Gener8 Maritime's (GNRT) CEO Peter Georgiopoulous on Q2 2016 Results - Earnings Call Transcript

| About: Gener8 Maritime (GNRT)
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Gener8 Maritime, Inc. (NYSE:GNRT) Q2 2016 Earnings Conference Call July 28, 2016 8:00 AM ET

Executives

Peter Doscas - Financial Analyst

Peter Georgiopoulous - Chairman & CEO

Leo Vrondissis - CFO

Sean Bradley - Manager & Commercial Director, GMM

Analysts

Doug Mavrinac - Jefferies

Jon Chappell - Evercore ISI

Magnus Fyhr - Seaport Global

Chris Wetherbee - Citi

Fotis Giannakoulis - Morgan Stanley

Amit Mehrotra - Deutsche Bank

Operator

Good morning, ladies and gentlemen, and welcome to the Gener8 Maritime Second Quarter 2016 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Peter Doscas of Gener8 Maritime. Please go ahead, sir.

Peter Doscas

Thank you and good morning, everyone. We appreciate your participation in our second quarter 2016 earnings call. With me today are Peter Georgiopoulous, Chairman and Chief Executive Officer; and Leo Vrondissis, Chief Financial Officer. A slide presentation containing information relating to our discussion as well as additional materials relating to our earnings announcement is available on our website at ir.gener8maritime.com.

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday and the company's filings with the Securities and Exchange Commission including, without limitation, the company's Annual Report on Form 10-K for the year ended December 31, 2015 and its subsequent reports on Form 10-Q and Form 8-K.

Now I'll turn the call over to Peter.

Peter Georgiopoulous

Thank you, and good morning. Today, I would like to review our highlights and results from the second quarter of 2016 as well as our performance against our strategic plan. Leo will then walk you through our financial results in more detail and discuss market conditions and the industry outlook. We will then open the call for questions.

Starting with slide 5, our newbuilding program has been proceeding according to plan. During the second, we received delivery of three ECO newbuilding VLCCs, after receiving five in the first quarter of the year. As of today, more than half of our fleet of ECO newbuilding's VLCCs have been delivered. As part of our fleet renewal program we agreed to sell the 2001 build VLCC this month. This house was so sold Ahead of schedule dry docking which was set to occur later this year. Back into account selling the vision we have had on the water fleet of 34 vessels, comprised of 17 VLCCs, 11 so is Max Or after max, and two paramedics tankers. We expect 8 additional newbuilding VLCCs through delivered 2016 and the remaining two VLCCs in our newbuilding program to be delivered early next year.

Following the deliveries and assuming no further changes to our fleet, we have a clear 44 wholly owned vessels including 27 VLCCs. The average age roughly will be under five years vessel deadweight weighted average, our VLCCs will have average age is 2.6 years. This will give generating of the youngest and most modern fleet of VLCCs in the world. We believe that the industry backdrop is stable in the short term and presents us with the potential to generate significant earnings in the medium to long term as we grow our fleet. And we expect will be at our supplier for years to come.

During the second quarter we also obtained commitments for the remaining debt financing related to our newbuilding program this is achieved through $125.7 million of our Sinosure facility, that cover the last VLCCs on the construction of SWS. Including this financing Genre8Maritime has raised in excess of $2 billion in capital over the last year. We believe this is a testament to our strong financial profile as well as our broad relationships in the landing community.

Turning to slide 6, we're pleased to report another strong quarter. Our financial highlights include adjusted net income of $42 million or $0.51 and diluted earnings per share. For net income of $38 million this year $0.46 and basic and diluted earnings per share. Adjusted EBITDA of $71 million and net voyage revenue on $100.8 million, the revenues regenerate in the second quarter were driven by a variety of factors that Leo would discuss in detail later in the call.

Notably, the daily Time Chart Equivalent or TCE, rates earned by our VLCCs in the spot market, including our vessels that were within Navig8's VL8 Pool were $44,2806per day, a 9.6% increase from the second quarter of last year. Our current outlook for the remainder of 2016 is positive and we're confident that we will be able to take advantage of current and future market trends as we remain focused on building out our fleet.

I would now like to pass the call over to Leo to walk you through our financials in more detail and to discuss the market.

Leo Vrondissis

Thank you, Peter. Turning to our financial results on slide 8 net voyage revenue increased $22.1 million or 27.7% to $101.8 million for the three months ended June 30, 016, From $79.7 million for the same period in the prior year. The increase was primarily attributable to greater rates earned by our VLCCs increased fully size and lower fuel costs. The large decrease in voyage expenses for the second quarter of 2016 compared to the same period in the prior year, was primarily the result of the company having transitioned it's vessel into the navigate pools where voyage expenses are borne by the pool, and netted out of monthly distribution.

Direct vessel operating expenses, which include crew cost, provisions, deck and engine storage, lubricating oil, insurance, and maintenance and repairs, increased by $4.4 million or 20.7%, to $25.5 million for the three months ended June 30, 2016, from $21.1 million from the same period in prior year. The increase in direct vessel operating expenses was primarily due to the 32.6% increase in the average size of the company's fleet during the three months ended June 30, 2016 as compared to the same period in the prior year. Our Q2 2016 full fleet blended direct vessel operating expenses amounted to approximately $8,408 per day, a decrease of 9.5% from the same period in the prior year. This reflects in part the benefits of operating a young modern fleet that requires less maintenance and repairs.

General and administrative expenses decreased by $8.3 million or 54.2% to $7 million during the three months ended June 30, 2016, from $15.3 million for the same period in the prior year. This decrease was primarily due to $8.1 million decrease in compensation expense for the three months ended June 30, 2016, related to the issuance of restricted stalk units and option amortization in the prior periods. Additionally, during the second quarter 2016 the company benefitted from collecting receivables that were previously written off. This decrease in general administrative expense was partly offset by an increase of $400,000 in legal and professional expenses associated with being a public company.

Depreciation and amortization expenses, which include depreciation of vessels as well as amortization of dry dock and special survey cost, increased by $9 million or 81.9%, to $20 million during the three months ended June 30, 2016, from $11 million for the prior year period. The increase in vessel depreciation and amortization was primarily due to the increase in our fleet size and the additional dry docking costs incurred during the three months ended June 30, 2016 compared to the prior year.

Net interest expense increased by $6.9 million or 194.9%, to $10.4 million for the three months ended June 30, 2016, from $3.5 million for the same period in the prior year. This was primarily attributable to the increase in our weighted average debt balance of $468 million or 58.3% to $1.275 billion for the three months ended June 30, 2016 compared to $803.5 million for the prior year period. Primarily, as a result of the incurrence additional debt relating to the delivery of our new built vessels during the period. The increase in interest expense was partially offset by increased capital interest of $3.7 million to $7.8 million for the three months ended June 30, 2016 compared to $4.1 million for the prior year period. This related to the capitalization of interest expense associated with vessels under construction as a result of our VLCC new build acquisitions in 2014 and 2015.

We intend to seize capitalizing interest expense associated with the funding of the VLCC newbuildings after delivery of the vessels. During the three months ended 6 June 30, 2016 we also recorded $1.6 million of expense related to interest rate swap, which is included in the line item other kind net of the income statement. Net income for the three months ended June 30, 2016 was $38 million or $0.46 basis and fully diluted earnings per share compared to net income of $19.9 million or $0.38 per basic and fully diluted share for the same period in the prior year.

Adjusted net income for the three months ended June 30, 2016, was $42 million or $0.51 per basic and fully diluted share, compared to an adjusted net income of $35.9 million or $0.68 per basic and fully diluted share for the same period in the prior year. The average daily Time Charter Equivalent rate across the fleet was $35,825 during the quarter ended June 30, 2016, an increase from $35,127 per day in the same period a year ago. Adjusted EBITDA for the three months ended June 30, 2016, increased by $20.5 million to $71 million from $50.5 million from the same period in the prior year.

Slide 9 provides an overview of our fleet's performance in the second quarter of 2016. The average daily spot TCE rate obtained by the company's VLCC fleet was $44,806 per day for the three months ended June 30, 2016, compared to $40,900 per day for the same period in the prior year. Our VLCC spot TCE rate for Q2 2016 incorporates approximately 1.6 million of hold back adjustments from our pool operator which we expect to collect, that had the net impact of negative $1,185 per day, excluding the impact of this reserve our VLCCs spot TCE rate would have been $46,564 per day.

The average daily spot TCE rate earned by our Suezmax vessels was $31,500 per day for the three months ended June 30, 2016, compared to $36,945 per day for the prior-year period. The average daily spot TCE rate earned by our Aframax fleet was $20,477 per day for the three months ended June 30, 2016 compared to $35,782 per day for the same period in the prior-year. In each case, the spot TCEs include all spot voyages for the company's vessels including those that were in the Navig8 pool. As of July 25, 2016. 44% of available spot VLCC days booked at approximately $34,959 per day, 41% of available spot Suezmax days booked at approximately $24,532 per day and 37% of available spot Aframax days booked at approximately $60,120 per day.

On slide 10, we briefly review the balance sheet. As of June 30, 2016, our cash balance was $123.1 million compared to $157.5 million as of December 31, 2015. As of June 30, 2016, our net debt, which we define as total long-term debt, excluding any discount and deferred financing costs, minus cash, was $1.0183 billion compared to $800 million as of December 31, 2015.

On slide 11, we provide a brief overview of our newbuilding program, which is progressing according to schedule and the financing related there too. As Peter noted earlier on June 30 Genre8 maritime has entered into an amendment to an existing senior secured credit facility to finance the delivery of the last two newbuildings from S.W.S. in China. This was discussed on our prior earnings call as well, and we are pleased to report the Genre8 had entered into their requisite debt financing to finance newbuilding program.

To date we have received delivery of 11 of ECO newbuildings. All on timely basis as of June 30, 2016 Genre8 maritime had $536.7 million of payments to be made towards its remaining VLCC newbuilding. And following two pre delivery installment payments made in July the company now has $517.9 million of payments left. Expected borrowings for the newbuilding is yet to be delivered is $540.8 million based on valuations received on July 25 from third party brokers. Additionally as of July 26 Genre8 maritime had an estimated consolidated cash balance of $124.5 million pro forma for the sale of the vision.

We share our views on the market outlook in slide 13 through 16. Our discussion reflects market information and analysis from Navig8 Weekly Market Note for Crude, IEA and Clarksons. Rate softened in the second quarter after experiencing a relatively strong first quarter as refining maintenance began a bit earlier than in years past, a seasonal drop in earnings tends to begin in the second quarter, expected pressure on VLCC rates were exacerbated by slightly weaker long haul exports from the Atlantic base and going East, an ease of congestion China after surge of crude imports supplying the independent teapot refiners as they came online.

At its peak in April there were up to 25 VLCCs awaiting being discharge in China compared to approximately 12 currently. Still crude imports to China over the first half the year have been running at 900,000 barrels per day more than last year and imports are up 14.2% year-over-year through June on an absolute basis. China has been a regular and at timing rectifier, India has been very active in the market as well. China's domestic crude oil production continues to decline and it continues to seek a regular flow of crude oil despite inventory levels. Teapot refineries are running at high utilization levels and there are indications that the Chinese are continuing to diversify crude oil imports sources.

Middle East crude oil exports have continued to support the VLCC market although volatility in production in Iraq has created period of uncertainty. Still OPEC crude output rose to an eight year high in June. As we discussed at our last earnings call the crude oil market is highly sensitive to exogenous factors, in the second quarter the impact of supply disruptions in Nigeria negatively affected the Suezmax market which in turn had spillover effect on VLCC. This dynamic may ease some of the volatility unraised throughout the rest of the year, although we're still seeing good for VLCCs. With that said markets are certainly beginning to feel more balanced, the little more than halfway through the year.

The market has added 24 newbuilding VLCCs including eight of our own thus far in 2016. The backdrop for the deliveries is an aging global fleet. According to Clarksons there are well over 100 VLCCs greater than 15 years of age and nearly 30 VLCCs that are 20 years old -- greater. He's older vessels are difficult the charter particularly those that were built in the mid-nineties. They are increasingly being used as long term floating storage facilities and for shorter trade. With vessels greater than 15 years of age nearly a third are reportedly either being used for long term storage or idle. Additionally, there are anecdotal reports of increasing increase for 3 to 9 month charters for floating storage in Asia which if true will likely take more-older tonnage Out of them Market as vessels age, they require more frequent special surveys which taking those vessels out of the water and cost additional cap back.

Newbuilding orders remain at a virtual standstill with only two firm VLCCs ordered this far in 2016 this compared to 31 VLCCs ordered at this point in 2015. Crude Oil tankers are assets with finance lifespan there's a natural replacement cycle that must occur to meet the demands of the global seaborne trade, it is becoming increasingly apparent that the current order book at the reflection of that replacement requirement rather than something more ominous. as a percentage of the total global VLCC fleets the order book is actually at healthy levels, and nets out pretty well against the size of the aging population of VLCCS, while it is undeniable that the size of the global fleet will continue to increase on an absolute basis over the next several quarters, the lack of ordering gives us confidence that the long term outlook is a healthy one.

Even if the market temporarily disrupted by short term increase in supply we believe it will remain strong and help us generate substantial cash flow. The commercial scale of our platform also continues to grow as our newbuilding vessels are delivered into the pool is managed by the navigate group. As the size of this pools continue to grow our ability to optimize earnings to vessel positioning increases.

I would now like to turn the presentation back over to Peter for closing remarks.

Peter Doscas

Thanks, Leo. These are some of the more interesting times we have seen in the crude tank marketing quite a while, we are confident that we are well positioned in the current market environment. The crude oil market is becoming more balanced in terms of supply and demand, despite periodic supply disruptions, we're particularly encouraged by the lack of new orders thus far in 2016, and the age profile of the current global fleet.

With an increasingly large in modern fleet and a very strong commercial partner we believe we're well positioned to enjoy periods of relative stability in the short term and capitalize on what we expect will be a very strong range environment in the future. On a fully delivered basis our VLCC fleet will be one of the youngest and most modern in the industry. Almost 60 % of our fleet will be acquisition assuming all new billing deliveries, this will lead to significant operating benefits and allow our vessel to command a premium in the market.

We look forward to continuing to deliver solid operational and financial performance in the future and updating you on our progress in our next earnings call.

With that operator, would you please open the line to questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Doug Mavrinac of Jefferies. Please go ahead.

Doug Mavrinac

Thanks operator, good morning guys. I just have a handful of follow up questions with my first one pertaining to the current Charter environment, year-on-year when you're going through the presentation I thought you did a great job explaining why 2Q was seasonally soft but I think most people in a sort of expected but what I'm a bit surprised by of the last few weeks we've seen kind of divergence between how the contango in the crude stroke is deepening while Charter rates are declining, at what point does that divergence stop, at what point should we start to see you know that's contango are translated into a little bit more demand for tankers to be using floating stores, because if you look at the contango right now the environment that suggests a VLCC rate to have a three handle rather than a two handle, I am trying to figure out at what point do we start seeing some of that to translate it to a little bit demand in rates in the relatively near term?

Sean Bradley

Hi guys this is Sean. We would definitely agree with you on that, no I think what we've seen now is owners got caught up in their own. -- So this got on their way, now there is two market going down they start fighting for cargoes and -- and then they start out take -- takes longer to take a step back before they realize their errors, we are starting to see that now, even some a weak or weaker owners smaller owners are started to dig in and hold off from for better rates and also we are seeing no more increase for the short term flowing stories -- I know again gives screens to your contango comments.

Doug Mavrinac

Great, thank you. That was helpful, Sean. So from our standpoint we have that, you have in the reversal of the earth -- refinery maintenances and you know and my theory come back online etcetera, or so it seems like the near term should be more favorable so I guess my second question as you say beyond the second quarter to two quarters on the when you guys look at the demand side of the equation, what are you most excited about from a 10 mile stand point, where do you see of most of the doing growth you know going forward over the next 12 months?

Peter Doscas

Again, as Leo mentioned in his comments, China's continued to us diversify the crew the intake even though they -- I think Saudi Arabia pass Russia for the first time in a number of quarters. But to continue look out of South America and again east coast Mexico, Ecuador I think now oil prices are low right now being very low that's going to continue their buying, and that's what we've seeing from China and also India over the last two to three years, and we expect that to continue.

Doug Mavrinac

Got you. Thank you. And then switching gears a bit towards the supply side, also these comments talked about minimal order book, especially consider the older ships. One thing that's interesting as well is that we've seen asset value declining over the course of the last – handful of months. So given that kind of very favorable supply outlook, yet without values and decline; A, how deep is S&P market right now? And, B, are some of the asset values we're seeing firm or they just kind of looked stabbed by some of the brokers to figure out if the transaction clear this to be the price, it doesn't seem there's a lot of transacting but I am trying to figure out the firm of some of these asset value quotes?

Peter Georgiopoulous

I think what you had in the past when you look at valuations is willing buyers and willing sellers and I think what you have right now is a very illiquid S&P market, I that's different. Then you have distressed buyers and very few -- I mean distressed sellers and very few buyers and that's what putting pressure on asset side, you know in combination with banks not willing to give financing to the marginal owner right now, it makes it a very tough S&P environment which is what's putting the downward pressure, every sale that goes off is a distressed sale in some regards, you saw Metro [ph] sale which was the distress sale, you know you hear rumors of the Starbucks sale which is probably a distress sale to some degree and so you don't really have what you had in the past which was a willing buyer and a willing seller.

Peter Doscas

Just to be clear, the distresses is into the VLCC market its people having distress – some other areas of the market and the VLCCs being the only place that want to buy something.

Doug Mavrinac

[Indiscernible].

Peter Georgiopoulous

Offshore dry cargo you name it.

Doug Mavrinac

Yes got it, thanks you for the help. And a final question for turned over on the order book looks good, you guys are taking the lead from the delivers -- financing someplace in terms of capital allocation your priority still going forward after all that is said and done, just to deal over the balance sheet positioning for additional opportunities?

Peter Doscas

Yes, I think that's correct does that thing in this environment where stock is trading and I think the best use of cash right now is to leverage it.

Doug Mavrinac

That's all I've got thanks for that guys.

Operator

The next question comes from Jon Chappell of Evercore ISI. Please go ahead.

Jon Chappell

Thank you, Leo, good morning guys.

Leo Vrondissis

Good morning.

Jon Chappell

Leo just super quick clarification before I ask the question, how much is been paid towards newbuilding installments as of July 26?

Leo Vrondissis

As of July 26, we have $517.9 million of payments left and we expect to have $540.8 million of borrowing. Between the end of quarter and now we've had two pre deliver installment of $9.5 million each.

Jon Chappell

That's what I was looking for, okay thank you. so I'm just to follow up on Doug last question I asked at last but put it in perspective obviously asset values have dropped in the last three months, obviously the stock price has been under pressure as well so Peter last time we talked about willingness to consolidate the industry and opportunities verses the attractiveness of your stock at a massive discount to anyone's estimate of NAV. And you said the time -- you do a dollar for your own stock verses new ships at this point, have that change at all?

Peter Georgiopoulous

No I think it's still the same. I mean our stock is trading at a massive discount at asset value, and I think it's -- again, why would you buy something for a dollar when you can buy it for $0.50 on dollar I mean you know something in that range, even less.

Jon Chappell

So then if I look at the numbers we would just walk through you about $23 million of financing above and beyond the remaining installment payments $125 million to cash, assuming you need to keep $45 million maybe even $50 million on the balance sheet minimum covenant that still gives you over $100 million of kind of firepower right now and I know you think -- you still kind of wanted to deliver the balance sheet, so they're a target leverage that you aspired to get to, or will you continue to be nimble that continue but would you look to be a little bit more nimble I guess on potential buy-backs like right after July 4, or outside those?

Peter Georgiopoulous

Yes again we look at it every quarter I think you know we're still at the point where we're using our cash to the -- We want to hold on to all we take delivery of a couple more the ships but I think you know as we move forward through the year, again we look at all the time they will continue to look at it but I think you know when we feel we're in the right position that is the kind of stuff we will do.

Jon Chappell

And then a final thing. Great job blocking all the financing, all the ship to go in the pool needed things like everything's kind of thing cruise control right now, obviously the market is beyond what you can control but what's next for the company's, do you just focus on operations at that point trying to maximize efficiency, just worry about getting the best rates you can possibly can and given the market or the other kind of strategic initiatives that you're looking at beyond 2016?

Peter Georgiopoulous

Yes, I think right now I it's they are not terribly glamorous is just make usually off the ships are operating properly, taken delivery of the ships, we constantly look into opportunities. They just know where the stock is there with other companies. Stock price of ours -- it's hard to do something. But we're always open to new ideas and but again I think it's just sort of doing the unglamorous stuff for the business just you know operating, getting more efficient, getting the chartering better and trying to make more money and get ourselves in a position where we can do something. And you know hopefully the market wakes up and realizes that not just us but all the stocks are trading at significant discounts to liquidation value.

Jon Chappell

All right, I appreciate your thoughts, thanks.

Operator

The next question comes from Magnus Fyhr of Seaport Global. Please go ahead.

Magnus Fyhr

Yes good morning just -- about a question. On the time charter market I mean time charter rates have come down quite a bit here -- market that coming off do you see any interest from the charters to go along here, you get increasing required -- enquiries something you may not be interested but I was curious to see if the your companies that start to maybe lock in some of the slower rate here?

Peter Georgiopoulous

As we mentioned in our last call that we expect that to happen for at least oil companies and traders to reach out starting in the summer. So I think it's still too early for the long term time charters we has seen increase for short term storage, also one year time Charters we are pretty good at that as far as participants but nothing on the longer term as a right now but we expect that towards the end of the Q3 into early Q4.

Magnus Fyhr

Though at current levels looks a little bit over 30,000 how long the Charters have to pay for you to be interested in and lock in the ships?

Peter Georgiopoulous

Well I mean we also mentioned three years is a little attract number -- attractive length but also the level has to be attractive and I think in the low thirties number for three years we don't find that very attractive at all, so you'd have to see a recovery of the others -- of the actual retail in and out hopefully when the market picks back up into the fourth quarter will start to see recovery on those timeshare idea.

Magnus Fyhr

Okay, good. You sold a vessel -- well, I guess you're in occurrence -- I guess little close during the third quarter the system vessel to generate victory in August that's pretty high renewal rate what's your thinking on the rest of the vessels on 2002, 2003 that you have in your fleet as far as the renewal?

Peter Georgiopoulous

I think we've been pretty clear because since last year, Magnus, we have a number of vessels that are a little bit older vintage that if we got the right price we would rotate out of as the new ship come on so we're constantly looking as I mentioned before the S&P marketed it's been right now but we had a good opportunity with the vision. So if something else comes around we would consider transacting but not for any price let's put it that way.

Magnus Fyhr

All right, that's it for me. Thank you.

Operator

The next question comes from Chris Wetherbee of Citi. Please go ahead.

Chris Wetherbee

Good morning guys, want to ask you just sort of for one thing in there the capital allocation strategy I think the dividend becomes a possibility in the next several months, next several quarters I should say how do you think about that when that kind of sneaks in and where you are relative to NAV. I'm guessing the buy-backs and deal leveraging probably a little bit ahead of that but let's just talk about that you're kind of thoughts around if you should issue dividend going forward?

Leo Vrondissis

I think as Peter mentioned previously, right now we're focused on delivering the ships and after delivering the ships we're looking at deleveraging and possible you know share buyback if we have extra money you know I'm we're not precluding a dividend but I think our stock would have to be in a much trading in a much better position to get the benefit of that right now, so that's really kind of the order of priority that we're looking at right now.

Chris Wetherbee

Okay just specifically for the fourth quarter when you think about sort of seasonal improvement there's a potential for seasonal improvement this market relative to what the order book looks like right now does that give you any cause of seeing the potential rebound here that we would normally see seasonally or do you think it's altered digestible as we get back into a better shot at some -- stronger seasonal period?

Peter Georgiopoulous

I think it's digestible -- I mean I think what we see and what we see right now is he had a number newbuildings at the market as well the number of ship extra -- get in the market at the same time an older ships so you had a number of ships that weren't approved and have a betting that really dry-dock the market so if that was just newbuildings not the vessels in dry-dock come out dry-dock I think the bottom would have been a whole a lot higher than what you seen in the last couple weeks. That being said I think a lot of people know how the vessels, how the dry docks are ready for the winter market so I think that will -- that drive won't be there in fourth quarter which typically takes up now and October early November.

Chris Wetherbee

Okay, that makes sense. And then just given the constraints on capital and sort of that you guys have mentioned that the general sort of slowdown in ordering for future delivery VLCCs in particular when you get through this year into 2017 and orders -- the delivery decelerate do we feel like we're setting up for sort of a potential multi-year cycle here to continue maybe this is sort of the bullet to the downside that we would expect in the typical cycle so the less volatile than we see some extension on the strength and rates with the thoughts because 2017 and 2018 and that's a long way to go on a lot of volatility in between how do you think about that?

Peter Georgiopoulous

Yes, I think that's definitely the case. I think we factor in know during that time frame number of ship but also turn 20 years old and also older than 15 also auxiliary sources I think the combination of those factors set this up for a potential longer run than we first expected a year or two ago.

Chris Wetherbee

Thanks for your time this morning, guys.

Peter Georgiopoulous

Thank you.

Operator

Our next question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead.

Fotis Giannakoulis

Thanks, gentlemen. Thank you for the opportunity. Most of my questions have been answered but I just want to ask about the potential partnership between how does this kind of a partnerships on the company side, the impact on market -- is there any interest in from doing participating in that full operation in order to push the market higher?

Peter Georgiopoulous

I think anytime you see no commercial consolidation I think it helps any market whether it's just by perception or actual strengthening of -- mentioned earlier how it was unexpected how quickly the market fell last month or so and a lot had to do it know with the smaller owners can caught up with the moving downwards I think with when you have a larger commercial cooperation like there is on the Suezmax that I think some owners though get a different back on and will hold out when you see though -- that hold the line. So I think it's good we think it's good I think the opportunities are right I think we'll consider that and that's why our ships entered the navigate pools, so you're part of something bigger and not and not only you are part of something bigger also part of the most modern so I think it's a plus how were set up with our tonnage.

Fotis Giannakoulis

And one last question, can you de describe what the difference is between this year's seasonal down turn and last year's down turn, why this downturn is a little bit deeper compared to last year given the fact that the newbuilding deliver have not the accelerated yet as we expected at the end of the year?

Peter Georgiopoulous

I think it was the unexpected that change this verses of last year, I think last year the market was more robust in the second quarter into the third quarter new crew close in the market with and the threat of Iran and also the OPEC continuing with their market share strategy, now that's in the market I think those Nigerian those well disruptions affect this Suezmax market greater than most people anticipated and that in effect right down the number of VLCC pictures which have been -- no the highest market over the past two to three years, so I think that's the difference between this year last year and I think as Nigerians and those kind of regulate themselves, I think we'll find a balance again.

Fotis Giannakoulis

Thank you very much for your answers.

Operator

The next question comes from Amit Mehrotra of Deutsche Bank please go ahead.

Amit Mehrotra

Thanks operator, good morning everybody. First, it's a couple questions just one as a follow up on the market, have you guys seen over the last couple months an uptick in activity of older vessels and I'm particularly thinking about crew tankers or maybe about 15 years or older, it seems like they've just represented a larger part of the market and whether that some of your customers trying to take advantage of sort of the fragmented market, whether you're seeing that -- whether that's also impacted market?

Peter Georgiopoulous

No we haven't really seen that at all, an uptick in the older tonnage, getting into Marcus [ph], especially a lack of base in which is are the are -- what navigates pulls are focused on pushing the VLCC segment.

Amit Mehrotra

Okay. So the percentage of pictures represented by older tonnages is relatively consistent is that what you're saying?

Peter Georgiopoulous

Its relative inconsistent and we expected that whatever percentages I don't have an in front of me, expected them down as I think it kicks off with some short term storage over the next couple months.

Amit Mehrotra

Okay, thanks for that. Let me just ask one a specific one related to the CapEx I don't know if this is true but it's my feeling that basically the disproportionate discount that generate has sort of it reflects the I would say investor concerns about newbuilding financing, and I think ironically this may be perceived liability can actually turn into a pretty big asset, because you know pro forma the delivery to kind of position you guys as the only company in the cruise space maybe offset -- to moderation with asset grows, and so in that context can you just help us out your provide some support maybe anecdotal evidence Leo in terms of where your appraisals are coming in relative to your last disclosure which I think was back. And maybe give some investors who are fairly or unfairly skeptical of some comfort you can as we execute on what you say, and just give people a little bit more comfort on it, thanks.

Leo Vrondissis

Yes, you know quarter after quarter we've been answering this question but you know what I just said in my prepared remarks and I'll repeat now is; we have as a you know that as of July 25 we basically have $517.9 million of newbuilding installment payment and of that we have $454 million of expected debt availability and that based on valuations that we received this past Monday. So we obviously have debt availability in excess of what our obligations are right now. So we have the cash source coming to us through the remaining of our newbuilding program.

Amit Mehrotra

So that hasn't changed, great. And one last one for me on share buyback and I know a lot of people talk about it in the space investors, analysts and even companies but I just have more philosophical question because Peter everybody else you guys have spent sort of all this time and energy floating this company and actually putting shares in investor's hand so I think if anything that's actually learned that there is a real strategic and competitive rationale to have as wide a share capital bases as possible, so I understand sort of the overnight accretion relative to navigate but in that sort of strategic and competitive contacts -- that actually makes sense to use excess cash or buy back shares given all the effort you guys a spent actually floating the company.

Leo Vrondissis

Yes, it's a good question and something that the board think about quite often is you know the size of our publicly traded float and what that does with to investor interest in the company. I think what you're hearing from Peter and what we're thinking about it you know we're trading at about the discounted NAV and from an economic perspective that it kind of affects you the past, now they're going to be a balance and how much we buy back the -- what our public float is then we'll get the proper advice from capital markets and bankers on that, and like it I said we haven't initiated anything right now but as we look at it capital allocation post-delivery of vessels that seems like the most attractive thing to us right now.

Amit Mehrotra

Okay guys, that's all I have, thanks. Congrats, it's an excellent quarter.

Leo Vrondissis

Thank you.

Operator

And your next call is from Magnus Fyhr of Seaport Global please go ahead.

Magnus Fyhr

Yes just a one quick follow-up, you know your operating expenses declined during the quarter just kind of wondering if you can give some guidance going forward, what you expect -- with more modern ships coming into the fleet that we should expect that the decline further or if that's pretty good run rate going forward.

Peter Georgiopoulous

It is a very good run-rate touch down as you get the weighted average of the new VLCCs which have much less associated with them than the older fleet coming into the market and yet we still have 10 remaining, so might come down a touch more but I think for modeling purposes it's probably good run rate right now.

Magnus Fyhr

And just on the vision that that you plan selling here, what kind of daily optics did that one run.

Peter Georgiopoulous

It was about 12.5.

Magnus Fyhr

Okay, all right.

Peter Georgiopoulous

That's not indicative of older VLCCs the vision -- it has double redundancy on everything from engines to propellers so they were they were more expensive to run regardless.

Magnus Fyhr

All right, thank you.

Operator

[Operator Instructions]. There appear to be no further questions. This concludes our question-and-answer session.

End of Q&A

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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