Navios Maritime Acquisition Corporation CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Navios Maritime (NNA)

Navios Maritime Acquisition Corporation (NYSE:NNA)

Q1 2013 Earnings Call

May 02, 2013 08:30 a.m. ET

Executives

Angeliki Frangou

Ted C. Petrone

Leonidas Korres

Analysts

Joshua Katzeff – Deutsche Bank

Urs Dur - Clarksons

Operator

Thanks for joining us this morning's First Quarter 2013 Earnings Conference Call.

With us today from Navios Maritime Acquisition are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; and Chief Financial Officer, Leonidas Korres.

As a reminder today's conference call is also being webcast. To access the webcast please visit the investor relations page of Navios Acquisition's website at www.navios-acquisition.com.

Before I review the structure of this morning's call I'd like to read the Safe Harbor statement. This conference could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 by Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectation of Navios Acquisition management and are subject to risk and uncertainties which could cause actual results to differ from forward-looking statements.

Such risks are more fully discussed in Navios Acquisitions filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in this conference call. Thank you.

I'd like to now outline the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an industry overview. After Mr. Petrone, Mr. Korres will review Navios Acquisition's financial results. Finally, Ms. Frangou will offer concluding remarks before opening the call to take your questions.

I'd now like to turn the call over to Navios Acquisition's Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Angeliki Frangou

Thank you, Laura. Good morning to all of you joining us on today's call. I am pleased with the results. Our patience and discipline has returned to bear fruits as our first quarter for 2013 EBITDA grew by 18% over the first quarter of 2012. In addition net income improved by $700,000 or $0.01 per share from a net loss of $800,000 in the first quarter of 2012. As a result of this strong performance we declared a quarterly dividend of $0.05, resulting in a yield of 6%.

Today we have 23 vessels on the water and an additional 13 vessels to be delivered, eight of which will be delivering in the third quarter of 2013. We are continuing to grow our fleet in the existing market environment.

The Navios brand acts as a beacon for transactional partners, highlighting our professionalism, integrity and ability to execute complex deals. We are patiently surveying opportunities and will transact responsibly when the balance is in our favor.

Turning to slide four you can see that our profit sharing program is working to our advantage. We have secured days rate that allow us to operate with confidence that we will be able to meet all our commitments. In addition the profit sharing mechanism allow us to capture market upside. In fact in the first quarter of 2013 we earned 2.1 million in profit sharing or $0.04 per common share. This surpasses the profit sharing received for the entire year of 2012, as 81% of our contracted fleet and 84% of our contracted product tanker fleet has profit sharing mechanism and its strength in the market will directly impact our revenues and accrue to the benefit of our shareholders.

We recently acquired seven MR2 product tankers plus two options for vessels for a $176.8 million. This purchase is at a discount to recent purchases made by many of our peers. This purchase also reflects the strong relationship we have with many industry participants who seek to transact with Navios, given the strategy we offer and ability to handle complexity. The power of the acquisition can be seen in the potential earnings. If we assume an average of $15,000 per day per vessel we will expect to receive gross earnings of 5.4 million for each year over 360 days a year. And as our OpEx entering 2013 at 6,000 we would expect to earn 3.1 million of EBITDA per vessel per year to end 2013 at 8.6 million of annualized EBITDA for this fleet.

As many of you know we recently announced the acquisition through a joint venture with Navios Holding of 10 vessels from HSH Nordbank. As illustrated on slide five, this deal was a result of an innovative financing structure we developed. It allows Navios joint venture to receive 20% of economic interest for only 5% of equity investment. Looking at another way through this acquisition we will control 200 million of assets or 10 vessels of about five years old for only 130 million of cash. The 130 million of cash will be funded by approximately 120 million of senior bank debt equal to 60% of the current fair market value of the vessel and a 10 million equity investment by the Navios JV.

The transaction provides opportunity for Navios to leverage its expertise in order to acquire a significant fleet at historically low values and allows HSH to move its assets from insolvency into a stable situation. We feel that HSH valued us as a partner because of the economies of scale and (maximum) technical and commercial management. With our partnership HSH will be able to meet its corporate debt by taking assets from an insolvent owner and placing them with us. We worked long and hard at this transaction and accomplished many firsts.

Turning to slide six, you can see that the Navios JV will enjoy favorable economics. The JV will receive 12.7% higher preferred return on its 10 million investment, as well as a preferred return of this investment upon the sale of the vessels. Thereafter 20% of cash flow from operations or sale will be going to Navios until HSH subordinated loan is repaid. Once HSH loans has been satisfied the Navios JV will receive a 100% of earning as such.

The HSH subordinated loan is important in what it does not represent. There will be no corporate guarantee on the HSH subordinate loan by either NNA or NM, nor will this loan be consolidated into either NM or NNA. While the loan will be secured by a second priority vessel mortgage the loan will be subordinated to any senior bank financing. Also fair to say subordinated loans will only be repaid from net cash flow from operations or net proceeds from the sale of vessels to the extent there is any excess repayment of senior bank debt Navios (preferred debt) any unpaid priority return to Navios and a return of Navios investment.

We have been working closely with HSH over the past year to develop this problem and we are extremely proud that we have reached a deal which benefits all parties. We are committed to this excellent working relationship and look forward to doing similar deals in the near future.

Slide seven demonstrates the effectiveness of our profit sharing mechanism. As we usually mention that we have benefits of our profit sharing program and this is demonstrating this quarter. In the first quarter of 2013, the profit sharing mechanism provided an additional $1,864 per day return on our LR1s and $2,415 per day on our MR2s and $1,927 per day on our chemical tankers. Through our program we are able to provide investors with cash flow visibility and a mechanism to capture market upside.

Slide eight demonstrates our newbuilding deliveries are increasing EBITDA and building cash flow. During 2012 our available days grew by 43% and our fleet by 36%. During 2013 available days will grow by 65% and our fleet will grow by 63%. As you can see this result in increasing EBITDA; EBITDA has growth by 33% in 2012 over 2011 and when looked in on a quarter-to-quarter basis EBITDA in the first quarter has risen by 18%. This will continue to grow as we take delivery of new vessels and I would like to note that the four product tankers delivered already this year will contribute 8.2 million on an annual base EBITDA. And the recent acquisition of the additional seven vessels will also additionally help further our EBITDA to grow.

Slide nine represents our CapEx requirements and delivery schedules for our newbuilding fleet as of today. As you can see we will not have any unfunded CapEx. We think that however good the future may look at any moment prudency requires that we have funding available for all our orders. As you can see a further 13 vessels will be delivered. We need to pay a total of 96.8 million of equity. Of this amount about 55.6 million is due in 2013 as we take delivery of eight vessels and 41.2 million is due in 2014 as we take delivery of five vessels.

Slide 10 demonstrates our liquidity. We have a total liquidity of about 158 million as of the end of the quarter, including 117 million in cash. Our balance sheet mix should be considered in the quarter over capital requirements. We have enough cash on hand to fully fund the remaining balance of our newbuilding program. Also we have no debt maturities until 2015. We expect our leverage ratios to reduce naturally as we enjoy the cash flow benefit of our newbuilding program hitting the water. Indeed our net debt to capitalization of 67% as of the end of Q1 it is a significant reduction over the past few quarters.

Slide 11 shows our cash flows cushion from our low breakeven. We have increased contracted revenue in 2014 over 2013 while decreasing all-in costs over the same period. With 86% of our fleet contracted for 2013 we will earn an average contracting daily charter-out rate of $22,053 per day. Our contractual revenue rose about 13.6% per day on average to $27,047 in 2014. As to our all-in cost, our fully loaded cost is $17,303 per day in 2013, and this will be reduced by about 5% to $16,483 per day in 2014. As you know our daily operating cost includes dry docking, general and administrative expenses, interest expense and capital requirement.

Our focus efforts to keeping our breakeven level low will give a surplus of $15 million for 2013. Our open days for that period are set to be 1,376 for 2013. To illustrate the positive return this has if we achieve a rate of $15,000 per day for these open days we will gain an additional $13 million.

To conclude I would just like to say that I am very proud of this company and the opportunities our reputation and demand Navios brand has provided. And at this point I would like to turn the call over to our President, Mr. Ted Petrone. Ted?

Ted C. Petrone

Thank you Angeliki. Please turn to slide 13. As previously mentioned by Angeliki last month we acquired seven MR Product Tankers plus an option for two additional vessels, for favorable prices. As noted on slide 13 four of the MRs are already in the water, three are newbuilding eco types. Five vessels are scheduled to deliver in Q3 of this year and two remaining newbuildings are scheduled to deliver in the second half of 2014. Seven vessels will add 2,555 additional available days to the fleet. The two optional vessels would deliver in the first half of 2015, if declared, which is our current intention.

Please turn to slide 14, since January our product tanker fleet in the water has grown by 25% to 16 vessels, with the delivery of two LRs and two MR newbuildings. All four vessels are contracted to high quality counterparties at rates above our fleet cash breakeven with upside potential through profit sharing agreements. These four vessels will add about 8.2 million EBITDA to our run rate on an annual basis with our profit sharing.

The full entire fleet is covered by existing long term charters. Additionally 81% of our fleet and 84% of our product tanker fleet have profit sharing which secured $2.1 million or $0.04 a share per quarter per share in Q1.

Please turn to slide 15. Including the seven MR tankers, Navios Acquisition's diversified fleet consists of 36 vessels totaling 3.7 million deadweight. The fleet consists of two chemical tankers, 19 MR1 product tankers, 8 LR1 product tankers and seven VLCC crude tankers. All of the fleet statistics exclude the vessels in the HSH joint venture. Navios Acquisition currently has 23 vessels in the water with an average age of 4.7 years.

Turning to slide 16, Navios Acquisition continues the group policy of locking in secure cash flow with credit worthy counterparties. Including the new acquisitions we have fixed 85.6% of our capacity for 2013. This reduces to 48.3% in 2014. We have also fixed 29.1% of revenue days for 2015. The average daily charter-out rate for our fleet is $22,053 in 2013. The rates for 2014 and '15 are $25,047 and $29,102 respectively.

Please turn to slide 17. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first class charterers. As a result the average duration of all our charters is 2.6 years and our VLCC charters have an average duration of 6.2 years. Approximately 84% of the contracted days for product tankers incorporate profit sharing agreements which provide us with potential significant upside.

As previously mentioned during Q1 this year profit sharing was triggered in the product and chemical tanker classes, totaling approximately $2.1 million. The amount surpassed the full year profit sharing for 2012.

Please turn to slide 18. Slide 18 recaptures our strong relationship with key participants in our industry. We continue to build portfolio of quality charter counterparties which provide vessel employment with a strong diversified customer base. One of the attributes we seek in our counterparties is strong credit quality.

Turning to slide 19, Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently Navios Acquisition's daily OpEx is about 16% below the industry average. We achieve these operational savings through a management agreement with Navios Holdings. The operating expense under the management agreement extended to May 2014 at current levels. Please note that the operating costs shown here below include all dry docking costs.

Turning to slide 21, according to the IEA, refinery capacity is expected to increase by 7 million barrels per day for the period of 2012 to 2017. About 90% of that capacity will be added in Asia and the Middle East with the IEA projecting China and India to increase refinery capacity by 2.9 million barrels per day and 1.4 million barrels per day respectively.

New low-cost capacity in Asia is forcing rationalization of old high-cost capacity in the OECD. We see refinery closures in Europe, the U.S. and the Caribbean as well as closures due in Australia and Japan can be (part) of these facilities. Because of this structural shift the gross return models of the five product tankers is expected to outpace the general demand for refined oil products in the long run.

Please turn to slide 22, since 2009 net refinery closures in the Atlantic basin equaled approximately 1.9 million barrels per day, excluding the Motiva Port Arthur expansion which has encountered several delays. Coupled with refinery openings and expansions in the Mid-East and Far East, this has led to refinery throughputs in non-OECD countries exceeding 50% of world refinery in every quarter since the beginning of 2011, a trend that is set to grow. OECD capacity closures for the period for 2011 to 2017 are expected to be in that 1.1 million barrels per day.

Turning to slide 23, U.S crude production has increased by over 40% since the end of 2008 reaching over 7 million per day at the end of 2012. Since U.S. crude exports are prohibited by law and the U.S., has increased its total product exports by over 2.3 million barrels per day since 2004. U.S. exports have exceeded imports consistently since 2011.

U.S. Gulf refineries which benefit from inexpensive domestic crude and natural gas supply that find a national export market, (delivering to) Mexico and Latin America as well as Africa. U.S. product imports have declined over the past couple of years but continue to come from further away adding to product tanker ton mile. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes.

Turning to slide 24, Oil refineries vary greatly in the quality, variety and specification of products that they produce. As depicted in slide 24, regional surpluses and deficits combined with relative low cost transportation drive arbitrage trading and increase product ton miles. As an example requirements for gasoline in Europe and Latin America could be met by shipping the oversupply westward from Asia and the Middle East or eastward from the U.S.

Similarly requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe or the Middle East. Increasing worldwide products imbalances point to increased ton mile development. This global multi-directional trade pattern enables Product Tanker to triangulate it by minimizing balance time and maximizing revenue.

Please turn to slide 25. In the product sector demand for transportation expressed in terms of ton-miles increased by about 75% in the period 2004-2012, equivalent to a CAGR of about just under 7%. Projections indicate similar growth in 2013. The increase in tanker demand was greater than the increased overall trade due to the growth in long haul Product Tanker trades. Map on the bottom of slide 25 depicts existing Product Tanker trade routes as well as prospective routes basis the anticipating eastern shift in global refinery capacity.

Please turn to slide 26. 2012 Product Tanker deliveries equaled approximately 46%, it was 61% on a preliminary basis in Q1 of this year. The fleet experienced limited growth for 2012 and 2.6 million deadweight were delivered though 2.1 million deadweight was scrapped. 3% of the product fleet did not (inaudible) and 4.4% of the fleet is 20 years of age or older. Our order book rose 11.4 million deadweight or only about 18.6% of the fleet. Higher scrap prices should encourage further scrapping of all of the single haul units. And demolition prices appear to be dependent on overall steel price and not the supply of vessels.

Turn to slide 28. In April the IMF projected global GDP growth for 2013 and 2014 at 3.3% and 4.4% led by emerging and developing markets with the growth of 5.3% in 2013 and 5.7% in 2014. The IEA projects 2013 oil demand growth to remain relatively subdued at only 0.8 million barrels a day to 90.6 million barrels per day. This growth remains well below historic averages. It is expected that at all of the projected growth will come from non-OECD countries.

Turning to slide 29 China is the world's second largest consumer of oil importing more than half of its requirement. China imports have more than doubled since 2005. However on a per capita basis China's consumption is about one quarter of OECDs usage and one-eight of U.S. usage. In March China imported crude at 5.5 million barrels per day. Current projections show China's oil consumption will maintain its growth as it continues with the urbanization, industrialization and motorization of its economy.

Please turn to slide 30. Tanker demand is driven by demand for oil and the distance of transport. As noted in the chart on the lower left in terms of ton-miles the movement of crude to West Africa and South America and China uses about as many VLCCs as they move in from the Arabian Gulf even though the Arabian Gulf ships 1.8 times more oil to China. This trend is expected to grow as China imports more crude from South America and West Africa as it diversifies its source of oil. With demand for oil increasing only marginally on annual basis distance has been a key tanker -- driver of the tanker demand.

Please turn to slide 31. In 2012 the VLCC newbuilding deliveries representing only 69% of projected deliveries, or 15.4 million deadweight against an expected 22.4 million deadweight. In Q1 of this year deliveries represented 52% of the projections with 3.5 million deadweight delivering on preliminary basis versus 6.7 million expected. Fleet expansions slowed in 2012 to 186.7 million deadweight or 6% higher due to scrap -- due to higher scrapping and non-delivery levels and this continued at a low level in 2013 with the fleet standing at 189 million deadweight at the end of this quarter.

The high price of steel combined with high fuel prices has led to continued high scrapping in 2012 with 4.1 1 million deadweight scrapped. In Q1 one vessel was reported scrapped. World crude oil and refined product consumption has generally grown for 30 years with declines in 2008 and 2009 due to global financial crisis.

Starting in 2010 world crude oil and refined product consumptions returned to this pattern of growth. Main drivers are the increased eastern refinery capacity as well as the increasing demand from the Asian economy particularly China as well as increased refining capacity in the broader Asia and Middle East region. Going forward we see this trend continuing.

Thank you. I would now like to turn the call over to Leonidas Korres for the Q1 financial results. Leo?

Leonidas Korres

Thank you Ted. I would discuss the financial results for the first quarter of 2013. As shown in slide 33 all our basic metrics for the first quarter of 2013 are significantly improved compared to the same period in 2012 mainly due to the 39% increase in the number of available days of our fleet from 1,319 to a 1832 days. Time charter revenue for Q1, 2013 increased by 23.7% to $44.2 million from 35.7 million in Q1 of 2012. We achieved almost a 100% ship utilization.

Our strategy to charter our vessels on time charter contracts with profit sharing is paying off. As a result we achieved a time-charter equivalent of $23,725 per day which includes $2.1 million from profit sharing and in addition to our stable base revenue stream.

Operating and voyage related expenses were $14.8 million and G&A expenses were $1.1 million. We continued to grow EBITDA significantly. The EBITDA for the first quarter of 2013 increased 18% to $28 million from $23.7 million in the same period of 2012. Other expenses include depreciation and amortization of $13.3 million increased by $1.4 million compared to the same quarter of 2012. And interest expense and finance cost of $13.3 million increased by $1.1 million compared to Q1 of 2012. Our net income improved by $1.5 million from a net loss of $0.8 million in the first quarter of 2012 to a net profit of $0.7 million or $0.01 per share.

As you can see the graph at the bottom of the slide since we commenced operation in 2010 we have grown our operating metric significantly reflecting the growth of our fleet. With a 65% increase of the available days of our fleet in 2013, and an additional 25% in 2014 we expect our metrics to further increase.

Slide 34 provides the latest balance sheet data as of March 31, 2013. Cash and cash equivalents including receivable cash was $117.4 million. Our strong cash position enables us to cover all our newbuilding commitments including those for the recently announced acquisition of seven MR2 product tankers. Vessels net of depreciation increased $1,053.3 million compared to $940.7 million as of December 31 2012 reflecting the delivery of two vessels in our fleet. Vessel deposits $190.8 million represent deposits and capitalized cost for vessels to be delivered over the next two years.

Total assets amounted to $1,450 million. Total debt as of March 31 2013 was $1,002.7 million. Our debt increased in the quarter due to the repayment of the $35 million credit line to Navios Holdings. As a result of our increased cash position and the decreased debt, net debt to book capitalization ratio declined to 67% from 76.9 as of December 31, 2012. As vessels deliver to our fleet and we start repaying restricted debt facilities the ratio is expected to further decrease.

During the quarter we issued $3 million of convertible redeemable preferred shares as part of the purchase price for LR1 product tanker Nave Rigel that delivered on February 13, 2013. As of March 31, 2013 Navios Acquisition was in compliance with all of the covenants of its credit facilities and ship mortgage notes.

Turning to slide 35 our financial strength has enabled us to announce a dividend of $0.05 per share for an 11th consecutive quarter equivalent to $0.20 per share on an annualized basis. Based on last night's closing price our dividends provide an annualized yield of about 6%. The dividend will be paid on July 1, 2013 to shareholders on record as of June 19, 2013.

Please turn to slide 36. Navios Acquisition has a prudent financial strategy. Our capital structure is based on long-term debt, approximately half of our debt is non-amortizing which provides significant cash flow flexibility. In addition our bonds do not have loan to value covenants which have been adversely affecting many of our peers. Of the bank debt we have no maturities until 2016. Overall our strategy has provided lenders an additional level of comfort relating to the stability of our balance sheet. Our liquidity position is strong, our CapEx is fully funded and we have significant cash flow visibility since 85.6% of our available days are contracted in 2013 and 48.3% in 2014.

We have no charter release on the VLCC fleet since all the vessels are covered by long term charters with a remaining duration of about 6.2 years. Our company is also very well positioned to capture the upside of the product market thanks to our increasing product tanker fleet and the profit sharing on 16 out of the 19 chartered out product tankers

And now I'll pass the call back to Angeliki. Angeliki?

Angeliki Frangou

Thank you Leo. This completes our formal presentation. We'll open the call to questions.

Question-and-Answer-Section

Operator

(Operator Instructions). Your first question comes from the line of Joshua Katzeff with Deutsche Bank.

Joshua Katzeff – Deutsche Bank

Hi, good afternoon. Just want to start off with the acquisitions. I guess maybe with the MRs you have the options for two more. Can you talk about the terms of those options, maybe when they expire and maybe your thoughts on kind of timing on whether you might exercise those or not?

Angeliki Frangou

As Ted already said we -- our current intention is to exercise the options at the same prices as the contracted vessels and we have -- it is for some time. It has different prices when exercised and today for some period on the same price with the stepping up of about 250 afterwards for lock-in period.

Joshua Katzeff – Deutsche Bank

Got it. And then I guess with regard to financing I guess when should we expect final approval for these ships and would the current financing cover any options?

Angeliki Frangou

On the existing vessels, one, that's not the options but on the existing vessels we already have agreed terms and we are in documentation.

Joshua Katzeff – Deutsche Bank

And that doesn't cover the options.

Angeliki Frangou

The options have to be declared first.

Joshua Katzeff – Deutsche Bank

Okay, and then I guess with the JV you guys signed with Navios, just want to clarify the terms. So with regard to your equity investment the actual equity investment preferred return, that in essence is senior to the subordinated loan, correct, in the liquidation.

Angeliki Frangou

It's not only with HSH the deals quite an attractive, we are buying about vessels -- 10 vessels of average age of five year for 200 million fair market value for a 130. And you have a subordinate loan that is -- I think what is important on this is to -- is what it does not represent. You do not have corporate guarantee on this either from NNA or NM, we do consolidate this loan to either NNA or NM. It is a senior financing bank comes ahead and this loan is only paid from cash flow or net proceeds from a sale after the repayment of the senior bank debt. Navios will retain any unpaid priority return of Navios and a return to the Navios investment. If there is not sufficient cash you realize this will not be satisfied.

Joshua Katzeff – Deutsche Bank

Got it. But with your initial principal on preferred return will get paid before the subordinated loan and then any upside on top of that comes after the subordinated loan, so your equity is kind of -- so your equity is a little bit more secured, is more secured than potentially the…

Angeliki Frangou

Yeah. Our equity, and our return on our equity and our return on our investment, and the 20%. You have economic interest for a 5% equity investment.

Joshua Katzeff – Deutsche Bank

Yeah. All right, it seems like there is so many attractive terms and then you talked about further opportunities for these types of deals. Can you go into maybe I guess how much NNA would be willing to take in terms of total scale up for the transaction, if this is something that you are looking to deploy an additional $10 million or $50 million towards?

Angeliki Frangou

I think this is a decision if there is a deal. I mean if you see the composition of the (deal) in page five of the presentation we bought 10 vessels, this is a three MR1 and two LR1 type class, attractive assets from beautiful shipyards and at about five years, the average age is about five years. So this is assets we enjoy and as you know even from the statement of HSH now the company is over a 1 billion of distressed portfolio. So I think we will be quite, can be a scalable situation.

Joshua Katzeff – Deutsche Bank

All right. And then maybe kind of switching bases a little bit to some of the recent fixtures. Can you talk about maybe the rationale between the longer term fixtures on the MRs and then the one year fixtures on the LRs?

Angeliki Frangou

I mean, our vessels as you know we have fixed them with profit sharing. On the recent quarter we have made about 14 -- is about, net of commissions, 13,700, almost $14,000 on LR1. And on MR2 it's 15,746 again net of commission. So is a net number. As you know our strategy has always been to be secure so we have fixed our vessels and come out at 12,000 LR and 13.5 MR and profit sharing. And the profit sharing has been quite I think rewarding in this quarter and we consider we end that with full certainly that all our contracted revenues cover all our costs and we have a surplus. So we do it with a total, being totally relaxed that we cover all our commitments and this is really a surplus.

Joshua Katzeff – Deutsche Bank

But is there a different maybe dynamic in the time-charter market for LR1s right now or are longer term charters not attractive or come with materially different base rate?

Angeliki Frangou

No, LRs are being favored at this point, I mean we see a better market for LR1 over not very favored last year, the MR was the first vessel that they want, and we see now that LRs are moving up and this is something to continue. Don't forget in essence LR is a bigger vessel.

Joshua Katzeff – Deutsche Bank

Got it. And then just one more question before I turn it over. Dry powder, I guess looking at your kind of exit, your cash position, assuming the bank debt, can you talk about how much maybe dry powder you think you currently have before you need to raise more capital?

Angeliki Frangou

The company has more than sufficient cash to cover its commitments and we have a clear slide that will give our CapEx, slide nine so we are very straightforward and our liquidity is a 117 -- 157 million fully drawn of which 117 is cash. So we believe as we realize that another deal can be struck without necessarily needing anything. But this is what we also they are quite attractive opportunities. The distressed deals we see attractive level of deals as well as in the open market.

Joshua Katzeff – Deutsche Bank

Got it. That's all I have got. Thank you for your time.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of Chris Combe with JPMorgan.

Unidentified Analyst

Hey, good morning guys. This is actually (Mitch Minning) for Chris. I just want to follow-up on one quick question regarding the JV. Obviously this is the first foray for Navios into container shipping, and just kind of want to get some thoughts behind timing as to why you went for the container ship vessels at this point in time and also whether or not you think there is going to be kind of some operational synergy with the existing tanker and drybulk fleet about the Group?

Angeliki Frangou

Of course we have quite some -- we already mentioned that you have economies of scale on operations, I mean on the technical side anywhere you have the ability but if we go why we are in this, very simple reason, is attractive entry point. Asset values are attractive and on the prices that we are entering we are actually controlling a 200 million of assets and 10 vessels of five year age at a 130 million. Eventually it is a very attractive entry point, that will, as the markets recover and we see that imbalances on the container will come in the next 12 to 18 months, we will come to more balance environment so we see that this is an attractive entry point.

Unidentified Analyst

Okay, I mean I guess going to containerships for one second I mean right now spot rates and charter rates for the sub-Panamax and smaller Panamax vessels are at or near historic lows. Just want to get some thoughts from you guys on the chartering strategy and outlook for these vessels in the JV. Is this something where you think you would try to spot market for the time being and then kind of fix long after a recovery or do you see yourselves going something more with the fixed revenue component?

Angeliki Frangou

We always like fixed revenue component. But this is something to be addressed on addition, what we can tell you is that on the JV in all our estimates and the way we have set up the company structure for the -- so we -- even the dry market and container market environment we have no bleeding of cash and we can see that this has a long term value also on asset appreciation and cash flow appreciation, as you re-charter in a better environment.

Unidentified Analyst

Got it. And I guess as it goes for product tankers in the JV, do you guys envision this vehicle as being a way to play kind of the shorter term market and the spot market or are you going to operate the JV similar to the own fleet where you fix kind of medium term with profit sharing agreements.

Angeliki Frangou

Navios has a conservative posture and this is something we always would do, depending on the cash flows and the mix we will do an appropriate strategy, whenever we take large positions but we always protect our balance sheet.

Unidentified Analyst

Got it and then just one last question, I mean obviously we have a slew of MR tankers sitting in the water in Q3, just wanted to get kind of some update or high level thoughts on when you envision charters placed for those vessels, do you think that you see some kind of short term heating up in the market and you'd wait to fix kind of immediately both before delivery or do you see coming off of Q1 that these are kind of sustainable rates for the time being.

Angeliki Frangou

I mean as you know there is also a seasonality in the tanker market as any market. Q1 is obviously strongest quarter and as we approach Q4 is always also another strong quarter. So we will be -- we actually -- anyways environment on the product is very healthy compared to last year. So we feel very comfortable than employing on the time markets and waiting for the opportunity.

Unidentified Analyst

Okay, so I mean we can probably think about something along the lines consistent with the prior charters of one to three year charter, profit share most likely.

Angeliki Frangou

Actually we believe that is shorter.

Unidentified Analyst

You are going to go shorter, you think.

Angeliki Frangou

Yes.

Unidentified Analyst

And so when you say shorter, do you mean, are you talking about more 12 to 18 months or…?

Angeliki Frangou

Yes, more like 12 months.

Unidentified Analyst

Okay, and then I mean obviously keeping the profit share component as a way to kind of play optionality.

Angeliki Frangou

Yes, I mean of course as you go short this -- you have the re-chartering mechanism to go through that.

Unidentified Analyst

Yeah. Okay, great. I hand over, thank you so much for your time guys, we appreciate it.

Angeliki Frangou

Thank you.

Operator

Your last question comes from the line of Urs Dur with Clarksons Capital Market.

Urs Dur - Clarksons

Good morning, good afternoon. Hi. Good questions before. And I am wondering if Leo maybe you can give me a call offline. I just want to talk about some modeling suggestion for the JV that aren't really good for this call, simpleton questions. I was hoping if you guys might be able to give us an indication of how the product tanker market really is doing so far in the second quarter? I mean I have my ideas, it's been relatively strong, and how you guys are performing. Obviously it's not guidance but what do you expect, if you can, the second quarter will look like vis-à-vis the first quarter?

Ted C. Petrone

I don't think, I think first of all let's compare to where we were to a year-ago, certainly…

Urs Dur - Clarksons

No, that's very impressive Ted, I agree.

Ted C. Petrone

I am just starting back there and I will run over here. As Angeliki said Q1's usually the strong market and maybe Q2 might be slightly low, we are not sure, but the seasonality allows us to say that. But I think we just need to remember if you take a step back what we are seeing is fundamentally the supply and demand is coming more into the owners favor. So it appears to us that your highs would be higher and your lows may also be higher going forward. So even though we have seasonality in place we think a healthy market is on our side.

Urs Dur - Clarksons

Good, I think that's relatively fair. I had a also question about ton-mile demand and I note that you actually are one of the few companies and frankly I haven't seen anybody really calculate it that well, calculate a ton-mile demand CAGR of I guess close to 7% and you saw us Drewry's on that and my personal opinion, not to drawn on, but my personal opinion is it is extremely hard number to quantify because it's almost like trying to solve a Rubic's cube that is changing colors all the time.

So in your experience with your fleet and I suppose you do but just some commentary about ton-mile demand, with your fleet does that collaborate your fleet performance, is that -- does that collaborate the Drewry's number, are you experiencing possibly even more than that. And simply quoting the Drewry's number or is it in line, it's a little bit short of that, how's your fleet in your view performing against that Drewry's number?

Angeliki Frangou

I think Ted will give you a better color on this, but if you ask me this is strong argument that the (risk factor) already exists. One of the things that it has been developing on the drybulk and you have seen a lot from comments is on the U.S. changing roles. You will see that there is additional ton-mile demand that has been added. So the ton-mile demand will take -- you are very right to say this, this is calculation based on previous routes. And is already healthy but we believe I mean from what we have seen with a more active with additional role of the (inaudible) we do a far more increasing number.

Ted C. Petrone

I think the sample that we have for our fleet is quite small and as Angeliki said it doesn't -- we are not covering every route. But what we see on the route side that our ships are performing by us as charterers. It seems to reflect that the ton-miles are increasing at somewhere between 5% and 10% from last year. So we think we are in line with that close to 7% for the last decade. And with a very small sample it's hard to tell. It's like it's 5% for the…

Urs Dur - Clarksons

No, no. I am sorry. I didn't mean to interrupt you. I was agreeing with you that's all. But so you say it could be as much as 10, but then it could be as little as five depending on where your fleet replacements are on.

Ted C. Petrone

Remember Urs, we are looking at a small sample and we think it's going to be higher but we are not on route. And so it's hard to tell, but to us it appears not from what we see from our charterers rate and what other researchers are saying this is going to be a good year for ton-miles.

Urs Dur - Clarksons

That's encouraging given the fact that it does look like the fleet growth on straight up deadweight basis is growing slower than a straight up demand basis for the actual deadweight of sea-borne products. So combined it's attractive.

Ted C. Petrone

It's why everybody is exciting about this. I'd say the ton-miles are going to increase as it's a wide market between ton-mile increase and the actual fleet increase and everybody sees that.

Urs Dur - Clarksons

All right. That's very helpful and Leo if you have time please give me a call, there's simple questions.

Leonidas Korres

Okay.

Urs Dur - Clarksons

Thanks guys. Thank you.

Angeliki Frangou

Thank you.

Operator

And that was our final questioner. Now I'd like to turn the floor back over to Ms. Frangou for any closing remarks.

Angeliki Frangou

Thank you. This completes our first quarter results. Thank you.

Operator

Thank you. And this concludes today's conference call.

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