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Seaspan Corporation (NYSE:SSW)

Q4 2011 Earnings Call

March 1, 2012 8:30 am ET

Executives

Gerry Wang – Chief Executive Officer, Co-Chairman and Co-Founder

Sai W. Chu – Chief Financial Officer

Analysts

Scott Weber – Bank of America

Gregory Lewis – Credit Suisse

Justin Yagerman – Deutsche Bank

Noah Parquette – Cantor Fitzgerald

Brandon Oglenski – Barclays Capital

James Woods – FBR Capital Markets

Operator

Welcome to the Seaspan Corporation Conference Call to Discuss the Financial Results for the Quarter and Year Ended December 31, 2011. Hosting the call today is Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan Corporation; and Sai Chu, Chief Financial Officer of Seaspan Corporation. Mr. Wang and Mr. Chu will be making some introductory comments and then we will open up the call for questions.

I will now turn the call over to Sai Chu.

Sai W. Chu

Thank you, Operator. Good morning, everyone, and thank you for joining us today. Before we begin, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter 2011 earnings release, earnings webcast presentation slides available on our website at www.seaspancorp.com as well as in our annual SEC report on Form 20-F for the year ended December 31, 2010.

I would also like to remind you that during this call, we may discuss certain non-GAAP financial measures including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings, normalized earnings per share and normalized converted earnings per share. Regards to such financial measures and for reconciliation of such measures to the most closely comparable U.S. GAAP measures, please refer to our earnings release.

I will now pass the call over to Gerry, who will discuss our fourth quarter and full year highlights as well as some recent business developments.

Gerry Wang

Thank you, Sai. Good morning from [Shanghai]. Please turn to slide 3 of the webcast presentation. Despite the global economic uncertainty that persisted throughout the year, our business continued to perform as expected during that 2011. Our revenue and the normalized earnings grew to a record level as we took delivery of 10 newbuild vassals, all on probably our charters with leading line of companies.

We took advantage of the compelling ship ordering environment to embark on our next phase of growth; introducing our few efficient (inaudible) growing our constructed fleet revenue streams and diversifying our customer base. We diversified our capital structure and enhanced our financial flexibility and we were sent capital to our shareholders, distributing $0.75 per share in dividend and are completing our $169 million share tender offer.

Turing to fourth quarter results; I would like to highlight four points that speak to the ongoing stability and growth in our business. First, our operating fleet remains fully employed without any major off-hire incident. We achieved vessel utilization rates of 99.5% and 99.3%, respectively for the fourth quarter and for the full year of 2011. Our revenue cash available for distribution and normalized net earnings grew by 31.6%, 19% and 30.3% respectively for the quarter compared with result for the first quarter 2010.

Second, our new building construction program progressed according to schedule. We expect to take delivery of our four remaining 13100 TEU new vessels in March and April this year, all of which we’ve commenced 12-year charter with COSCO.

Third, our Board declared dividend on our common stock and our Series C preferred shares. We remain committed to growing our common share dividend in a suspendable manner that preserves our financial strength and our ability to expand our fleet. In line with our commitment, I am pleased to announce that we have increased our first quarter 2011 quarterly common share dividend by 33%, $0.25 per share.

Fourth and finally, we continue to execute innovative transaction that demonstrates the focus on long-term shareholder value. As previously announced we entered into bareboat charters for remaining 4800 TEU vessels locking an income for the next five years and effectively removing our operating closure to our oldest vessel. And we completed $53 million non-recourse from the lease back arrangements with a leading American bank for 4250 TEU vessel, [NV] UASC Madinah.

In January 2012, we repurchased 11.3 million shares of our Class A common stock through a fixed-price tender offer at $15 per share, and we acquired our Manager and our Class C common stock for $54 million in common shares. In addition, we have authorized up to $50 million share repurchase program, highlighting both confidence in our future prospects and commitment to enhancing shareholder value.

I would now like to turn the call over to Sai to discuss our quarterly financial results. Sai, please?

Sai W. Chu

Thanks Gerry. Please turn to slide four for a summary of our quarter and year-end results for December 31, 2011 compared to same periods of 2010. We began 2011 with 55 vessels in operation and accepted delivery of 10 vessels during the year, bringing our fleet to a total of 65 vessels in operation at year-end.

Revenue increased substantially due to the increased number of operating days and higher time charter rates attributed to the larger newbuild vessels that we delivered. Ship operating expenses increased but at a lower rate than our revenue. This is consistent with the operating efficiencies achieved by our larger newbuild ships, which have lower operating costs for TEU.

Accordingly, our adjusted EBITDA increased by a greater percentage than our revenue due to the increased contribution margins. Cash available for distribution to common shareholders increased by a lower percentage than adjusted EBITDA, primarily as a result of a dividend on our Series B non-convertible preferred shares, and due to increased interest expense resulting from additional debt relating to our newbuild vessels delivery.

We repurchased all of the 260,000 outstanding Series B preferred shares for $24.6 million compared to an initial value of $26 million on November 30, 2011. Normalized net earnings increased on a lower percentage relative to our revenue and adjusted EBITDA due to higher interest expense resulting from the use of our debt (inaudible).

Fund delivery of a 4800 TEU vessels were quoted to MSC transactions were accounting for (inaudible) like leases. We have made adjustments to our calculation of cash available for distribution, adjusted EBITDA and normalized net earnings to reverse the GAAP accounting treatment for the non-cash loss and for effective (inaudible) that we have redeemed. Both results for organizational development cost for the acquisition of the Manager and for investments in PCI.

Please turn to slide five, for a normalized per share metrics. Our normalized converted EPS for Q4 2011 was $0.31. In terms of our dividend policy, as Gerry mentioned, our Board declared an $0.1875 per share quarterly common divided for Q4, which rotate on February 22 and has prior guidance to compare our first quarter 2012 dividend of $0.25 per share which will represent the third increase to our quarterly dividend of Q2 of 2010.

Our Board also declared $0.59375 per share quarterly dividend for the three months ended January, 30 on 9.5% Series C preferred shares.

Please turn to slide six for our balance sheet information as of December 31, 2011 and December 31, 2010. The strengthening of our balance sheet during the year reflects the growth in our operating fleet, $240 million of cash generated from operations – cash proceeds from our Series C preferred share issuances.

In terms of liquidity as of December 31, 2011 we had cash and cash equivalents of $481 million and close to $300 million available under our credit and lease facilities. We consider our strong liquidity and financial flexibility to be a key competitive advantage in the current market environment.

Please refer to slide seven down for the quarterly details of our vessel deliveries, dry-docking, CapEx, ship operating expense and converted share count guidance, each of which maybe subject [to definitely to] a customer scheduling requirement while there are changes. Expect to take delivery of four 13100 TEU vessels in the first half of 2012 and three 10000 TEU favor class of newbuildings in 2014. You will note that we have provided a specific delivery date effective for the four 13100 vessels in the table.

In terms of the anticipated and scheduled off-hire days to dry-docking, we expect approximately 51 days of dry-docking in Q1, 9 days in Q2, 45 days in Q3, and 15 days in Q4 for a total of 120 days for the full year of 2012. At this time, we estimate about 100 days of scheduled off-hire days for each of 2013 and 2014.

In terms of CapEx, we expect approximately $173 million in Q1, $145 million Q2, $20 million in Q3 and $60 million in 2013 and $193 million in 2014; representing total capital spending of approximately $590 million, for which we have already secured all necessary funding. Ship operating expenses, with the acquisition our Manager completed, we’re now expecting our daily ship operating expenses to increase on average by 8% per vessel in 2012 from levels under the management agreement that expired at December 31, 2011.

Our expected converted share count is relevant to the accurate calculation of our normalized converted diluted EPS. Based on our current shares or common stock outstanding, which reflect the 11.3 million shares repurchased through our tender offer and approximately 4.2 million shares issued on the acquisition of our Manager; assuming participation rates in our DRIP at 25% quarterly common share dividend and a conversion price of $15 for our Series A preferred shares, we currently expect 81.3 million, 82.1 million, 82.8 million, 83.4 million shares for each quarter sequentially in 2012; 86.1 million shares for the year 2013; and 87.8 million, 2014.

Also, we would like to provide an estimate of our interest expense at the hedged rate for the year, which we expect to be approximately $191 million based on average operating debt of approximately $3.6 billion and the blended rate of 5.26%. Blended rate is a combination of our swap rate of 6.9% and the floating rate of 3%.

Please turn to slide eight, which depicts the staggered maturity profile for our charter portfolio [in-house that’s] well protected or contracted revenues are from the current charter market softening. The average remaining charter length for our fleet is 7 years and we have limited near-term re-charter exposure. But only four 4250 TEU ships up for re-charter this year and two 4250 up for re-charter for 2013.

On the capital structure side, we believe that our increasing operating cash flow combined with our strong liquidity and access to capital markets will give us continued ability over the long-term to support increasing our fee and material cash, pay down debt and continue to perceive growth in a balanced and controlled manner and ultimately provide long-term value to our shareholders.

We will be opportunistic in our approach to access in the capital market looking then to versify our capital structure and create additional capacity for growth.

I would now like to turn the call back over to Gerry.

Gerry Wang

Thanks, Sai. Please turn the slide to the industry overview, which is page nine. I’ll briefly discuss the industry’s current fundamentals. On the supply side, the order book currently stands a little over 20% of effective loading capacity or about 7% to 8% per annum on average. This will be further reduced by demolitions, potential orders, consolidations, charter re-deliveries, conversions and other potential adjustments in terms of vessel layouts.

On the demand side, we expect container cargo demand, which is derivative of global trade to continue to grow at 7% to 8% per annum. So in general, we expect cargo demand and ship supply growth to band this out over the next two to four years.

The freight rate environment remain challenging but it’s showing early signs of recovery with the recent announcement from our customers regarding expanding alliances, planned [general rate] increases and the capacity reductions on the main Ks. The continuing challenges facing our customers underscores the needs for larger, modern and a fuel efficient ships that will drive economies of scale and significantly lower their operating cost and highlights the opportunities that exits for owners with strong balance sheet and access to capital like Seaspan.

Please turn to slide ten, where I will reiterate our vision for the future. Our overall strategy is to continue to grow our fleet in a controlled and balanced fashion. As we discussed on our 2011 second quarter conference call, we entered into our next phase of growth by ordering three 10000 TEU fuel efficient vessels against ten plus two year charters to Hanjin Shipping.

Due to the uncertain outlook for the global economy, we intend to continue to be patient and disciplined using our financial strength and technical and operational leadership to position ourselves to pursue select growth opportunities that meets our strict criteria.

We will continue to concentrate on designing, owning and chartering large, modern, fuel efficient container ships to create worthy customers on long-term basis. We remain committed to sustainably increasing our common share dividends over the long-term as we continue to opportunistically grow our business.

As a ship leasing franchise, it is critical to consistently maintain a strong balance sheet, diversifying our capital structure and enhancing our financial strength including maintaining conservative leverage has been our core differentiator of Seaspan and it will remain one of our top priorities. With a proven business model that was just tested by the financial crisis of 2008 and 2009, we believe Seaspan is well positioned to continue to both enhance its leadership position and create shareholder value over the long-term.

Okay. Can we open up for the questions, please?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Ken Hoexter of Bank of America. Please go ahead.

Scott Weber – Bank of America

Thanks. Good morning, everyone. It’s Scott Weber in for Ken. Gerry, I’m just wondering, when you think about growth from here, what sized vessels are you focusing on now and have your thoughts changed at all about vessel size based on what you’re seeing in the charter market?

Gerry Wang

The vessel size we’re focused on is primarily the large size; 10 tons TEU or plus. Obviously, we’re looking at other sizes as well. So anything north of 3 ton to 4 ton TEUs will be our focus.

Scott Weber – Bank of America

And have newbuilding prices come down at all? Is there any chance that you would order a vessel without a charter attached if the prices get attractive enough?

Gerry Wang

The newbuilding prices are moving fairly flat with some downward pressure. Seaspan’s policy is not to order any vessels on a speculative basis.

Scott Weber – Bank of America

Okay. And I’m just wondering if you could provide us with an update on the joint venture. Has there been any additional investments made that spend past on and has the JV been active in the containership space at all?

Sai Chu

The joint venture has been progressing very well (inaudible) and the joint venture has not done any transaction that this spend has not been part of – we’re actively looking at projects. And as I said we want to be patient and disciplined. We wanted to do the [right] and going forward.

Scott Weber – Bank of America

Okay. Perfect. Thanks for the time.

Sai Chu

Thank you.

Operator

Our next question comes from Gregory Lewis of Credit Suisse. Please go ahead.

Gregory Lewis – Credit Suisse

Yes, thank you and good morning.

Sai Chu

Hi, Greg. Good morning.

Gregory Lewis – Credit Suisse

Gerry, could you talk a little bit more about the two vessels, the Dalian and the Felixstowe, I was a little confused – I was little confused from slide eight, are those vessels up – have those vessels been expended or is that something that is – is that in the negotiation period, I just have a little bit difficulty reading the slide.

Gerry Wang

They’re under negotiation.

Gregory Lewis – Credit Suisse

Okay. They’re on negotiation. And just given the market where we are today what I mean a little bit over 5% of the global container fleet – I mean when we think about a realistic negotiation rate for those vessels, should we be thinking along the lines of may be a 10% discount to the existing rate or could it potentially be little bit more than that?

Gerry Wang

It should be more. The charter rates are pretty depressed on the spot market. Our intention is to wait given the freight rates uplifting right now. So we hope the charter rates will improve accordingly. And today’s markets on a spot basis for three to six months, you expect to get something around 7 to 10 (inaudible) situation to work – closely monitor the market situation and continue to negotiate with our charters to get the best for those vessels typically the market is not easy shortened and our run rate to come healthy again real good for long time.

Gregory Lewis – Credit Suisse

Okay, so – okay, great. So I think I understand that and then, I had seen you recalled (inaudible) it’s been a while now. But when these – when CSCL or CSAV – no, having just CSCL, when they walk away from a charter, don’t they – isn’t there a payment they have to make to Seaspan to get out of that – to do not exercise those options?

Gerry Wang

The option is purely in the hands – it was granted from day one. They give us time and send those whether or not to go for the option – the additional periods; there’s no penalty attached to this.

Gregory Lewis – Credit Suisse

Okay, then just one final question on the fleet, I’m just – I guess it was a name change, the UASC Madinah, what was that vessel previously named?

Gerry Wang

It was called Granville.

Gregory Lewis – Credit Suisse

I’m sorry, could you repeat that?

Gerry Wang

It’s Granville, G-R-A-N-V-I-L-L-E. That’s our own vessel, we purchased two years ago.

Gregory Lewis – Credit Suisse

Okay.

Gerry Wang

From the (inaudible)

Gregory Lewis – Credit Suisse

Okay, perfect. Thank you very much for the time guys. Have a great day.

Gerry Wang

Thank you, Scott.

Operator

Our next question comes from Justin Yagerman of Deutsche Bank. Please go ahead.

Justin Yagerman – Deutsche Bank

Hey, good morning, good afternoon, how you’re doing? I wanted to catch up on the dividend first. You guys have talked to a dividend that would be a progressive policy 33% [and that’s] progressive. How should we be thinking about this now going forward? Is this going to be a more transactional, where as you guys add more cash flow to the fleet, we should potentially see dividend raises, but other than that not expect them? Or do you think you still have firepower to kind of gradually raise the dividend absent acquisitions?

Sai W. Chu

Hey Justin, it’s Sai. Our Board has opted a progressive dividend policy and that means that we’re going to increase that dividend over time. I think that clearly the Board has demonstrated its commitment to shareholders with three dividend raises or a 150% in about two years, less than two years. In addition, it’s also provided capital back to and return to the shareholders through the tender offer, and [both of being] opportunistic with an open market program. So the Board clearly is very focused on providing returns in a lot of different ways to shareholders. And at this time, it’s clear that the current dividend is definitely sustainable and it’s appropriate given where we are today with our fleet and the various opportunities. And the Board will make a decision on a regular on the dividend going forward.

Justin Yagerman – Deutsche Bank

Okay. I guess I’ll ask it a different way then. Is there a threshold that you guys wouldn’t breach in terms of payout ratio and how do you think about that?

Sai W. Chu

Yeah. Justin, I think at this time, our Board has kept it open and they like to have that flexibility to determine that going forward.

Justin Yagerman – Deutsche Bank

Okay. Okay, sure. And then thinking about the last few months, first you spend during the tender offer and now announced share buyback, it would seem to appear that you guys view your shares as more attractive than going out and looking at vessels on the water, vessels in the new build market.

And I am wondering how much of that is a factor of price, how much of the factor is – how much of that is a factor of charters available in the market right now. We’ve seen players like Evergreen who are potentially out there with tenders, are they the only ones, is there nobody else? And may be some color on the current market and why you guys have decided to put as much capital as you have back into your own stock versus outwardly deploying that capital?

Sai Chu

Justin, this is Sai. I think that again the Board evaluates our liquidity and our financial strength and our opportunities. And certainly one asset and many of our shareholders had assets (inaudible) carefully at share buyback. And clearly we have the excess liquidity and let’s remember we generated $240 million of cash flow from operations in addition to raising $350 million in preferred.

So [just sitting] on still $300 million of cash and a lot of liquidity and I think that clearly we’ve been on (inaudible) mid-term growth cycle. So we’re constantly evaluating each opportunity with the Board and they make the assessments. In terms of the current open market program, it’s really being opportunistic and just to make sense we will go and execute again if we believe the long-term value in buy back our shares.

You have to remember that we have an enormous liquidity and firepower and we have the ability [to deploy a lot of] our capital. So there’s a balance here of deploying capital, but certainly there’s no shortage of opportunities. It’s just a question of when we decide to execute on it. And then, I’ll turn that over to Gerry to talk about the growth opportunities.

Gerry Wang

Justin, Gerry here. Apart from the efficient use of capital as outlined by Sai, we’re looking at various growth opportunities. There’s just a couple of things I want to highlight. Number one, the [spending trends] for the newbuilds we’re looking at is very different from what we have in the past.

Today, we only need to put there 5% to 10%, given the creditworthiness of Seaspan, than going through all the various ups and downs. So we’re very creditworthy [enhanced. The ships] expect very low upfront payment and the [heavy TEU] trends would also help us in terms of efficiently using the capital that we have in our hand. Actually, we believe by making use of the capital in the most efficient way, creating the maximum value to the shareholders.

Justin Yagerman – Deutsche Bank

Okay, that’s interesting. When I think about the Carlyle JV fleet versus [you guy’s] fleet currently or opportunities for your capital to be deployed, how much of their fleet is currently fixed and would they be out there competing for new charters with you guys or is that all going to be first looked at by Seaspan before anything could be fixed on to an existing Carlyle ship?

Gerry Wang

Well, according to the joint venture requirements Seaspan have with Carlyle, all this is worked out together, there is no competing elements in it. Just to recall, I mean, one of the key reasons we entered this Carlyle joint venture was really to serve our customer needs and desire for a lot of tonnage. So the way that joint venture is constructed is very special, Seaspan generates the deal for the customer, they got Seaspan manage ships and we at Seaspan have the right for the foreseeable regarding which ship that Seaspan takes or not, but Seaspan end up in the joint venture.

Justin Yagerman – Deutsche Bank

And last one and I’ll turn it over, I just was curious how would you define current available liquidity, is that say I mean $481 million plus $300 million that you noted under revolver is less, maybe we’re assuming to execute the full buyback $50 million, so we’re coming up with like a $731 million number or is it higher than that right now?

Sai W. Chu

Well, the $481 million is part of the tender offer being completed right.

Justin Yagerman – Deutsche Bank

Okay.

Sai W. Chu

It’s probably in the neighborhood of $500 million to $600 million of availability, plus we can certainly add more debt because our (inaudible) have a fair amount of room to it.

Justin Yagerman – Deutsche Bank

I guess, where you think your like total firepower is right now?

Sai W. Chu

Again it’s well over $1 billion and certainly depends on how we structure transactions where we could certainly go beyond that. And we demonstrated the ability to raise equity capital as well. So the Cleanups and Carlyle are a lot of firepower.

Justin Yagerman – Deutsche Bank

Excellent. All right, thank you so much for your time guys.

Sai W. Chu

Thank you.

Operator

Our next question comes from Noah Parquette of Cantor Fitzgerald. Please go ahead.

Noah Parquette – Cantor Fitzgerald

Thanks, good morning. I wanted to ask a little bit about – the acquisition of SL Manager, that you rolled that up. Can you talk a little bit about what kind of cost saving you’re expecting and kind of 2012 DVOE increase we can expect year-over-year?

Sai Chu

Hi Noah, it’s Sai. As we stated we have an increase in operating expenses of approximately 8% as (inaudible) was approximately 10%. In addition, have we not completed the acquisition of the manager, we probably – that increase would have been higher, because if you’re not building on margin for that fixed rate of – and it could have been anywhere from 5% to 10% higher. But I think it was fairly budget-saving in addition with the alignment of interest and retaining control over the leadership and management, technical teams, from the manger.

Noah Parquette – Cantor Fitzgerald

Okay, that’s very helpful. And then, talking about vessel design, the SAVER vessel design that you guys have, can you talk about a little bit more about the management of the fuel savings you can express on that and really how much of that savings can be cashed out in terms of higher charter rate?

Gerry Wang

The SAVER design is a very advanced (inaudible) best design available in terms of laudability and fuel consumption. It accounts for approximately 25% to 30% of fuel saving, which is chunk that – in terms of dollar figures about $250 saving per TEU (inaudible) ship for Asia, Europe run rate, which is substantial given the fair rate situation that $250 per TEU (inaudible) ship is a substantial figure and we’re obviously very happy with it and with this design in our hand, we have a strong weapon in terms of our enhanced competitiveness when we deal with our charters and we’re very well positioned in our negotiations with them. In terms of the actual rate advantage over our competitors is that to really put the dollar figure there, but this enables us to the front-runner for the business that we’re competing for.

Noah Parquette – Cantor Fitzgerald

Okay, great. And then just quick modeling question, Sai, what’s your debt amortization process for years?

Sai W. Chu

I think it’s actually disposing our financial, so we can’t refer that to you.

Noah Parquette – Cantor Fitzgerald

Okay. Thank you.

Operator

Our next question comes from Brandon Oglenski of Barclays Capital. Please go ahead.

Brandon Oglenski – Barclays Capital

Yeah, good morning and good evening, everyone. Gerry, I was just wondering if we could get your thoughts on how much over supplied we are right now and what it would take to get us to a much better talents for the carriers themselves.

Gerry Wang

Brandon, mysteriously you look at the size last year, so it’s not over supplied. The fleet grew by approximately 7% and the trade volume went up by approximate 78% as well. (inaudible) for example Asia to Europe, a lot of (inaudible) and there was – for the regional difference in terms of supply and demand and as a primary reason for the rates to fall was really because of about the main trade Asia to Europe that took the overall condition to deteriorate.

But if you look at what is happening right now through the consolidation with expanded alliances and also the leadership taken by Maersk and others, the general rate increases are fully effective as of today and there is expectation that will be further that increases as of April, the 1st, so the momentum is there. We expect the charter rates to pickup as well as a result of the overall (inaudible) increases.

And for the next two to three years, growth expects to be demand side to be (inaudible) globally. But there are always regional imbalances, especially for the main trades, Asia Europe and Asia North America. So we closely watch them as the (inaudible). At this point in time, as we seek this supply and demand situation is actually fit again.

Brandon Oglenski – Barclays Capital

Then I guess, just given where some of the industry sources, but charter rates are pretty low rate now on the stop market, and I think you alluded for that. Is there any opportunities for Seaspan’s work, let’s say in the newer build second-hand market. Are there any opportunities coming across that might be favorable?

Gerry Wang

Yes, there are number of opportunities, as we already discussed, we are actively pursuing and evaluating other’s opportunities, as I said, we want to be very selective disciplined and patient and we want to derive, not just (inaudible) just want to buy the right fit, we want to have the right charters, we also want to make sure, the fitting with our overall fleet so far in terms of the main engines, the designs, the orders and other things.

So we are much more schematic than the second-hand purchasing activities typically demonstrated through those years by (inaudible) from Europe and others. So we take a very different view, which is if you look at thing in a total package, then we’ll go from there. And we have no problem with the firepower, it’s just we wanted to (inaudible) for the right type of and with the right type of…

Brandon Oglenski – Barclays Capital

Okay, thank you very much.

Gerry Wang

Thank you, Brandon.

Operator

(Operator Instructions) Our next question comes from James Woods of FBR Capital Markets. Please go ahead.

James Woods – FBR Capital Markets

Good morning, evening gentlemen. I’m dialing in for John Mims today.

Gerry Wang

Okay.

James Woods – FBR Capital Markets

So, much of what I wanted to ask has already been touched on, but sort of reverting back to some adjustments questions earlier, you guys talked about what level of or how much firepower you have – in the opportunities in market and I’m taking it to mean, near term that the jumped in dividend in the share buyback, I mean, you’re looking to deploy your cash on your shares as he pointed out. But what I’m interested in figuring out is sort of what level of cash you guys are comfortable with going forward into a market where you perceive more opportunities?

Gerry Wang

James, I think that what we did highlight, we do have a lot of liquidity. So the fact that we are putting in place another $50 million open market slowdown is not a significant amount in terms of our liquidity. We still have a lot of growth capital there, I’ll look to that. Certainly, we are on our mid-term growth cycles, where we in fact to grow our fleet to this $8 million to $10 million and that’s three to five years. So it’s going to be a very balanced approach in providing returns to our shareholders and also using that [account] what we have to play into new assets and generating more as total cash flow.

James Woods – FBR Capital Markets

Okay, that’s helpful. Then just sort of a second quick follow-up, are the preferred shares that you guys issued callable or what are some of the terms around that.

Gerry Wang

They don’t call it five, and we have a year to take them out for the accelerating dividend.

James Woods – FBR Capital Markets

Okay. Thank you very much, I’ll turn it back.

Gerry Wang

Thanks.

Operator

I am showing no further questions at this time. And let’s turn the conference back over to Mr. Gerry Wang for any closing remarks.

Gerry Wang

Thanks, operator. Thank you very much again for joining in this call. We look forward to speaking to you again next quarter. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today’s conference. You may all disconnect and have a wonderful day.

Gerry Wang

Thank you very much.

Sai W. Chu

Thank you.

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