inc. and was partially offset by revenues derived from the vessels Alcmene and Arethusa, which did not exist in the same period of 2010.

Ownership days were 6,401 for the nine months ended September 30, 2011, compared to 6,097 in 2010.

Fleet utilization was 99.4% for the nine months ended September 30, 2011 and 99.7% in 2010. And the daily time charter equivalent rate was $3,015, compared to -- was $30,015, sorry, compared to $32,212 for the same period of 2010.

Other revenues for the nine months ended September 30, 2011 amounted to $0.8 million. Voyage expenses were $8.7 million for the nine months ended September 30, 2011.

Operating expenses amounted to $40.5 million and increased by 7%. The increase is attributable to the 5% in ownership days resulting for the delivery of our vessels at Alcmene and Arethusa offset by the days loss due to deconsolidation of Diana Containerships Inc. The increase was also due to increased crew costs and was partly offset by decreases in all other operating expenses.

Daily operating expenses were $6,328 for the nine months ended September 30, 2011, compared to $6,176 in 2010.

Depreciation and amortization of deferred charges amounted to $41.2 million for 2011. General and administrative expenses increased by $0.6 million or 3% for the nine months ended September 30, 2011 to $18.8 million, compared to $18.2 million in 2010.

The increase was mainly attributable to increases in salaries and compensation cost of restricted stocks and was partially offset by the reduction in costs due to the deconsolidation of Diana Containerships Inc. and office rent.

Interest and finance costs decreased by $0.1 million to $3.7 million compared to $3.8 million in the same period of 2011. The decrease was attributable to decreased average interest rates during 2011, compared to 2010 and the deconsolidation again of Diana Containerships Inc. and was partly offset by increased costs due to increased average debt during the period.

Loss from [derived] instruments amounted to $1 million, compared to $1.8 million in 2010 and includes both realized and unrealized interest costs.

Income from investments in Diana Containerships for the nine months ended September 30, 2011, there was a gain in our investment of $1 million.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question is from the line of Michael Webber with Wells Fargo. Please state your question.

Michael Webber – Wells Fargo

Hey. Good morning, guys. How are you?

Anastasios Margaronis

Very well.

Simeon Palios

Thank you, Mike. How are you?

Michael Webber – Wells Fargo

Good, good. I wanted to touch on something that was in your release in terms of reauthorizing your buyback authorization. Obviously, you guys didn’t use it last go around. Can you give some thoughts on how you think about it here with your cash position and obviously, looking to build out your fleet, any change in the way you’re thinking about that buyback authorization with a new set?

Ioannis Zafirakis

Hi Mike. This is Ioannis Zafirakis. If you remember the last time we introduced, we reauthorized again the plan. We said that we have it just in case needed. This time things seem to us rather different and we see some discrepancies in the way we are priced and we see this as a very attractive -- we see the price of Diana being at attractive levels for Diana to invest in Diana. So this time is, I’ll say rather different and we are much closer to utilizing this plan.

Michael Webber – Wells Fargo

Okay. That’s interesting. How do you guys prioritize that versus acquiring vessels right now?

Ioannis Zafirakis

We do not prioritize one against the other, but certainly, we see the purchase of a vessel and buying back sales are something similar. So if you take into account that we do things in a staggered manner we will either do the one and then do the other or both is not very probable.

Michael Webber – Wells Fargo

Okay. So in terms of thinking about the buyback, you would approach it like you were acquiring assets of potentially just along the trough and kind of small increments like you are in terms of acquiring single vessels along the trough.

Ioannis Zafirakis

Correct.

Michael Webber – Wells Fargo

Okay. All right. That’s very helpful. Stacy, in your comments, you mentioned in the deals you guys are seeing and then what you guys could be doing over the next couple of quarters. You mentioned newbuilds which is a bit of a departure and I guess your most recent strategy in terms of buying second hand assets. Can you talk a little bit about what you’re seeing now and why potentially moving back towards the newbuild market and then kind of where does it turns out?

Anastasios Margaronis

Well, bear in mind that today, the rate which we are chartering the vessels, the bulk carriers are at a multiple to the running expenses of the ship. So until the rates go at par to the running expenses of the vessels, we will be buying either resales or very young ships.

But when the rates go at par to the running expenses, we may look for ordering newbuildings to utilize the period needed to take the vessel and get delivery of the ship. Can you understand what I’m trying to say here?

Michael Webber – Wells Fargo

No, no. I do. I do. That’s very helpful.

Anastasios Margaronis

Okay.

Michael Webber – Wells Fargo

Yeah. No. thank you. I guess...

Anastasios Margaronis

So we are going to utilize the period for building the vessel to come closer to the market changing from the bottom to the -- to higher rates.

Michael Webber – Wells Fargo

Right. Now that makes a lot of sense. I guess just finally, we’ve seen some continuing counter-party issues in the space, it look like get kind of runaway a little bit and we’ve recently seen costs are renegotiated in another Capesize charter, obviously your exposure there is minimal to none. Can you talk about what you guys are saying from your counter-parties right now, whether or not there has been any payment issue and then whether or not you guys have been approached to renegotiate anything?

Simeon Palios

We have no material situations in our fleet. Of course, you understand that you have brokers trying to see and fix around what’s happening et cetera but in our case we have nothing material to report.

Michael Webber – Wells Fargo

Okay. What – typically, what’s your approach to the scenario, I mean, you have some longer Capesize charters that then -- and that are pretty above market. I mean you have a pretty taking a pretty firm stands in terms of not renegotiating or how are you guys approaching that on a surface?

Simeon Palios

We have no situation whatsoever and the charters that we have the best names around and secondly, the policy they know very well, the Diana’s policies would have no tolerance or whatsoever in any type of renegotiation.

Michael Webber – Wells Fargo

Okay. That’s very helpful. I’ll turn it over. Thank you guys for the time.

Anastasios Margaronis

Thank you.

Andreas Michalopoulos

Welcome.

Simeon Palios

Thanks.

Operator

Thank you. Our next question is coming from the line of Justin Yagerman, Deutsche Bank. Please state your question.

Justin Yagerman – Deutsche Bank

Hi, guys. How are you?

Simeon Palios

Hi, Justin.

Anastasios Margaronis

Hi, Justin.

Justin Yagerman – Deutsche Bank

Hi. So I wanted to get a sense in this last transaction, how many vessels you looked at, how many were on the market and how same the sales and purchase market is right now, because we obviously haven’t seen a huge amount of transactions?

Simeon Palios

Well, we have seen several ships. We have seen a number of Panamaxes, a number of Capes. We have seen two or three Post-Panamaxes and a few Capes. Now the criteria to buy the vessel is very high today because we have a lot to choose and pick.

So if you take into consideration the very high standard we are putting on our new purchase, it leaves at the moment very few ships to pick and choose. And I think the proof is the Vathy which is going to be name Leto is a good example of what we are trying to do.

The vessel was built in Universal, their first class yard and the specification was such that we could not refuse. So, all in all, there are ships to purchase but very few to meet the criteria we are setting to buy the ships

Justin Yagerman – Deutsche Bank

Okay. Andreas maybe you could remind us between I guess cash less where you’re going to have to payout for the vessel that you are purchasing plus debt availability? What’s the overall firepower right now at the company? And then if you think about new debt and where you go from a leverage standpoint? I’d be curious to hear how you guys think about your buying power in the marketplace right now?

Andreas Michalopoulos

You will understand that we feel very comfortable about our buying power, looking at the balance sheet at the end of the quarter, you will see that our cash and cash equivalents are of $395 million and our total bank debt is of $375 million i.e. our net debt is of in the vicinity of $20 million.

Having said that, you need to take into account that we have in our fleet currently many vessels that are unencumbered and that means as you know that they are not mortgaged and that is mainly three Panamaxes and five Capesize vessels that are not mortgaged. So that could be added to this firepower that you’re talking about.

Apart from that, we have our chartering policy that is scattered portfolio approach and therefore where we have our charters that distribute revenues every quarter steadily. So for most of vessel likely to be remain Leto, strategy will remain the one that we have talked about all along and that is we will seek for leverage for that vessel, 60% is what we’re looking for. We are in the process of approaching banks for that leverage and we already have some positive indications that we will secure leverage up to 50%, which is what we want anyway.

So going forward you can make the numbers yourself, our firepower is big and we feel comfortable that we will be able to unfold as we have started steadily our strategy of buying vessels throughout the bottom of the cycle.

Justin Yagerman – Deutsche Bank

Okay.

Simeon Palios

Okay. Now Justin, if I may add to what Andreas has said, is the gearing which we have in mind and what do we have as a target after two or even three years from now, when the market recovers, we must find ourselves geared to approximately 50% of the prices of the ships at that particular moment, which means chatter two and half or three years from now. Now, this creates a different mind power which I think you can very easily assess.

Anastasios Margaronis

Clearly, we’ve seen it close to $1 billion as we speak today.

Justin Yagerman – Deutsche Bank

Okay. That’s helpful in terms of framing that up. And then I guess so the top prices going forward just piggybacking on what Mike was asking about before. Now it’s both ships and shares that we should expect you to be periodically purchasing over the next, let’s call it 12 months and is there a thought that one will be favored over the other at different times or that you’ll be looking to just buy both with that billion of firepower over the next 12 months?

Andreas Michalopoulos

Justin it depends clearly on the pricing of our stock. If the price of our stock presents an opportunity, we will buy back some shares. But it depends. We will have to wait and see whether this discrepancy in the way we are valued is going to continue or not.

Justin Yagerman – Deutsche Bank

Okay. And the last question and I’ll turn it over to someone else. Just curious, we get very varying reports here in the U.S. and in the public markets about the amount of capital on the sidelines and having just bought a vessel maybe you can talk about who else was there to bid on this vessel? I don’t know if this was an off-market transaction or not but how you feel about the competitive landscape when you go to buy a vessel?

Obviously asset prices have come in but do you feel like there is enough capital on the sidelines that were close to a floor for asset prices or people are jumping in as vessels become available or is there enough scarcity that when you’re out there bidding it’s maybe you and a handful of other players and really it’s a more of a buyer’s market?

Andreas Michalopoulos

There were rather but they were bidding for the vessel and of course you need others to bid in order to determine the price for a willing seller but it is through that there are not a lot of players out there that they can be buyers of today’s market. You need to have the strategy and the size of the company that we do in order to be able to keep buying assets when the charter rates are going down and the prices are going down.

We think that we have an advantage here compared to the smaller players and this is what we’re going to utilize 100% for the sake of our shareholders. It’s certainly buyers market but net in the levels that we are going to see in few months from now.

Justin Yagerman – Deutsche Bank

Yeah.

Simeon Palios

And price adjusting, I think we have to differentiate between static money and dynamic money. Here, the money is in our balance sheet. You have something to buck you up all along there are other monies around, but they are not in their balance sheet. So that’s the difference. Can you follow me?

Justin Yagerman – Deutsche Bank

Yeah. I know absolutely, I think that’s a really fair point. But it calls the question, if prices for a Panamax dip into the 20’s instead of being in 30’s, does that static money become more dynamic? I don’t know, but I would watch to see how that plays out.

Andreas Michalopoulos

No. They cannot become dynamic because the charter rate is not going be there to keep producing a profit as total picture of the company. And then the buyer is going to think twice whether to spend the money to buy something that from day one is loss making.

Simeon Palios

If the resale value of that vessel is 20, Panamax is 20, the charter rate will be, I can assure you in line of the running expenses of the same. So the question for the owner at that particular moment will be, am I going to lay her up or am I going to trade here.

So most likely, he will be laying up the vessel at a substantial cost to maintain the vessel in the same position. So if you’re the son that if he has a number of ships to back that particular vessel up it’s a different story but if he is putting his money from the bank, which is static money, it is not the same story.

Justin Yagerman – Deutsche Bank

That’s fair. Okay. Well, thanks, it’s really helpful in terms of market color. Appreciate the time.

Andreas Michalopoulos

Thank you. Welcome.

Simeon Palios

Thank you, Justin.

Justin Yagerman – Deutsche Bank

Thanks.

Operator

Thank you. Our next question is coming from line of Gregory Lewis from Credit Suisse Group. Please state your questions.

Gregory Lewis – Credit Suisse Group

Yeah. Thank you and good afternoon.

Simeon Palios

Hi, Gregory.

Gregory Lewis – Credit Suisse Group

Ioannis, I mean we’ve touched on the buyback a little bit here right, I mean clearly when I think about Diana when people think about Diana I mean the stock is trading below NAV and that’s probably part of the reason why the buyback make sense.

But in thinking about a level for the stock where the buyback goes I mean clearly you guys have an outlook on where asset prices are going to be going over the next couple of quarters. In your forward outlook is -- what you’re telling us is that where -- when you don’t think asset prices are going to push your NAV down to where the stock is trading?

Ioannis Zafirakis

This may happen, but as we have explained in the past we are doing purchases in a staggered manner.

Gregory Lewis – Credit Suisse Group

Okay.

Ioannis Zafirakis

So regardless of whether what we expect so the same apply for our stock price, if we see the discount we feel is an attractive investment for our shareholders we will do it.

Gregory Lewis – Credit Suisse Group

Okay. Perfect. And then just changing topics a little bit to talk about newbuildings, when you think about what it cost the Chinese to build a vessel, what it costs the Japanese to build a vessel clearly there is a lot of flat capacity that’s going to be coming available at some shipyards.

In thinking about what the outlook looks like for newbuilding prices over the next year I mean -- I’m getting the sense that we could see new built prices continue to bleed lower, could you talk a little bit about that?

Simeon Palios

Well, if you want to purchase today or to place an order for a Panamax you will be talking between $50 million and $53 million depending where you are going to build divestiture, if you are going to build a sister ship to Vathy today, you will be talking closer to $55 million from -- or even more than that. So it depends where we are going to place the order.

But something which I want to make clear is that the replacement cost has no bearing on the value of the second hand prices of the ships. Universal does not carry cargo on both their (inaudible). She is not an asset. She is a liability. In respect to whether the replacement cost is high or low. I don’t know whether I have answered your question or you were implying something else?

Gregory Lewis – Credit Suisse Group

I mean, I guess I was just trying to figure out maybe how much lower newbuilding prices could go, but I think that I guess is just going to be a function but now I’m great. Hey, thanks for the time guys. Have a great day.

Simeon Palios

Thank you.

Andreas Michalopoulos

Thank you. Bye Greg.

Operator

Thank you. Our next question is from the line of Fotis Giannakoulis with Morgan Stanley. Please state your question.

Fotis Giannakoulis – Morgan Stanley

Yeah. Good morning, gentleman.

Andreas Michalopoulos

Hi Fotis

Fotis Giannakoulis – Morgan Stanley

Just to follow up a little bit on the last question of Greg, about 10 years ago, you started building your fleet when newbuilding prices were around $20 million, $21 million. Today, a brokers report that newbuilding prices might be below $30 million.

Given the value of the steel and the change in the steel price, where do you think -- do you think that we are in a comparable situation and in a comparable newbuilding market like we were at that time and how low can the shipyards go?

Simeon Palios

Well, remember that when we order our first six newbuildings from Samco Hyundai, the price was $19.7 million but the charter rate at the time was approximately $500 in excess of the running expenses of the vessel at the time, so the price today -- the rates which we are facing today with time charter rate, not the same.

Today we are taking $12,500 daily for let’s say year, if the vessel gives for a Panamax ship the vessels gives delivery in the Far East and approximately 13.5 of the vessel gives delivery in the continent for a year which is twice, it’s a multiple of two times the running expenses of the ship. So we have plenty of room to go down.

Fotis Giannakoulis – Morgan Stanley

I understand on the second hand price. If I just want to try to understand a little bit, do the shipyard have the flexibility or do they still make money right now, when if you would have to make a estimate on the margin that they are earning from current prices, what would that be?

Simeon Palios

Well, it’s difficult for me to tell you how much a Panamax perceive in China or in Japan today, but I think at today’s prices they are still making money, yeah.

Andreas Michalopoulos

I mean Fotis anecdotal evidence seems to indicate that they are making a small amount of profit depending on when they purchase their raw materials, what deal they can reach with engine makers than the makers of all the auxiliary equipment et cetera.

As you got Japan though at least the Japanese yards claim that as long as the Yen is under 100 Yen to the dollar, they do not consider themselves capable of competing with China and Korea for bulk carriers at least that’s what the shipbuilders association is indicating in public. I assume they’re not wrong in this assessment.

Ioannis Zafirakis

Fotis, if I may add that in order to put it blindly, no one is going to buy a vessel of $30 million Panamax vessel of $30 million when their charter rates are at 7,000 just because this is how much it costs for a yard to produce it. The yard either would have to go down on the price or the vessels are not going to build ever. You will not have a market for those vessels. Therefore the replacement cost is something that can’t be relevant in that case.

Don’t forget also that the paints, the engine producers, everybody involved in building a vessel in order to keep having orders, they will have to lower as they have done already their prices, so you may see even steel prices are going even further down because of that and you may the replacement cost going even further down to $25 million for a Panamax vessel for example.

Fotis Giannakoulis – Morgan Stanley

Thank you, guys. Just from your experience, do you have -- do you remember in the past, how long asset values or the CPRs were willing to sell below their profitability level, below their breakeven? Is it a period where one year that might last or it can last much longer?

Ioannis Zafirakis

This is something we certainly we cannot comment at. And the business cycle does not repeat itself to the dot, but certainly it resembles and we cannot be in a position to know. What I remember though just for you, back in 1999, when we order the Panamax vessel it was the yard that they were begging us to buy their vessels. This is what I can tell you.

Fotis Giannakoulis – Morgan Stanley

I understand. Thank you. Just -- I’m a little bit confused actually with the market because we have seen the supply coming with double digit rates, we’re talking about 14%, 14.5% capacity expansion in 2011 and yet rates they have stayed well above operating expenses which is in complete contrast with the other major shipping market meaning the tanker market. What is -- what are the drivers that they have kept the market at relatively healthy levels provided of course one has both the ships at reasonable prices?

Andreas Michalopoulos

Well Fotis, I mentioned a few drivers in my short presentation. The main factor that many analysts believe has been keeping rates steady, they built up of inventor. The expectation that steel production is going to remain robust, and that infrastructure projects in China and other parts of the developing world are going to keep at their high pace of increase and execution and unfortunately a public housing as well is being seen as a sector, which will take up a lot of this steel production and is a driver for commodity demand.

Now, we cannot of course, keep saying that this is going to continue forever. We are going to see what happens in China. If these housing projects, which are already beginning to show signs of fatigue, start being reduced at least the pace of increase going down, we are going to have a reduction in the rate of increase in demand for steel and hence iron ore and coking coal.

Now it is a good sign indeed that the tonnage has been absorbed, but it doesn’t mean that it hasn’t been building up in the meantime and as these ships, when they come off charter will be competing for business, which has to keep increasing at a similar pace. As I mentioned with the VLOCs taken into consideration, next year, we’ll see over 10% increases in the Capesize or very large bulk carrier sector.

This is not an encouraging sign because we have to assume again that we’re going to have growth in China in excess of 9%, is beginning to look doubtful now, plus all these infrastructure projects being executed at the same speed that they have been doing during 2010.

These are not foregone conclusions and the problem that we have with this market is that, there is no breathing space here for demand to stop increasing even for a quarter or two because the ships keep coming and the surplus will keep increasing and there isn’t much you can do in the way of scrapping to alleviate that with the age profile of the Capes and even the Panamax fleet.

Fotis Giannakoulis – Morgan Stanley

Okay. Thank you. I’m sure that the most of the analysts agree and recently we have revised down versus the projections on the steel demand for China, but I think one of the big debates is what is going on with the local iron ore production, especially with prices dropping and how profitable the local miners are going to be? Do you have a view on that and if you do think that the Chinese will keep producing iron ore or will be depending more on imported iron ore?

Andreas Michalopoulos

Unfortunately, we don’t data to form an opinion on this and all we do is read what others have to say and they don’t seem to reach any specific or uniform conclusion in their analysis. So the answer is unfortunately we cannot say much on that.

Fotis Giannakoulis – Morgan Stanley

And last you mentioned earlier that you might start looking newbuildings again and there is the discussion in the market about this new designs, the fuel efficient that they can consume much less 3 to 5 tonnes at least less than the previous designs. Is this a real story and what would that translate in terms of cost or in terms of earnings capacity for a vessel like that?

Simeon Palios

Well Fotis, don’t forget today the banker price in Rotterdam is $650 per tonne for bankers here and of course this is $1,030. So the price is too high and whenever the price is too high everybody is coming out with new ships, very efficient ships that there are. I think that most of the designs, both on the engine and on the car structure is such that it does not given us a lot of room to be very happy of having a very efficient ship. I cannot see anything more than about 2% to 3% better efficient overall on these smaller ships and even less on the papers, so we don’t see that as a breakthrough situation here.

Fotis Giannakoulis – Morgan Stanley

Okay. I understand. Thank you very much for your time. Thank you.

Simeon Palios

Thank you, Fotis.

Operator

Thank you. Our next question is from the line of Sal Vitale of Sterne, Agee. Please state your question.

Sal Vitale – Sterne, Agee

Good afternoon, gentlemen.

Simeon Palios

Hi.

Sal Vitale – Sterne, Agee

Just a quick question just going back to the decision as to whether to repurchase shares or continue to acquire vessels, so it sounds like you’re more disposed at this point given, I guess, with the stock prices to acquire shares. And I just wanted to get a sense on what your view on the continued decline in asset prices is.

So if I look at it, just looking at say five year old second hand Panamax vessels, 76,000 deadweight tonnes, they were down about 30%, 32% from a year ago levels. So they were about $39.5 million according to Clarksons now about $27 million.

So was your hope or was your belief that the asset prices would have come down more and is it just a little bit if I guess a view that the continued decline might take longer than you would have liked and therefore you might shift your strategy to buying more shares -- buying shares rather than buying vessels?

Andreas Michalopoulos

As we have explained throughout the -- so many years, six years that we are public, this is exact -- our model is exactly placed -- exactly for that reason not to have to try and forecast how low the prices can go and how long this is going to take. And this is the reason why we do the purchases in a staggered manner and although we have a belief that the values may go further down. We buy one asset or we will spend $30 million, let’s say a number, for buying back shares.

Of course, it is our view that the prices may go further down and it is very possible for that to happen and we will keep buying assets or buying back our stock, as long as we are in this part of the cycle. What we would like though to explain further is that regards the share buyback program, we really value the liquidity of our stock, the number of shares that there are facing every day.

So we are not there to do something that is going to put this in danger and decrease the liquidity of the company. So you have to understand that the share buyback program is there and is going to be used very carefully and not to disturb the liquidity of the stock.

Sal Vitale – Sterne, Agee

Sure. That’s helpful. And then just I guess a follow-up on that regarding capital deployment. I look at your P&L and your results and you’re solidly profitable every quarter.

You have some growth opportunities ahead of where you can grow your fleet, but have you considered or would you consider at this point maybe initiating a dividend again.

Maybe something conservative, say something like 20% payout with 25% payout where you’re still conserving a lot of cash but you’re returning some cash to shareholders in the form of a dividend.

Ioannis Zafirakis

We have said in the past that in this part of the cycle, we don’t feel it’s the right time to issues a dividend. We have better use of cash and that is to acquire vessels and we would remain at that. When the market return towards better days, when we hopefully will have increased our fleet and also our leverage up as Anastasios says to 50% leverage towards the peak of the market, then it will be the right time to reinstate the dividend and also change our strategy towards one where we grow our capital base by issuing more equity and making acquisitions that are accretive to that dividend. So we -- so yeah...

Anastasios Margaronis

Okay. We’re nominating perspective. We understand that paying $1 as a dividend is a little bit North of $80 million. $80 million to-date has can buy you assets equivalent of $150 million and where the prices are going we see that being translated to five vessels. So you can see here the difference of paying a dividend and growing the company in a market that we think at a point will turn for better and better.

Sal Vitale – Sterne, Agee

Sure. I see that, I understand that. I guess just the one question or topic that hasn’t been asked, you see a lot of companies that are struggling, a lot of your peers that are struggling both publicly traded and private I guess.

What are you seeing right now on acquisition opportunities in terms of buying entire fleets? I assume you’ve been presented opportunities by several banks given that your balance sheet is so strong and you have such high acquisition capability.

Simeon Palios

I think it will be a very wrong for us to go and buy something at a particular moment. We have to make the purchases at one and every show open not a number of vessels because then you are taking a specific point and you hope that very soon the market will go up and it will be wrong, it’s better to buy every three months or every four months one ship rather than go and buy a fleet at one specific time.

Don’t forget that you have also another safety valve, you have a fleet which is chartered to major charters. So what you have to also take into consideration is that you are aiming to get the 50% gearing when the market will start coming up, so if you are not successful, let’s say, after two years or a year from today, you have to see again and take a photograph to see where are you and what are you making out of your existing fleet. So that is your safety net to come to this 50% gearing at the end of the last period.

Sal Vitale – Sterne, Agee

That’s very helpful. Thank you very much.

Ioannis Zafirakis

Thank you.

Operator

Thank you. Our next question is from Gary Chase with Barclays Capital. Please state your question.

Gary Chase – Barclays Capital

Hi, good afternoon everybody. I wanted to see if I could ask you the charter terms that you announced on the -- I think the vessels in the reef were more a little bit shorter term than what we’ve seen. Is that something that we should expect, I know you have a number of vessels that are you’re going to be looking to re-charter over the next year or so, should we be expecting that you’ll be looking at shorter terms for those just given where the market is and where rates are.

Ioannis Zafirakis

No. We continue -- as we have said in the past, we are not here to change our strategy as regards chartering. It’s a way of hedging our risk and we are here to stagger the opening days of our vessels and we have portfolio approaching the way we charter the vessels.

And you have seen the vessel charter for another year another two -- approximately a year and a half, the new charter is going to be -- the new charter with Morgan Stanley Capital Group is going to be finishing either in -- between January and April 2015.

The reason why we chartered the vessel in such a manner is not that we are taking the position that after that the market is going to be better. It’s simply because in our portfolio approach we didn’t have a lot of vessels opening during that period, the next one may be shorter or longer than this, it doesn’t mean anything.

Gary Chase – Barclays Capital

Okay. And then when you talked about the amount of leverage that you are going to or you said you had a commitment I think for 50% leverage on what will become the Leto. Is that just reflective of your own goals and the idea that you want to be 50% levered when you come out the other side of this or is that where you -- is that more reflective of what -- where the market is in terms of what banks are allowing you to leverage against new purchases?

Andreas Michalopoulos

At the moment this is reflective of our own goals. So, yeah, that’s reflective of our own goals, but I want to say we don’t have anything committed yet. As soon as we have something committed and signed, we come up with a press release and announce -- we’ll announce it as everything we do, we do it that way. We are in discussions with banks and what we are asking is 50%, so that’s our goal.

Simeon Palios

The Leto is one of the vessels which will be mortgaged. We have others which are mortgaged, but 50% overall on the total fleet is going to be the goal after two and a half years or three years from today. And that two and a half years or three years will depend and have the safety net of the existing charters. So you can move it.

Gary Chase – Barclays Capital

Right. And if you had -- if it was your intent to get better leverage on that, you don’t think you would have had a problem moving to like 70?

Ioannis Zafirakis

It’s difficult to comment. I think for sure 60 would be possible -- possibly 70, but 60, I’m very comfortable that if we were asking for 60, we would have no problem to obtain it. Now 70, in those days, I cannot really comment but quite frankly, we -- even for 60 it is my personal view that it would be easy to obtain if we wanted to.

Anastasios Margaronis

Well, bear in mind that it will be entirely whether you are going to give a signature of Diana Shipping Inc. If Diana Shipping Inc. does not counter sign on the loan, may be 70 is not possible, but if you are willing to counter sign, yeah, I think it’s possible.

Gary Chase – Barclays Capital

Okay. Thank you very much everyone.

Simeon Palios

Thank you.

Anastasios Margaronis

You’re welcome.

Operator

Thank you. Our next question is from the line of Michael Pak of Clarkson Capital. Please state your question.

Michael Pak – Clarkson Capital

Yeah. Hi. Good afternoon, everyone. Given that it’s pretty late in the call, I’ll make it quick but I did want to make clear in my mind is given your outlook on the dry bulk market and the continuing possibility of your valuation discrepancy and also your stated strategy of staggered cycle approaches to acquisition, can we feel confident that you could complete this new $100 million program of share buyback?

Andreas Michalopoulos

I think today the way things are today, $100 million is too many -- it’s too much money to be spent quickly and the $100 million that is there just to have a number but $100 million if you think about it, it’s going to buy a lot of shares and this is going to be the agreement to the liquidity of the stock and the free flows, so we do not expect to utilize in full by 2012 this pay back program.

Michael Pak – Clarkson Capital

Great. That’s all I have. Thanks a lot guys.

Andreas Michalopoulos

Thank you.

Operator

Thank you. Our last question is from the line of Lambros Papaeconomou with NYFEX Asset Management. Please state your question.

Lambros Papaeconomou – NYFEX Asset Management

Good afternoon. I would like to ask on the two newbuilding vessels that you have on order. If you could provide some guidance on the remaining installment payments when we should expect and if we should have any in the fourth quarter of this year?

Simeon Palios

We don’t proceed to have any further installment on the fourth quarter of this year. We expect to have the delivery of the first vessel Hull H1234 Los Angeles. We expect to have it in February and that is more or less in February you never can be absolute about those numbers, but in the first quarter of 2012.

And finally for the Hull 1235, we expect to have an additional installment in the first quarter of 2012 and the deliver either at the end of the first quarter of 2012 or very beginning of the second quarter of 2012.

Lambros Papaeconomou – NYFEX Asset Management

Thank you very much.

Simeon Palios

You’re welcome.

Operator

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

Simeon Palios

Well, thank you again for your interest in and support of Diana Shipping. We’ll continue to manage the company for reliable results in a challenging market environment and we look forward to speak with you next quarter. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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