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Navios Maritime Partners L.P. (NYSE:NMM)

Q3 2012 Earnings Call

October 23, 2012 8:30 am ET

Executives

Angeliki Frangou – Chairman and Chief Executive Officer

George Achniotis – Executive Vice President of Business Development

Efstratios Desypris – Chief Financial Officer

Analysts

TJ Schultz – RBC Capital Markets

Natasha Boyden – Global Hunter Securities

Ben Nolan – Knight Capital

Joshua Katzeff – Deutsche Bank

Operator

Thank you for joining us for this morning's Third Quarter 2012 Earnings Conference Call for Navios Maritime Partners. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; EVP of Business Development, Mr. George Achniotis; and Chief Financial Officer, Mr. Efstratios Desypris. The conference call is also being webcast. To access the webcast, please go to the Investors Section of Navios Maritime Partners' website at www.navios-mlp.com and you’ll see the webcasting link available at the page. I'd now like to read the Safe Harbor statement.

This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management, and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in the conference call. Thank you.

At this time, I'd like to review the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will provide an overview of Navios Partners' third quarter 2011 financial results. Then, Mr. Achniotis will give us an operational update and an overview of market fundamentals. Finally, Ms. Frangou will offer concluding remarks, and we will open the call to take your questions.

Now I'd turn over the call to Angeliki Frangou, Chairman and CEO of Navios Maritime Partners. Angeliki?

Angeliki Frangou

Thank you, Laura. Good morning to all of you joining us on today's call. I am very pleased with the results for the third quarter of 2012. Our larger fleet allowed us to increase EBITDA by almost 20% and net income by 33%. We have 21 vessels in the local with an average charter duration of 3.5 years and recently announced a quarterly distribution of $0.4425 per unit with a record date of November 8, 2012. Our distribution represents an annual distribution of $1.77 and a yield of about 11.5%.

As you can see from slide 2, Navios Holdings owns 25% of the equity of Navios Partners with an assistance of our (inaudible) Navios Partners has become a key player in the dry bulk industry. Today, Navios Partners have a multi-capitalization of about a $1 billion and an enterprise value of about $1.2 billion. Navios Partners has a conservative balance sheet and the net debt to charter-adjusted asset ratio of about 35% as of the end of the third quarter.

Consistent performance has also enabled Navios Partners continued access with the net capital market, and provided NMM the ability to grow its fleet and cash flow. In fact, since Navios Partners went public, we have increased our fleet almost three-fourth. [Also] Navios Partners increased its per unit distribution by 26.4% representing an annual increase of almost 6%. We seek to increase distribution regardless of the underlying market condition.

Slide 3 shows the multiple ways we have been able to grow our fleet in distribution. Today, we have done so with a assistance of our (inaudible). We have also decided to purchase options. We have on charter in vessels. More recently, things have been active in a (inaudible) compressed with market and will continue to use this market to include our fleet as opportunities arise.

As you recall, last quarter, we acquired three vessels of which one was from Navios Holdings as sponsors and two vessels were from the open market as sales and purchase market. We acquired in 2009 South-Korean-built Ultra-Handymax for $20.6 million and in 2005 Japanese-built Panamax for $20.8 million from the open market. These vessels have low cost breakeven providing positive cash flow generation for Navios Partners.

Keep in mind that these vessels provide the potential for submission (inaudible). We consider all these acquisitions attractive, but also believe that the sales and purchase market for the first time in a while provides attractive entry point. As a result, you can expect us to continue make negotiations from the open market that this vessel will not only be able to share Navios Partners during the current difficult market, but will also present the potential for a significant additional distribution in an improved market.

At this point, I would like to turn the call to Mr. Efstratios Desypris, Navios Partners CFO who will take you through the results of the third quarter. Efstratios?

Efstratios Desypris

Thank you, Angeliki, and good morning all. I will briefly review our unaudited financial results for the third quarter and nine months ended September 30, 2012. The financial information was included in the press release and is summarized in the slide presentation on the company's website.

We had another quarter with a strong operational and financial performance. The growth of our fleet enables us to continue to deliver significant increases in our operating metrics.

As shown on slide 4, revenue increased by 15.6% to $55.5 million mainly due to the 226 more available days for the third quarter of 2012 compared to the same quarter of 2011.

EBITDA increased by $7 million or 19.4% to $43 million for the third quarter of 2012. Net income increased by $5.5 million to $22.1 million. The increase in net income is mostly attributable to the increase in the number of available days and was adversely affected by a $1.3 million increase in depreciation and amortization expense caused by our larger fleet.

Of this amount, $0.6 million relates to the amortization of favorable leases attached to the acquired vessels. This favorable lease component is amortized over the remaining duration of the charter out contract as opposed to the longer remaining useful life of the vessel.

Operating Surplus for the quarter ended September 30, 2012 was $35.6 million, 21.5% higher than the corresponding quarter in 2011. Our fleet continues to perform well. Vessel utilization for the third quarter was 99.4%.

Moving to the nine months operations; time charter revenue increased by $16.1 million to $152.6 million, mostly due to the 484 more available days. EBITDA increased by $17 million or 17.1% to $116.2 million for the nine months of 2012.

Net income increased by $9.1 million or 19.5% to $55.8 million. The increase in income is mostly attributable to the increase in the number of available days and was adversely affected by $6.1 million increase in depreciation and amortization expense previously explained. Operating Surplus for the nine months ended September 30, 2012 was $94.7 million, which is 12.1% higher than the corresponding period in 2011.

Turning to slide 5, I will briefly discuss some key balance sheet data for September 30, 2012. Cash and cash equivalents, including restricted cash was $51.7 million. Total assets grew to $964.7 million, mainly due to the acquisition of Navios Buena Ventura in June, and Navios Helios and Navios Soleil in July. During the third quarter, we completed the $44 million financing for the acquisition of these three vessels. We continue to obtain financing at terms that we consider attractive.

Our new facility has a 12 years amortization profile and a spread of 350 basis points over LIBOR. Following the completion of the new facility, long term debt including current portion decreased by $0.2 million due to the $44.2 million of debt repaid during this period. Net debt-to-asset value on a charter-adjusted basis remained at 35.1% at the end of the quarter. We are able to maintain this relatively low leverage ratio despite the decrease in the values of the vessels in the market as we continue to accretively add vessels to our fleet. As of September 30, Navios Partners was in compliance with the financial covenants of its credit facilities.

As shown on slide 6, we declared distribution for the third quarter of $0.4425 per common unit. This represents a 26.4% increase over our minimum quarterly distribution. The record date for the distribution is November 8, and the payment date is November 13, 2012. Total distributions for the quarter amount to $27.6 million.

Our distribution coverage is comparable at 1.29 times for the quarter. I have to remind you that for U.S. tax purpose, a portion of our distribution is clearly done in terms of capital. For 2011, the percentage of vessel distribution that was considered as in term of capital was 42.3%. Also we report the cumulative annual distributions to common unit holders on Form 1099.

On slide 7, you can see that Navios Partners has consistently paid quarterly dividend distributions since its inception in November 2007. Furthermore, we have increased our quarterly distributions nine times since 2008, which represents an average increase of almost once every two quarters. Our current annual distribution of $1.77 provides for an effective yield for 11.6% based on yesterday’s closing price.

Slide 8 demonstrates our strong relationship with key participants in our industry. We have quality charters with an average remaining period of approximately 3.3 years. These charters are spread among the divest group of counterparties. In addition, we have insured our charter-out contracts for credit default with AA rated European Union insurance company.

As shown on slide 9, our fleet consists of 21 vessels, 7 Capesizes, 12 Panamaxes and 2 Ultra-Handymax vessels. Our fleet has an average age of 5.9 years as compared to the industry average of almost 10.5 years. Recently, we have charter-out the Navios Libra for $12,000 net per day plus 50-50 profit sharing until September 2015. Following this picture, we have currently contracted 99.3% of our available days for 2012 and 93% for 2015. Next page on data staggered and the charter duration extend to 2022 the latest.

I'll now pass the call to George Achniotis, our Executive Vice President of Business Development to discuss the industrial section. George?

George Achniotis

Thank you, sir, and good morning all. Please turn to slide 10. World GDP continues to be driven by developing economies, which now contribute a higher percentage of total world growth than the developed economies representing over half of the global consumption of most commodities. The IMF expects this trend to continue for the foreseeable future.

The IMF recently lowered its forecast for well growth to 3.3%for 2012 and 3.6% for 2013. Emerging economies are projected to grow at 5.3% in 2012 and 5.6% in 2013. The IMF lowered its forecast due to the continuing euro crisis and a slowdown in China. It now expects the Chinese economy to grow at 7.8% in 2012 and 8.2% in 2013. India’s economic growth is expected to be 4.9% in 2012 and 6% in 2013.

Turning to slide 11, the primary engines of trade growth continued to be China, India, and Brazil with other emerging countries having a strong growth. Dry bulk trade has expanded by an average of 5% per year in the last decade since China joined the WTO. Consensus forecast for 2013 are for global dry bulk trade to grow approximately 5% in ton-mile growth of about 7%.

Please turn to slide 12. In order to continue the urbanization and industrialization, China and India continue to invest heavily in infrastructure throughout Latin America, Africa and the Middle East. Both countries have security supply lines of natural resources with these infrastructure investments to ensure continued growth. As a larger portion of world trade is occurring between emerging and developing economies, trade patterns are shifting eastward and southward.

Turn to slide 13, currently just over 50% of the world’s population resides in urban areas. That figure is expected to grow to 67% by 2050. I think approximately 2.8 billion urban residents with a large portion of urbanization occurring in the Asia Pacific region. As you can see on the right hand graph, growth in income support increased metal demand. The rising global incomes and a shift in the global economy towards Asia should support dry bulk sales by increasing movements of raw materials, shipping projects such as to the new global model.

Moving to slide 14, the development in urbanization of the western and central parts of China will contribute significantly to steel consumption 2013 and onwards. Infrastructure, housing construction and consumer spending growth will underpin development in 2013 and beyond. Crude steel production in China through September totaled 573 million tons or about 1% more than the same period last year.

Restocking activity brought China September iron ore imports to 65 million tons, the second highest monthly imports ever after the 69 million tons imported in January 2011. Through September, China imported 552 million tons, about 9% more than the same period last year.

Future growth in worldwide iron ore imports will be constrained until new iron ore mines and expansion projects become operational. Over the medium to long term, (inaudible) are investing in additional production. The charter on the upper right hand depicts estimated new iron ore mining capacity from Australia and Brazil graphed by decline of domestic Chinese iron ore mining. The substitution of imported iron ore for low quality domestic production is already okay, as domestic production increased only 1% while inputs have increased 9% year-on-year through September. This trend is expected to continue and will increase the tons carried in ton miles.

Turning to slide 15, India have taken initial steps to industrialize and urbanize. As you can see on the lower right hand chart, India is expected to increase its urban population to 590 million people by 2030. That means India will have to build above 1.5 New York Cities per year during that time. To keep pace with expanding steel and electricity production, Indian Coal Imports, shown on the left hand chart, have increased at a 25% compound annual growth rate since 2006.

According to the Central Electricity Authority of India, substantial demand will continue, as 65% of current [plant] new power generators will be coal fired. India currently generates 68% of its power using coal. As a comparison, the U.S. uses coal to generate about 40% to 45% of its electricity.

Turning to slide 16, low freight rates, expensive fuel and highest scrap prices, led to a surge in scrapping in 2011 and so far this year. Scrapping rates for older, less fuel efficient vessels have continued to accelerate this year. Through October 19, about 27.6 million deadweight tons were scrapped. This represents an annual scrapping rate of 134 million deadweight tons or about 5.6% of the fleet.

The current rate environment should keep scrapping levels high as over 7.5% of the fleet is 25 years of age or older and 13% of the fleet is over 20 years old providing about 87 million deadweight tons of scrapping potential. Of note is that the current 2012 scrapping totals include 23 ships that were less than 20 years old and one that was less than 15 years of age. Demolition prices appear to depend on overall steel prices in northern supply of vessels.

Moving to slide 17, non-deliveries continue to be a substantial part of the dry bulk order book. Through September, non-deliveries amounted to 27% as newbuilding deliveries were 81 million deadweight tons against an expected 111 tons.

Net fleet growth totaled 15.5 million deadweight tons for Q3, the lowest level since 2009. Fleet additions this year are expected to be similar to last year, but net deadweight ton growth should be lower after higher scrapping is taken into account. The order book declines primarily in 2013 and beyond.

Please now turn to slide 18. An over supply of tonnage and continued economic weakness contributed to the BDI reaching the lowest quarterly average since 1988. With the IMF again lower in the world’s GDP forecast for 2012 weakness in commodity demand should keep freight rates under pressure for the near future. Conversely after having seen the three year low, Chinese steel prices has showing sign from recovery and the USDA has increased its forecasted cuts in grain exports. Both bring positive news for dry bulk.

Subsequent to Q3 and the reversal of recent trends Capesize rates markedly improve in October and as portraits shares $215,000 per day. Sentiment initially improved on an announcement of additional Chinese infrastructure spending. More fundamentally lower iron ore prices have cut China's domestic iron ore production increasing Chinese in for substitution. In contrast the Panamax and Handymax rates remained under pressure as a result of reduced U.S. and Russian grain exports and Indian iron ore shipments.

And this concludes my presentation. I'd now like to turn the call over to Angeliki for her final comments. Angeliki?

Angeliki Frangou

Thank you, George. This completes our formal presentation. We'll now turn the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions)

[Audio Gap]

weak market for sales and more 2014 to 2015. I’m just curious that you can give a little color around how you manage that risk considering that it is a 12 to 18 month off today without just simply hoping for a market turn. How do you manage the fact that your distribution ratio starts to fall in 2014 given the current rate environment?

Angeliki Frangou

As I already have mentioned, we already have a strategy of substituting vessels. Now run rate for that still will be around 1.16 would be something that will have some one-off events and little bit lumpy of distribution, but will be around 1.16 for 2013 and little bit slightly below for 2014. One of the [thing] we already have done and this is early on, is start acquiring vessels in today’s prices and having a creation of $1,000 – for every $1,000 that the rate were improving is about $0.12 of $0.012 accretive to the whole model, hugely accretive.

Unidentified Analyst

Okay.

Angeliki Frangou

If you remember the break even at that time was $8,700. So from every $1,000 above that it creates a huge accretion for all (inaudible) on this.

Unidentified Analyst

Sure. I think that’s better.

Angeliki Frangou

Let me take one step further on this, because you have to prepare yourself and we have 2.5 years (inaudible) on this. Today's rate you can buy a Capesize today for about $35 million, and you can fix it easily spot may be 20,000 but you can do three, five years deal at 15. That creates a huge accretive cash flow in today’s rate. So Navios is – has a strategy, is willing to implement, and we will do it in an orderly manner, because if you're not going to go in one direction at one moment, you need to do it of an extra period. This is a well defined strategy that makes sense, and don't forget your entire portfolio that was re-charter today at lower rates, as they open up because they are only six ways year or two, whether here in 18 months. This will also provide additional cash flows.

Unidentified Analyst

All right, that makes sense. And you certainly has a fair amount of time to deal with this. I do want to ask couple of more questions on that. I mean, you have been pretty clear about the fact that you get a pretty well defined strategy and certainly adding incremental market leverage to any sort of modest uptick could be beneficial to do distribution provided you be get that uptick. At least within your internal projections, how many more of these kind of these – these kind of one off deals at low market levels, you need to do to be relatively comfortable. I guess, how many more, are you guys planning on doing. Obviously it's going to be based on what the markets presenting you. But in turn way, this is pretty well defined, what level gets you comfortable in terms of adding these kind of – these deals kind of at market today?

Angeliki Frangou

First of all, I want to tell one thing; in today’s market you have that creation. So you don't need the recovery. The recovery will give you a tremendous boost. We will need the strategy of four to six vessels would be something we can do more or less depending of what the opportunity is. We have internal models, but I don’t think that this is something that we want to articulate your entire acquisition strategy. But the other thing that we like to do is, we don’t like to pick one moment except there is an exceptional opportunity. Otherwise, we prepare to spread the acquisition of a period of time so you can pick different moments in the market.

Unidentified Analyst

Okay. And if I heard you right, you said four to six basically it is kind of what you’re saying?

Angeliki Frangou

It could be more. I mean, what we are foreseeing on the horizon.

Unidentified Analyst

And just one more question on those lines, there are other NLPs in the space that face similar circumstances and kind of gear themselves to run at lower levels with the parent, the sponsor on a private side stepping into kind of subsidized the distribution. Obviously you guys have a lot of runway between here and there, but is that something from a parent level that you think Navios would be willing to do as kind of a backstop is kind of a way to say, okay, we’ll – the distribution level we’re at right now is going to be the minimum?

Angeliki Frangou

I think Navios Partners has the ability to grow, increase it distribution on its own, I don’t see any comparison.

Unidentified Analyst

Okay, fair enough. One more and I’ll turn it over. The Gemini where you mentioned – you just re-chartered a Gemini and they both hopefully 2015, 2016. At that point, they’re going to be rolling into their early 20s. In your long term models, are you guys continuing to include those from a cash perspective or are you guys scrapping other this by that point.

Angeliki Frangou

I mean, well, you buy; you don’t sell at the same moment. So usually we do for the full approach when the Gemini charter until Q1 of 2014, so at the appropriate time we will think when to replace and this is not something we usually do in the same moment.

Unidentified Analyst

Right. Now, I guess I'm getting it from a cash flow perspective when you guys are looking at where your distribution covered is going to be. Are you including a charter for that asset or you including a liquidation value?

Angeliki Frangou

We look at it, if you gradually [liquidate] you will do a substitution, and today's market you’re going to substitute with the kind of equity on a 10 year younger vessel. So I don't think that really matters very much.

Unidentified Analyst

Okay, that makes sense, the substitution make sense. All right, thank you guys for the time. I appreciate it.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of TJ Schultz with RBC Capital Markets.

TJ Schultz – RBC Capital Markets

Hi guys. I guess just with your interest kind of remain active in the S&P market. How do you kind of balance that versus your contract duration, which I guess is your comfort zone is around three years? So and you like to stay above that is [Audio Gap]

…from the market as we did last time. Depends really on the opportunity we see in the creation of the specific deal.

TJ Schultz – RBC Capital Markets

Okay. Great. I guess just kind of back to the labor and I guess decision to extend three years and take the profit sharing, how did you kind of balance that decision versus just kind of extending for even a shorter duration kind of in the context of that being an older vessel that you may look for sale at some point?

Angeliki Frangou

The longer duration made intention for (inaudible) profit sharing. If there is a need for a sale, there is always way out on a contract. So there is no – I mean you can’t have a substitution vessel. So there is no, really any limitation to Navios Partners have build to execute on a strategy.

TJ Schultz – RBC Capital Markets

Okay, great.

Angeliki Frangou

That (inaudible) another vessel, so it is not really a point that you renegotiate.

Unidentified Analyst

Got it, understood, thanks.

Operator

Your next question comes from the line of Natasha Boyden with Global Hunter.

Natasha Boyden – Global Hunter Securities

Thank you, operator. Good morning everybody or good afternoon.

Angeliki Frangou

Good morning, Natasha.

Efstratios Desypris

Good morning.

Natasha Boyden – Global Hunter Securities

I’m wondering if you could – Angeliki, if you could talk a little bit what you are actually seeing in the S&P market right now in terms of asset values generally across the board. Would you continue to be active at current prices or do you think that’s going to have prices still have further to fall given the market environment.

Angeliki Frangou

Normally (inaudible) to know how. I think in the correct code, I would – may be they will drop a little bit. But if you do at today’s transaction, with today’s cash flows and these are created for the company, I think makes sense. The downside risk is less, risk is under – the upside potential may have is bigger.

Natasha Boyden – Global Hunter Securities

Okay. You are obviously getting longer term contracts, but what is the general appetite of vessel contracts longer than say three or four years. I mean, is there a lot of appetite for sort of five to ten year contracts? Are you seeing trials that are moving more towards the short term?

Angeliki Frangou

The majorities are shorter duration. On the Capesizes we will find that there is opportunities that’s why you can see longer durations. In Q3, you almost at a point that it was not period (inaudible) previous market, now it has recovered. And on today's level, especially the Capesizes you can do longer duration of contract.

Natasha Boyden – Global Hunter Securities

Great, thank you. I think you talked a couple of industry questions. George, you mentioned in your comments obviously the Cape rates has picked up fairly drastically in October. And I’m just wondering how much of this move up in rates, you believe is indicative of sustainable (inaudible) and earnings particularly for capes, or is this just really a seasonal balance – like we saw last year and in the fourth quarter?

George Achniotis

Well, Q4 is always seasonally the best time of the year. And this is what we are going to see this year. We also have the talking of the Chinese in the substitution of the domestic with imported iron ore, which is also helping the Capesizes and this might may go on for a few more weeks until the end of the year.

Natasha Boyden – Global Hunter Securities

Okay. Do you think the (inaudible) sort of the January effect and the Chinese New Year and January kind of having [depressing] impacts on rates there?

George Achniotis

Again (inaudible) we don't have a crystal ballpark, but additionally Q1 is a lower spot of in terms of rigs, now we have the holidays of the Christmas and the Chinese New Year holidays, so trade this usually lower in Q1.

Angeliki Frangou

But one thing that you have to realize Natasha, United States is going to a leadership change in election. China on the same period is covering a leadership change, now in November and the commitment on growth on the new government. So one of the things that we have to always keep in mind is that the capacity of the Chinese economy and government to boost the economy, which we saw that happened in Q4 and maybe is something that may still in 2013.

Natasha Boyden – Global Hunter Securities

Okay, that actually makes sense. Thank you. And just lastly, if I may, yeah, there is actually a bit – it sounds that Chinese shipyards will continue to make dry bulk vessels due to support from the government and the needs to keep employment high. Can you talk a little bit about your thoughts on that? Are you worried that China will look to take more control over shipping import from the future?

Angeliki Frangou

I think today you have new orders. I think what is happening is now is whatever was built and left in shipyards you have done China. We have seen a lot of resales of vessels that were stuck and because of regulation for gasification these vessels have to be put – strong to be completed in July of this year. Some of these vessels will come in – because Chinese orders that stuck in different yards. Some of these orders are coming, and we have seen them coming into the market. I don’t think right now you have new vessels and new buildings build in the dry bulk as much as recentralization of whatever was in the system and trying to finance a natural loan.

Natasha Boyden – Global Hunter Securities

I’d say great. Thank you very much for the time.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of Ben Nolan with Knight Capital.

Ben Nolan – Knight Capital

Good morning, Frangou.

Angeliki Frangou

Good morning.

Ben Nolan – Knight Capital

I have a few questions. First of all, as it relates to sort of the bank debt side, you guys obviously procured financing for the acquisition that you did and then also I guess in July did a refinance of the existing facility. One of the things about the refinance, particularly was that Commerce bank obviously was took out pretty major role, and I guess subsequently you said that they no longer intent to add exposure to the shipping space. Just curious, I mean is that I would suspect that doesn't impact the loan that you agreed to, but does that shape your thinking or impact, do you think your ability to secure financing on future transactions or I mean is there...

Angeliki Frangou

Actually this is a very good question. But actually this is what the ability of Navios Partners to have secured finance. The announcement of Commerzbank exit from the shipping sector was actually coincided from before we purchase the vessel, Navios Partners have done a second packet with new banks, so we can build on this new [full of assets] and create an extend the company. This is actually demonstrated in the worst possible shipping markets as well very difficult summer months with the capital markets in every sector, Navios Partners was easily able to say Q1 and the middle of vacation and nice financing in line with the previous one, and we can build actually in that portfolio further.

Ben Nolan – Knight Capital

Okay. So the absence of Commerzbank going forward shouldn't be too material on your ability to finance?

Angeliki Frangou

No.

Ben Nolan – Knight Capital

Okay. That's helpful. I assume that was the case, but obviously that's a key name in the space to sort of circle whether there's exposure. My next question and it certainly gets back to the charter that you did for the Libra, obviously a little bit longer term. I was just curious that’s a bit of an older ship. Is there any – is it more challenging to get charters to create a charter vessels that are a little bit older like that when it would appear to be ample number of more modern vessels that would maybe available to charter. I mean is that – is there any large distinction being made by charters based on hedge?

Angeliki Frangou

But that’s why (inaudible) meeting for a longer period makes more sense, because it is easier to frequent lower rate, a modern vessel will not commit for a longer duration.

Ben Nolan – Knight Capital

Okay. So you are saying I guess the owners would not – modern vessels wouldn’t commit to longer duration?

Angeliki Frangou

I mean would you like to be actually speaking on the law of the market will for a long duration, no.

Ben Nolan – Knight Capital

Right. That sort of leads me to my next question, and this is a little bit more I don’t know theoretical I suppose, but to me anyway it seems as though there may actually be more value on the freight side of the business than there is on the asset side of the business, i.e. you might be better off if you could charter in a vessel on a long duration at currently low rates than taking the risk that asset values may fall further and acquiring ships at current levels. May be that’s not your view at all, but if it is, would there be any potential at all that you guys might look to charter in vessels, if there isn’t the capacity to do that on longer durations and sort of play the upside a little better or maybe that’s better suited for the parent I don’t know, but just curious how you make of that.

Angeliki Frangou

We wouldn’t exclude that but in essence you have to realize that this is better suited on a more levers unless dividend driven model because you are going to end up with actually bigger level because it is like off balance sheet levers that’s happening because you are bringing in debt. If you realize one of it – if you see one of the reasons not this product has been able to perform and grow its distribution consistently at 6.5% per year and the reward investors and shareholders has seen because we are very careful about the leverage we have. On a charter-on-charter evaluation in today’s market, today’s level of asset values, we are 35%.

So going in and getting a large position, yes, in the levers position as we know make more money but if you’re own you are going to really suffer. So our own internal model is conservative and we prefer to take a more conservative approach because we like to protect our shareholders and the distribution.

Ben Nolan – Knight Capital

Yeah. That makes lot of sense. And again, it may be more suited for parent or may be just a different model entirely. But I guess I’m just curious whether or not you think that there may actually be more value on the freight side than the asset side independent of how it fits into the partnership.

Angeliki Frangou

There will be great value assets in the asset play and as always had been and you can make incredible returns on your investment, and this is also in place with the different level of levels.

Ben Nolan – Knight Capital

Okay, all right. Now that answers my questions. I appreciate it.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of Joshua Katzeff with Deutsche Bank.

Joshua Katzeff – Deutsche Bank

Good morning guys.

Angeliki Frangou

Good morning.

Joshua Katzeff – Deutsche Bank

Just wanted to follow up on some of your acquisition discussions, I know you spoke about the four to six vessels are potentially more and that you’d just spread it out, but can you give us may be any more color on timeframe, are you thinking may be one vessel or two vessel per quarter or any more kind of details on that?

Angeliki Frangou

We apologize, but I think this is too specific, the strategy is well articulated from beginning of this year, so we will execute on that as situations and opportunities arise.

Joshua Katzeff – Deutsche Bank

Fair enough. With regard to capacity for acquisitions of this $50 million of cash or selling the balance sheet, how should we think about funding these acquisitions, and I guess may be where do you guys be looking to then and have to go to the capital markets again?

Angeliki Frangou

We can find that (inaudible) we have internal gas, we can leverage also and we can easily, I remain with today's $20 million values, I mean the $50 million cash plus 50% finance gives you about $100 million that is five vessels.

Joshua Katzeff – Deutsche Bank

Got it, got it. With regards to the time charters (inaudible) is being about 9000 a day down from 13,000 plus a day, with kind of the same expiry of November 2012 was there anything going on there?

Angeliki Frangou

No, but the effective rate is about – its 14,000, because it was also a ballast bonus. So the time charter is 9,000, effective rate is 14,000.

Joshua Katzeff – Deutsche Bank

Okay. Got it. And then with regard to the charter expire in November, can you provide any guidance on maybe re-chartering or thoughts on kind of strategy for that, and is there any difference between the Supermax time charter market and the Panamax time charter market?

Angeliki Frangou

On the Supermax we’ll prefer to give the charter to about a year.

Joshua Katzeff – Deutsche Bank

I guess with profit share or fixed?

Angeliki Frangou

We will try to find the best rate. I mean the vessel is opening again in a very good Atlantic position, and we have been learning this actually almost for six months at 14,000. So the next thing is to try to do may be here, because you are going to be in a seasonally strong position with a kind of profit sharing or some kind of an arrangement.

Joshua Katzeff – Deutsche Bank

That’s all I had. Thank you for your time.

Angeliki Frangou

Thank you.

Operator

So our final question comes from the line of Ken Hoexter with Bank of America Merrill Lynch.

Unidentified Analyst

Hi, good morning. It’s actually Wilson sitting in for Ken. Most of my questions have been answered, but I just had one clarification. In terms of the I guess the four to six vessels that you guys are targeting in the S&P market, does the two that you’ve already purchased this year get included in that four to six count or is that four to six additional vessels that you are looking to purchase?

Angeliki Frangou

It’s some additional vessels.

Unidentified Analyst

Additional. Okay, great. Thank you.

Angeliki Frangou

Thank you.

Operator

We have no further questions at this time.

Angeliki Frangou

Thank you very much. This completes our third quarter results. Thank you.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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