Capital Product Partners L.P.
Q3 2019 Earnings Call Transcript

Published: 31 Oct 2019

[Operator:]

Thank you for standing by, and welcome to the Capital Product Partners on the Third Quarter 2019 Financial Results Conference Call. We have with us, Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions]I must advise you this conference is being recorded today Thursday 31st of October, 2019. The statements in today’s conference call that are not historical facts, including our expectations regarding cash generation, future debt levels and repayments, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings and our expectations regarding employment of our vessels, re-delivery dates and charter rates, fleet growth and market and charter rates may be forward-looking statements, as such as defined in Section 21E of the Securities Exchange Act of 1934, as amended.These forward looking statements involve risks and uncertainties that can cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. Make sure no prediction or statement about the performance of our common units.I would now like to hand the call over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

[Jerry Kalogiratos:]

Thank you, Joanne, and thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on our website as we go through today's presentation. As previously announced, we concluded on March 27th, the spin-off of the partnership's tanker fleet and subsequent merger with DSS Holdings, forming Diamond S Shipping. Accordingly, we present our financial results for the third quarter 2019, as well as comparative periods on a continuing operations basis except where reference is made to discontinued operations. The partnership's net income from continuing operations for the third quarter was $3.4 million. Our Board of Directors declared the cash distribution of $0.315 per common units for the quarter.The quarterly cash distribution will be paid on November 8 to common unitholders of record on November 1st. Common unit coverage for the third quarter, after adjusting for the capital reserve, was 0.9 times due to one-off expenses incurred this quarter, as well as loss of higher associated with the passing of special survey and discover retrofit of the Agamemnon. If we were to adjust for the aforementioned one-off expenses and the loss of higher, common unit coverage would have amounted to 1.6 times. The containership of Agamemnon commences its long-term time charter with MSC in September after successfully completing the installation of a scrubber system and ballast water treatment system and passing of a special survey. As a result, the partnership charter coverage for the fourth quarter of 2019 and for 2020 corresponds to 100% and 90%, respectively, while for 2021, the coverage stands at 67%. Correspondingly, the partnership’s remaining charter duration stood at the end of the third quarter at 4.8 years.Turning to Slide 3, revenue for the quarter decreased by 70% to $26.4 million compared to $31.8 million in the third quarter of 2018. The decrease was primarily attributed to the decrease in the average number of vessels in our fleet following the disposal of the tanker Amore Mio II in October 2018, and to the off-hire period incurred by the containership Agamemnon, while in drydock, which corresponds to a loss of revenue of approximately $1.5 million.Moving on, total expense for the quarter were $19.3 million compared to $20.1 million in the third quarter of 2018, excluding the impairment charges incurred in connection to the sale of Amore Mio II. Voyage expenses for the quarter decreased to $0.7 million compared to $2.8 million in the third quarter of 2018, mainly due to the decrease in the number of days during which certain of our vessels were employed under voyage charters.Total vessel operating expenses during the quarter amounted to $9.8 million compared to $7.6 million during the third quarter of '18. The increase in operating expenses was mainly due to the passing of the special survey of containership Agamemnon, as well as certain additional one off expenses, including expenses incurred in connection with a settlement relating to an oil record book violation by shipboard staff of the containership CMA CGM Amazon.The total amount reflected in our operating expenses associated with these two items is approximately $2.8 million. Total expenses for the third quarter of 2019 also include vessel depreciation amortization of $7.3 million compared to $8.4 million in the third quarter of '18. The decrease in depreciation amortization was mainly attributed to the decrease in the average number of vessels in our fleet.General administrative expenses for the quarter amounted to $1.5 million as compared to $1.3 million in the third quarter of '18. The partnership recorded net income from continuing operations of $3.4 million for the quarter compared to net income from continuing operations of $7.1 million for the third quarter of 2018, excluding a non-cash impairment charge of $28.8 million in relation to the sale of tanker Amore Mio II.Turning to Slide 4, you can see the details of our operating surplus calculations are determined the distributions to our unitholders compared to the previous quarter. Operating surplus is a non-GAAP financial measure, which is defined fully in our press release. We have generated approximately $12.7 million in cash from operations for the quarter, before accounting for the capital reserve. We allocated $7.7 million to the capital reserve in line with the previous quarter. After adjusting for the capital reserve, the adjusted operating surplus amounted to $5 million, which translates into approximately 0.9 times common unit coverage. If we were to adjust for the aforementioned one of expenses and the loss of hire associated with the Agamemnon special survey and scrubber retrofit, common unit coverage would have amounted to 1.6 times.Going forward, we expect the common unit coverage to increase above the one-time threshold in the fourth quarter of 2019, and to materially improve from the first quarter of 2020 onwards. As a daily growth rate for five of our six charter rates, and then will be restored to the original level of 29,350 per day, up from 23,480 currently. The rate will be further adjusted upwards by $4,900 per day upon completion of the ship scrubber retrofit, which is expected to work during the fourth quarter of 2019, and first quarter of 2020, as we will discuss in more detail in a minute.On Slide 5, you can see the details of our balance sheet. As of the end of the quarter, the Partners’ capital amounted $406 million, a decrease of $475.3 million compared to $881.3 million as of year-end 2018. The decrease was primarily due to the spin-off of the tanker business, distributions declared unpaid in the total amount of $22.9 million in the first nine months of 2019, and the total net loss of $128.1 million for the period, including an impairment charge of $149.6 million related to the DSS Transaction.Total debt decreased by $175.8 million to $270.1 compared to $445.9 million as of the end of 2018. The decrease is attributable to the prepayment of our debt of $146.5 million in connection with a DSS Transaction, and scheduled principal payments during the period. Total cash, as of quarter end, amounted to $64.2 million, including restricted cash of $5.5 million corresponding to minimum liquidity requirements under our credit facility.Turning to Slide 6, we're pleased that the containership Agamemnon commenced its long-term time charter with MSC in September after successfully completing its previously announced scrubber and ballast water treatment system installation and passing of special survey. The charter is set to expire the earliest in February 2024. I would like to remind you that the containership Archimidis, a sister ship, is expected to commence a similar charter to MSC in the first quarter of 2020 upon completion of its previously announced scrubber and ballast water treatment system installation and passing of special survey. Accordingly, the average remaining charter duration of our fleet is solid at 4.8 years with 100%, 90% and 67% charter coverage for the fourth quarter of 2019, full year 2020, and full year 2021, respectively.In addition to the containerships like Agamemnon and Archimidis, and thus you can see on Slide 7, we plan to install scrubbers on the 5,000 TEU container vessels that are under time charter to HMM. The first two HMM charter vessels are currently up a yard and have commenced works while we expect the rest to be retrofitted with scrubbers during the fourth quarter of 2019 and early in the first quarter of 2020. HMM charter vessel is expected to remain idle between 45 to 50 days in connection with the scrubber installation. Importantly, however, under our agreement with HMM, our vessels will incur maximum of higher related to the drydocking and scrubber installation of 12 days, which would also have been the minimum period required to pass the vessel’s special survey.At this point, I would like to remind you that the partnership’s IMO 2020 strategy is to install scrubbers on its fleet provided that these are required by the present or prospective charters under partnership can secure a good combination of charter tenure and return on the scrubber CapEx investment.Given the firm rate environment and outlook for wide beam eco post panamax containers such as 9,000 TEUs, and the overall charter interest in these vessels with half of the time temporize the scrubber retrofit on the six as well as on the Cape Agamemnon, and we will revisit that base depending on our future employment discussions for these vessels.On Slide 8, we’ll review the containers charter market. During the quarter Neopanamax charter rates remain at overall high levels. Scrubber installations continued to be a key driver for the positive momentum as they exacerbate the charter such as post panamax containers in the market. Importantly, idle periods related to scrubber retrofits have so far in most cases exceeded the original forecasts due to shortage of drydocking space, materials and manpower. Underscoring the limited supply of ships, currently there are no idle 8,000 TEU vessels or larger available in the market, and there's only one unit expected to come open for the remainder of this year. Overall, analysts estimate that the idle fleet presently stands and around 750,000 TEU or 3.3% of the total worldwide container fleet, including vessels out of service for scrubber retrofit.On the demolition side, scrapping for the first nine months of 2019 stands at 154,000 TEU compared to 45,000 TEU in the same period of 2018. The container order book corresponds to 2.2 million TEU, or 9.8%, as a percentage of the fleet close to historic lows and down from 11% at the end of June. Analysts expect that container demand will grow by 2.4% in 2019, while supply growth is expected a 3.7%, excluding vessels retrofitting scrubbers throughout the year.According to analysts, an estimated 1.2% of container capacity will be out of service for scrubber retrofits in 2019, and 0.8% in 2020. Vessel supply in 2020 is also expected to be weather constrained by a decrease in the average sailing speed to the implementation of the IMO 2020 regulations and the subsequent higher fuel costs incurred by operators.Moving to Slide 9, and as we have highlighted previously, we have a streamline capital structure, a strong balance sheet, modern assets and good cash flow generation visibility. Our cash position has enhanced with approximately $64.2 million cash on the balance sheet at the end of second quarter, of which only $5.5 million is restricted on our credit facilities. In addition, as all our vessels are employed in time charters, our working capital requirements are limited. This would allow us to confidently found our scrubber program as well as new acquisitions without raising external capital. As we have previously discussed, the partnership has access to a number of assets with long-term employment from our sponsor, in addition to what is available to the wider market. In [Indiscernible] base, we're now working with our board and examining various opportunities for growth, both through capital maritime and its affiliates as well from the second hand market. We hope that we will have more to communicate with the market on this front by the end of the year.And with that, I'm happy to answer any questions you may have.

[Operator:]

[Operator Instructions] First question comes from the line of Jon Chappell from Evercore. Please go ahead, your line is now open.Jon ChappellHi, Jerry, it's Jon Chappell from Evercore. How are you?Jerry KalogiratosHi.Jon ChappellSo couple of things I wanted to ask about, first on the solution. So I think that's pretty clear. The timing and getting paid by HMM after 12 days, that's helpful. You'd mentioned $2.8 million of extra costs in the third quarter associated with the scrubber retrofitting of the first containership. And now you're looking at basically for 3.5 million in the fourth quarter alone. So what kind of costs in aggregate do you expect over the run rate from those four drydockings in 4Q?Jerry KalogiratosSo the $2.1 million additional cost that went through our P&L does not really relate to the scrubber retrofit of Agamemnon. As previously disclosed, in our six months financials filed on October 11, the vessel owning company of CMA CGM Amazon reads in September 2019, a settlement with the U.S. Department of Justice for an oil record for violation by the crew of the vessel, which was previously unknown to the company.Under the terms of this agreement, the vessel owning company accepted by carriage responsibility for this violation that will pay fine of about -- would pay a fine of up to $500,000. Well the vessel is based on probation and is required to implement an environmental compliance plan. So this fine of $500,000 has been expensive in the third quarter of 2019, probably, will be paid at the end of the fourth quarter. Together with an additional $1.6 million in other expenses related to the settlement such as legal fees, crew recommendation and travel expenses. Unfortunately, defending such charges in the U.S. is particularly costly as it requires a number of crew members to remain the U.S., one of the investigations and going, and often involves multiple legal teams and experts. So these $2.1 million that we’ve referred to is really a one off expense for a case that has now closed as the settlement has been raised. In reality, when it comes to the Agamemnon, you had a scrubber cost that is installation plus equipment was around $3.5 million, but this was capitalized as a vessel improvement. The drydock cost that was expense -- was around $0.7 million.Jon ChappellOkay. So then we should think about those let’s call it four ships in the fourth quarter as 0.7 million times for nothing. Nothing differentiated from the costs associated with that and then also capitalizing the $3.5 million scrubber expense license?Jerry KalogiratosCorrect, correct. Of course, there's a slight, there's going to be slightly different costs, as well as different drydocking costs for the 5,000 TEU ships, potentially lower, but that's the way to think about it. All scrubber expenses, equipment plus installation will be capitalized, but you wanted to see in the P&L and it won't affect distribution coverage. And the only thing that you will see is part of the drydock costs that is not deferred. So a part of the drydock costs will be fair, and we amortize over 2.5 years, the rest we expense in the P&L.Jon ChappellOkay, that's clear. And other question, if I go back to Slide 6, the three CMA CGM ships are expiring in the next 12 months or so, I mean, sooner than the others. You'd mentioned in the industry comments, both in the presentation and in the press release, that for the first time all year, it looks like supply growth is going to exceed demand growth. So can you just give us a bit of an update on what the time charter market is for that type of vessel both caught short-term one year, or the liquidity and maybe the market levels in three to five year?Jerry KalogiratosSo you have a number of things happening in the container market or at least in the Neo-Panamax container markets, which is really what affects us. As we said, you have a very low order book at less than 10% of the current fleet, which is a historical low. On the other hand, because of the very tight supply, you have seen non deliveries or so called slippage fall almost to 0%, as you have seen, even accelerated deliveries from the yards. So, there is really a short of ships. If you look at to the idle fleet and -- it's about 3.3% of the fleet or 750,000 TEU, but then reading recently a report on the number of ships that are undergoing scrubbers, it's rumored that about 90 ships are currently in drydocks. And if you assume that these are predominantly larger ships, say with an average size of 600,000 TEU, that would mean, or even potentially higher, that would mean that out of the 750,000 idle capacity, probably 90% to 80% is really vessels that are in drydocks. Importantly, what we described for the amendment, our experience, that is a very long scrubber retrofit time, it’s definitely not unique to us. The -- currently analyst report that out of the 85, 6 or so that have – sorry, about 8 to 6 or so that have completed retrofitting works in this year, the average 62 days, which is much higher than the original expectations of 40 to 50 days as many people had. And then you have demand, where demand has been revised downwards quite a bit since the beginning of the year, mostly on the back of global GDP slow down and, of course, which is either directly or indirectly related to the trade tariffs. So you have a picture, which is a bit mix that is softening the demand, but very tight supply. You look at 2020, though, and you will have about the same number of TEU capacity entering drydock to install scrubbers, so you would expect that this affect, you will have it next year as well. And then you also look at what's happening in the market, and as we said in our prepared remarks, there is very little happening right now because there is affectively no available post panamax vessels for fixing, but there is definitely a need by liners to take in more tonnage. We have seen recently, similar 6 to our vessels being fixed for one year in the very high-30, in the very high-30s. So I think that's definitely very helpful. Our preference would be to go for longer tenure, if possible, so take advantage of this very tight market. If you -- couple of months ago, we have seen a fixture of for longer at around -- for 3 years that is around 54,500. So I think anywhere in between that should be the market -- should be a market for a longer term [indiscernible].Our strategy given that we are now holding these various cars, very valuable ships that everybody wants to charter, this being wide beam container designs with high refer intake will be to wait it out and take advantage of the opportunities that we see towards the beginning of next year. But of course, if we see something that is around these levels in the short run, we will take it. But overall, it's a very tight market for post panamaxes, mostly driven by shortage of ships.Jon ChappellOkay, that’s super helpful. Thanks, Jerry, and the final one. The Cape what seems like it's been unchartered forever and certainly from a different time, it's coming off pretty soon. It doesn't seem to sit with your current fleet or the dropdown pipeline from capital of maritime, and this is a market, I know, much better than the containers. I certainly, don't think long-term charter markets are very liquid there. So is this kind of view it’s a non-core asset, and once the charter expires, you may look to monetize?Jerry KalogiratosYou're right. I mean the Cape is currently, I think at the rate of 42,200, as you say rate of yesterday. And its – the charter expires in July 2020. So we have some time to decide. Currently market for a vessel like that would be in the high-teens for 12 months, but it's more difficult to secure longer-term charters. That would be also translate into a loss, let's say, of about $23,000 to $25,000 per day, who were, let's say to the charter at current levels. We will decide, I think, closer to the redelivery on what we will do with this vessel. And depending on what we see in the market, if we do find some long-term charter opportunity, we might go for it, or it might as well be that we will divest and replace it with a more appropriate vessel. But it is important to know that while we will be losing, let's say $23,000, $25,000 per day compared to the current market, from the Cape Agamemnon. At the same time, if you look at the HMM ships, the optic for per ship is about $11,000 -- $10,800 to be exact, which translates into approximately $53,850 per day for all five ships, so a net positive after your account for the loss of -- EBITDA loss really of Cape Agamemnon of about $30,000 per day, or approximately $11 million per year. So that's why we also think that come 2020 having the scrubber retrofits behind us, you will see a very strong rebound of our distribution or a combination of distribution coverage.

[Operator:]

[Technical Difficulty] Please go ahead. Your line is now open.Ben NolanHey, Jerry. This is Ben Nolan from Stifel. How you’re doing?Jerry KalogiratosHi, Ben.Ben NolanSo I appreciate all the color that you gave on the settlement, and the oil book thing, and I also appreciate that you might be a little bit limited in what you can say about particular reasons. But I'm curious is this is something that I haven't come across before. Is this unusual or and is there any outside of the payments that you've outlined? There shouldn't be any other legacy costs associated with this, correct?Jerry KalogiratosNo, that's really the end of it. It's not unusual. It is actually quite common this type of cases in the US. As I said, this was really an oil record book violation that the crew did without the knowledge of the owners or the managers. In the end, given, 1I mean, there's a history of fines you’ll find that $0.5 million in fines that we paid as a settlement is definitely in the very low end of these outcomes, but given how the system works, it is very costly to monitor and defend those cases. But I think it should be all now behind us going forward. Really, the only thing that is going to affect our results is the off-hire associated with the scrubber retrofits, which is kept for the HMM ships and the Archimedes, and then, really it should be smooth sailing. But unfortunately, we had the effect of this one off expense related to the Amazon this quarter together with a fairly long drydock of Cape Agamemnon, so that all affected our bottom line. But I do expect that in the next quarter, we should see material improvement in our distribution coverage.Ben NolanGot you, and appreciate that. Now switching gears a little bit to the dropdown strategy, it's been, at least two quarters since the spin haven't done anything yet. There is a cash on the balance sheet. I appreciate that you guys also have been managing through the scrubber process. But I would have probably thought that -- maybe there would have been a drop by this point given sort of the desire that can’t rebuild the scale a little bit. Is that just sort of -- I was being sort of a true optimistic? Or what sort of has been the thinking in the dropdown timing?Jerry KalogiratosI think you're right and that's what we have communicated to the markets. We are very much cognizant of that is what also the market expects given what the messaging has been. I think we want to make sure that we deliver with a good, let's say, first transaction post the merger. We are working on a number of things, and I'm quite positive that we should be able to communicate something to the market before year end. But we want to make sure that we put together a good deal that makes sense for the partnership.Ben NolanRight, okay. And just lastly following on that, as you sort of think through where the market is now versus where it has been historically, and apply that to sort of multiples of cash flow on modern ships with long-term contracts, do you have a sense that maybe deals are on a multiple, I don't know, anywhere from 8 to 10 times. Is there anything -- is that still the market or how do you think about sort of what's the appropriate multiple cash flow type of thing?Jerry KalogiratosAnd I -- let me put in this way, the last transaction we have -- the last – a couple of the last transactions have affect were in we have handle of an 800, if I remember correctly. And I don't think this has changed if anything. We are trying even for a better deal if possible. It also depends on the age of the vessel. But I think it will be on the lower end of what you described.Q –J MintzmyerGood morning, Jerry, it's J Mintzmyer of Value Investor's Edge. Thanks for taking my question. Good discussion so far on the containership rates in the markets and drive off taking men on expense there. Looking towards your dropdowns, I think, Ben asked some questions on timing there. Can you talk a little bit about some of the priorities you look for in this dropdowns? Are you thinking the same containers first? Or are you looking maybe getting back into tankers any dock process on that?Jerry KalogiratosI think, overall, we have communicated that we are not exclusively looking at containers, but when if you look at this list of dropdowns, there are certain assets like these 10,000 TEU containers that if you want to take over boxes that we're looking for, they have long charters until mid-2024. They're good assets, fairly modern, that it will take the average, let's say, vacillates down. And they are also in the post-panamax segment, which is a segment where we have almost all of our exposure. So if you want, this is a low hanging fruit. Of course, in the end, the Board and the Conference Committee will have to decide that. But that's -- I think, that's what I can say at least at this stage, but I think it would make sense to expand in the container segment, especially with assets like that and this type of cash flow.

[Q -J Mintzmyer:]

Yeah, definitely makes sense. Thank you. And you guys have just a fantastically strong balance sheet, and looking at these dropdowns, what sort of leverage would you be thinking about taking on those?Jerry KalogiratosLook, in the past, we have paid a very high percentage of our free cash flow out in distributions. Now, our coverage, under normal circumstances, is quite strong. We actually pay fraction of our net income. So I think under normal quarter that is without the one off expenses that we had in this quarter or the off-hires related to the scrubber retrofits, we would have strong coverage and cash would be less on the balance sheet. In addition to that, when you look at our amortization, $33 million per year that's quite steep, so we have been deleveraging quite fast. And I'm saying all these just to make a note that given the lower cash outlay when it comes to distributions given where we are starting in terms of leverage, I think, we can afford to go higher than in the past in terms of leverage, especially, so call it 65% to 70%, especially if there are long-term charters attached to those ships. If we were to add -- were to spend, let's say, $150 million in acquisitions with on 70% leverage, that would just -- that would take net leverage in the mid 50s, which again would be a reasonable leverage position for the company. So I think we have room to lever up a little, but, as you correctly say, throughout the years we have been always very careful when it comes to the balance sheet. So we're going to be conservative, but I think we cannot be little more leverage than before.

[J Mintzmyer:]

Yeah, thanks, Jerry. Definitely it makes sense. Looking at some of your dropdowns here and your little leverage on the legacy fleet, it looks like you could take at least, these vessels, if not more. Looking at your sources of funding, your common equity trades, it's just a fraction of NAV. It trades at a high yield. It's quite expensive for you guys right now. It's quite cheap for investors, right. But how do you think about the preferred markets, have you done any looking into those?Jerry KalogiratosWe have. And as you say given the evaluation of our common equity, it is common – it’s prohibitive at this point, but the preferred market is a market that could be a good source of off bridge finance, if you want, I mean, it could be the next step for growth after we exhaust our internally generating cash flows and the cash from the balance sheet, and hopefully by growing the company with what we have. And then if we were to top the end market like the preferred, and grow the company little more, so that with good transactions increase our distributable cash flow and so that the company can grow again. We can also get a bit of evaluation on the common.

[J Mintzmyer:]

Yeah, definitely it makes sense. And not to get too keen on it, want to kind of throw this out there for your thought, but have you considered looking into something like, perhaps doing for fair to say, 7.5%, 8%, and maybe using some of those proceeds first of all for dropdowns, I think that makes sense. But secondly, maybe looking at your common equity is doing some sort of arbitrage on that -- by our calculations, you common equity, DCF yield is for 2020 beyond is in the 20% range there that refers, probably around 8%. Have you looked into that at all?Jerry KalogiratosWe will -- let us get things done with -- on the growth from our balance sheet. Let us see if we do top any of these markets, excluding the preferred market, and then hopefully, we will look at our evaluation at the time and decide what to do next.

[J Mintzmyer:]

Thank you very much, Jerry. Just hoping you do look into maybe doing some of your purchases with your units with your [indiscernible]. And very last question for me, I appreciate your time today. Your name is Capital Product Partners. Now that makes sense for your legacy setup, but now we're all containerships, we might be diversified again in the future, but it looks like mostly containerships and the dropdowns as well, some of the best ones. Have you thought about maybe finding yourself, so maybe like capital maritime partners or something that's more communicate some more diversified picture to the market?Jerry KalogiratosI think that's an excellent question. We'll have to definitely find a more generic name, if you want. But again, I want to make sure that we deliver first on certain things, and then we can think about the rebranding. But you're right, I mean, this -- the name is a legacy name, at some point. We will have to think about what we will do with that.

[Operator:]

[Technical Difficulty] Your line is now open.Unidentified AnalystSo looking first at the distribution, we're assuming a coverage ratio of 1.2 to 1.6 times maybe. 2020 units currently yield 11%. So going forward, what is your kind of distribution coverage target? And thoughts around either growing the distribution or there need to be future dropdowns to grow it from these levels?Jerry KalogiratosThat's a very good question Randy. I think we want to get transactions done that are accretive to long-term attributable cash flow. We are already yielding a very, I mean, our yield is already very high. So we have to -- and the board really has to decide whether it makes sense to increase the actual distribution going forward. I think once we are in a position to announce dropdowns and what they are and depending on what market reaction, we can think what to do next. There is a number of alternatives or options, as it was pointed out earlier, there could be a unit buybacks, there would be additional acquisitions or increasing the commonly given distributions. We have to think about what it is when we actually deliver that coverage, and of course, depending on the partnership evaluation going forward, but it is a good point. In a way, we have a luxury problem that could be a conduit to solve some of the evaluation issues that we have now.Unidentified AnalystAnd then looking at financing with dropdowns, you recently filed a $500 million shelf covering common unit prefers, debt securities, all these things. Then you said recently, your current yield is prohibitive for common units at these levels. So what is your expected yield on a preferred offering? Let's say it was $50 million to $100 million?Jerry KalogiratosWell, I don't think we dictate that. It's more of the market. What I think is relevant here is really where many of our peers stand, and there is quite mix. I mean you have anything between below 8% to 9%. So we’ll see if we do decide to tab that market, we will see where we price, but I think it is going to be very much anchored in terms of relative value and where our peers are trading.Unidentified AnalystGot it. I was just trying to arrange there, it’s seven to nine. Well thanks so much. That’s it from me.Jerry KalogiratosThanks, Randy.

[Operator:]

No further questions. Please continue. No questions at this time. Please continue.

[Jerry Kalogiratos:]

Thank you all for joining us today.

[Operator:]

[Technical Difficulty] This does conclude our conference for today. Thank you for participating.