Capital Product Partners L.P.
Q1 2018 Earnings Call Transcript

Published: 30 Apr 2018

[Operator:]

Thank you for standing by and welcome to the Capital Product Partners' First Quarter 2018 Financial Results. 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 that this conference is being recorded today 30th of April 2018. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, future debt levels and repayment, 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, redelivery dates and charter rates, fleet growth, and market and charter rates may all be forward-looking statements as such defined in Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that could 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. And we make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker for today, Mr. Kalogiratos. Please go ahead, sir.

[Jerry Kalogiratos:]

Thank you Joardin 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. On April 18, our board of directors declared a cash distribution of $0.08 per common unit. The first quarter common unit cash distribution will be paid in May 14 to common unit holders of record on May 2. In addition, our board of directors declared a cash distribution of $0.21375 per Class B unit for the first quarter of 2018. The first quarter Class B cash distributions will be paid on May 10 to Class B unit holders of record on May 2. The partnership’s net income for the first quarter stood at 5.3 million versus 6.8 million in the previous quarter. The partnership's operating surplus for the quarter, prior to Class B unit distribution and the capital reserve amounted 26 million, compared to 32.7 million for the first quarter of 2017 and 30.3 million for the fourth quarter ended December 31, 2017. Common unit coverage for the first quarter 2018 stood at 1 times. At the end of April, we concluded the sale of the motor tanker, Aristotelis to an unaffiliated third party for 29.4 million generating net proceeds of circa 15 million after mandatory debt repayment under 2017 credit facility. Moreover, and as previously stated, we completed in January the acquisition of the eco-type Aframax crude tanker Aristaios from our sponsor Capital Maritime for a total consideration of 52.5 million. We are pleased that we have reached an agreement with PIL to extend the charter of the motor vessel Agamemnon for an additional 12 months, while we secured new employment for its sister, the Archimidis with MSC for two years, both at significantly increased daily rates. As a result, the remaining charter duration of our charters stood at five years as at the end of the quarter with approximate charter coverage of 66% for 2018. Turning to slide 3, revenues for the quarter increased by 8.6% compared to the first quarter 2017. The increase was primarily a result of the acquisition of the Aristaios and the higher number of voyage charters performed by our vessels during the first quarter compared to the same period in 2017. The rising revenue was partially offset by the lower charter rates and by certain of our vessels during the quarter, including the Aristotelis. In particular, due to the closing of the arbitrage for a certain type of clean cargo from the continent to the Far East, the Aristotelis had to incur a prolonged ballast leg in order to be delivered to expire, which continued well into April. The sale of the Aristotelis of course remains a very favorable transaction for the partnership, as the vessel has been delivered to its buyer without passing special survey and that what is perceived to be a premium compared to market prices. Recently, a sister vessel [indiscernible] around 26 million to 26.5 million. As previously discussed, two of our suezmaxes having redelivered to us over the last couple of quarters from that period employment. In the meantime, the suezmax spot market has experienced and continues to experience a very challenging phase with spot charter rates hovering on multi-year historical lows. As a result, period rates have also receded to historical lows, while period employment opportunities, even at this depressed levels, remain scarce. The few period deals that are actually completed either entail a low floor with a large floating component or charters seek to lock in increased optionality for many years at this very low rates. Given the existing charter coverage of our remaining fleet and this diversified nature, we do not believe that we should be rushing into fixing long term periods and especially with options at such low levels as potentially we'll be giving up considerable upside, given the positive long term fundamentals of the tanker markets. As we will discuss later on, demand for crude tankers is quite robust, while supply is in the process of rationalization with increased strapping and the declining order book. As a result, we might continue to trade certain of our suezmax vessels in the spot market or in period charters, until we see a sustained market recovery. While this might add more volatility to our revenue generation in the short term, we believe it is a price worth paying, given the state of the market and its prospects. Of course, as soon the employment opportunities arise, we will evaluate them on their merits as we remain committed to providing cash flow visibly to our unit holders. Moving on, total expense for the quarter were 53.9 million compared to 41.9 million in the first quarter of 2017. Voyage expenses for the quarter were 9 million compared to 2.3 million in the first quarter of 2017. The increase was mainly attributable to the increase in the number of voyage charters performed by certain of our vessels in the first quarter 2018 compared to the same period in 2017. Total vessel operating expenses for the quarter amounted to 24.8 million compared to 19.6 million during the first quarter of ’17. An increase in operating expenses mainly reflects increase in the number of vessels in our fleet in carrying operating expenses, following the redelivery of three vessels previously employed under bearable charters and the acquisition of M/T Aristaios in January as well as costs incurred in connection with passing special surveys of four of our vessels including the dry docking of the motor tanker Amor. In addition, during the quarter, certain of our ships incurred unscheduled repairs that resulted in one-off increases in the partnership’s operating expenses. As a result of the aforementioned developments, the partnership’s net income for the quarter of 2018 decreased to 5.3 million compared to 12.3 million for the first quarter of ‘17. At this point, I would like to highlight that the suezmax motor tank Aris entered and completed its scheduled drydocking this month, while the motor tank in Alexandros II is currently undergoing dry dock which is expected to be completed in early May. Moreover, the partnership expects another two vessels, the motor tanker Aristotelis II and the Aris II, which are currently employed under bareboat charters to undergo their scheduled dry docking in June and August respectively, following the redelivery from their respective bareboat charters. Turning to slide 4, you can see the details of our operating surplus calculations that determine the distributions to our unit holders 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 26 million in cash from operations before accounting for the Class B preferred unit distributions and the capital reserve. In line with the previous quarter, we allocated 13.2 million to the capital reserve during the first quarter of 2018. This amount is equal to our scheduled principal repayment under our 2017 credit facility, which was paid in April 2018. After adjusting for the reserves on the Class B units distributions, the adjusted operating surplus amounts to 10 million, which translates into roughly one times company unit coverage. The increased number of dry docs next quarter and the related in combination with the depressed suezmax market are expected to continue to keep our common unit distribution coverage close to 1 times for the next quarter. However, taken into account the remaining charters, including the recent charter renewals of two of our containers at higher levels commencing in the end of May and early June respectively, our sound balance sheet with no material short term maturities and the fact that we do not expect any additional drydocks for the year other than for the aforementioned vessels, we expect our common unit distribution coverage to pick up from the third quarter onwards. On slide 5, you can see the details of our balance sheet. As of the end of the first quarter, the partner’s capital amounted to 925.8 million. Total debt increased by 15.1 million to 490.9 million compared to 475.8 million as of year-end 2017 due to the assumption of 28.3 million term loan under a credit facility with Credit Agricole in connection with the acquisition of the Aristaios, partially offset by scheduled loan principal payments in the amount of 13.2 million during the first quarter of 2018. Total cash as of quarter end amounted to 59.2 million. Overall, our balance sheet, as of the end of the quarter, remained strong with a net debt to capitalization of 30.5% and with partner’s capital representing 62.6% of our total assets. Moving to slide 6, we completed the sale of the motor tank in Aristotelis to an unaffiliated third party at the end of April. 14.4 million of the proceeds were used to make a mandatory loan repayment under the agency’s credit facility. As a result, our quarterly debt repayment under this facility will decrease to 12.9 million from the second quarter onwards. As previously announced, the remaining proceeds from the sale of approximately 15 million together with the resumption of 15.6 million in debt and 0.9 million cash from the balance sheet will be used to fund the acquisition of a three years younger eco MR product tanker, the motor tanker Anikitos. The Anikitos is currently employed at the 30 months’ time charter to Petrobras at a cross daily rate of 15,300. The charter commenced in January 2018 and can be extended by 18 months at the charter’s option at the same daily rate. We expect the delivery of the motor tanker Anikitos, the partnership, to be completed in early May 2018. Turning to slide 7, we are pleased that we have agreed with PIL to extend the charter of the motor vessel Agamemnon for an additional year at a gross daily rate of $20,000, which represents an increase of 11,750 over the ship’s current employment. The new charter will commence in early June in direct continuation of its present employment. In addition, we have agreed with MSC to charter the motor vessel Archimidis for two years at the gross day rate of $18000. The charter is expected to commence at the end of May, with earliest of delivery in April 2020. The Archimidis is currently employed with PIL at a gross daily rate of 8250. We are pleased that we have secured significant charter rate increases for both vessels and for diversifying our counterparty portfolio with the addition of MSC. Finally, we have secured short term employment for active with a potential duration of up to 12 months under for VAS, the suezmax for one to three months. Moving to slide 8 and taking to account the charter extension for the Agamemnon and Archimidis, the average remaining charter duration of our fleet is five years. We have 14 product tankers and four suezmax tankers that we’ll need to recharter until year end. This includes the motor tanker Amor, which was under a short time charter with Cargill and was redelivered to us in the beginning of this month. The Ayrton II which was redelivered by Capital Maritime in March and the Alexandros II, which is expected to complete its drydock in early May as previously highlighted. On the suezmax side, three of our ships trade currently in the spot market or short periods namely the Aias, the Amoureux and the Amore Mio II. We are currently looking into various period employment alternatives for our vessels and especially the MR product tankers and we hope to shed more light on long term period employment for certain of our vessels in the coming months. On slide 9, we’ll review the product tanker market development for the first quarter of 2018. MR product tanker spot rates remained on average at similar levels to the previous quarter. Demand during the quarter was negatively affected by refinery maintenance and by ongoing inventory drawdowns, which have resulted in also the product inventories dropping below the five year average. East of Suez, the market was further pressured by lower Chinese oil product exports in the first two months of the quarter. Nevertheless, the market in the East improved in March on the back of a recovery in demand, which was partly driven by a sharp rebound in Chinese refined fuel exports as it reached a new record high. In the West, coverage for MR product tankers stood at robust levels in the beginning of the quarter, bolstered by increased West African gasoline demand and solid US product transports. Nevertheless, the market lost some steam as the quarter progressed as US Gulf refineries begun to undertake seasonal maintenance, recusing product export volumes and resulting in higher vessel supply. US product exports declined by approximately 400,000 barrels in the first quarter of 2018 compared to the preceding quarter. Overall, while on average, spot rates remained flat, the more frequent spikes in a spots market signal an increasingly higher fleet utilization, which would bode well for the product tanker spot market. In the period market, activity modestly decreased whereas product tanker rates remain flat. However, one year period rates for MR product tankers remain an average approximately 10% higher year-on-year. We believe that these increased levels reflect a positive outlook for the MR segment as supply and demand fundamentals continue to improve. The MR product tanker order book stands at 8% as a percentage of the fleet, close to record low levels with only 5 MR product tankers ordered in the first quarter of ’18. Concurrently, slippage remains high as approximately 34% of the expected new builds were not delivered on schedule during the quarter. In addition, cheaper capacity for product tankers has shrunk over the last few years, thus limiting the amount of new vessels that can be ordered in the short to medium term. In particular, MR product tanker ship building capacity has been hit the hardest, as the number of specialized Korean shipbuilders have either closed down, reduced capacity or are targeting larger, more profitable vessel types. Given the robust demand fundamentals on the back of the continued refinery capacity expansion East of Suez, the strong US product exports and the potential trade disruption from the 2020 low sulfur cap as well as increasingly more favorable supply picture, we expect that the product tanker market will see a sustained recovery in the medium to long run and we're well positioned to take advantage of this recovery as that is where most of our chartering exposure lies over the coming quarters. Overall, analysts estimate that net fleet growth product tankers would slow to 1.4% in 2018, the lowest since 2000 while on the demand side, analysts expect growth of 3.6%. Moving to slide 10, the suezmax crude tanker market experienced one of the lowest quarters in terms of earnings for the last 30 years. High vessel supply, as a result of the record Suezmax new building deliveries in ’17 and other crude tanker segments, get rates under downward pressure. Concurrently, crude tanker’s availability was further increased by the return of storage vessels swapped to trading. [indiscernible] down from 22 in December, and 33 in last March of 2017. The return of storage vessels swapped to trading had a negative knock off impact on Suezmaxes. On the demand side, growth was limited by the oil production cut agreement between OPEC and non-OPEC oil producers. OPEC oil output fell to March, to an 11-month low in March, at 32.2 million barrels per day, while the compliance rate of the production cut agreement rose to almost 150% on average for the quarter compared to 115% in the previous quarter. Also importantly, crude oil inventories destocking continues to negatively affect demand for crude tankers. Finally, higher prices for Atlantic basin crude grades than Middle East crudes reduced crude oil shipments from the US, negatively impacting average miles traveled. In the period market, we saw very little demand for suezmax tankers for long term charters of 12 months or longer, while period charters and rates continue to soften to historically low levels. Despite the current weakness, fundamentals for crude oil demand remain firm. We expect solid world oil demand growth of 1.5 million barrels for 2018. In addition, Chinese and Indian seaborne crude imports are projected to see robust growth in 2018 by 8% and 6% respectively, while US crude oil exports could become increasingly significant with the crude oil tanker trade. Altogether, suezmax deadweight demand is expected to grow by 5.1% in 2018. Looking at the supply side, the suezmax tanker orderbook has decreased to 9.3% with no new vessels ordered in the first of 2018. It is also important to stress that while the hefty vessel deliveries over the last year have exerted pressure on rates, the number of suezmax newbuildings that are expected to enter the market decreases to 22 and 19 for the remainder of 2018 and in 2019 respectively. In addition, slippage for the first quarter was 23%. While we have seen four suezmaxes sold in the normalization market year to date, on top of the 13 ships scrapped last year. On aggregate, I’m turning to slide 11, demolition across tanker segments accelerated to 7.9 million deadweight in the first quarter. This represent the highest normalization levels since the third quarter of 1982. In 2017, 11.1 million deadweight were scrapped for the year compared with the 2.5 million deadweight demolished in two 2016. Turning to slide 12, I would like to conclude by saying that our common unit distribution is well underpinned by the accretive acquisitions of the Aristaios and the Aristotelis-Anikitos swap. Both acquisitions come with long term time charters attached on attractive rates. Our strong balance sheet with net debt to cap ratio at 30.5% as at the end of the quarter and no near term debt maturities, the solid common unit coverage which amounted to 1.2 times for the last four quarters after the capital reserve under class B distributions, the 66% charter coverage for 2018 as well as the long term positive tanker fundamentals, including the improving supply picture and finally, our modern high specification fleet and cost efficient manager who enjoys an excellent track record and is vetted for peer business with all majors, traders, operators and liners worldwide. And with that, I'm happy to answer any questions you may have.

[Operator:]

[Operator Instructions] Our first question is from the line of Jon Chappell from Evercore Partners.

[Jon Chappell:]

Interesting on slide 6, you've already kind of walked through the -- how this vessel swap, if you will, has taken place and just wondering as you look at your fleet and maybe the suezmaxes, where the asset values have held in pretty well relative to a very poor market and probably poor near term outlook, maybe consider those non-core vessels, is it possible to do other transactions, similar to that, where maybe you can monetize some of the non-core suezmax vessels and use that then for dropdowns with contract coverage.

[Jerry Kalogiratos:]

That's actually a great point and it's something that we have been looking into for some time now. Of course, the asset values that you have been seeing over the last, let's say, a couple of quarters or so in progress reports have been a little artificial, especially for modern ships, as there has been little liquidity and I think you'll find that there has been some sort of values capitulation on the back of the depressed spot market, but at the same time, scrap prices rising over the last again couple of quarters little or softer over the last month or so, but still have supported if you want, values up to a certain extent. So we have not seen the sort of price capitulation that we have seen, let's say, two, three years ago when we had another down cycle in the tanker market. So, this is a long way of saying that we do follow the second hand market quite closely and if we see opportunities like the one you mentioned, so whereby we could put together an attractive swap like we completed for the Anikitos and the Aristotelis and at the same time, modernize our fleet and as you say, divested a bit from the less core assets like the suezmaxes, that’s definitely something that we are very mindful of, but not something that we have currently in the books.

[Jon Chappell:]

Great. And then just a follow up, you also mentioned, you expect the coverage ratio to pick up starting in 3Q and you kind of walked us through the dry docking for the first half of the year. Is that strictly a function of the dry docks being behind you, operating expenses then coming down and having kind of full utilization of the fleet or are there other kind of market related expectations that are expecting you to say that the coverage ratio should improve significantly in the second half?

[Jerry Kalogiratos:]

No. That assumes mostly rates not dissimilar to what we experienced today in the suezmax market and otherwise a fairly flat product tanker market, but it does take into account the fixtures of the two 8000 DU container vessels. So it's mostly the dry docks, but maybe here, it might be worth elaborating a bit on what drove the miss this quarter, because it was a number of factors. And some of them were a bit unique, so a bit of a perfect storm if you want. I mean as far as the revenue side is concerned, there were two main drivers. One was the offhire and the other one was the reduced TC. The offhire as I think mentioned in my prepared remarks, had -- part of the offhire related to the sale of the Aristotelis. Typically, we were hoping to reposition the vessel with an aromatics cargo from the continent to the Far East and then sort ballast to Singapore where the delivery of the vessel was scheduled. However, that arbitrage closed on the back of certain regulatory changes in China. It was quite sudden and then the vessel had to incur a fairly long ballast leg, which not only meant increase the voyage expenses, but also of course no earnings during that ballast leg. So that was quite sizable. Then we had the offhire related to the dry docking of the Amoureux, the suezmax, while it was passing special surveying and then we had offhire related to a number of smaller unscheduled repairs that affected at least seven of our vessels this quarter. So that part, if you want, is not normal. I mean, you always have some small repairs or unscheduled offhires, but this was quite unusual to have so many vessels at the same time. To give you an idea, we lost the three anchors this quarter, so definitely not a typical quarter. And then finally, you had also of course the suezmaxes that they were simply redelivered to us until we find proper period employment to have to trade in the spot market and of course spot market, you can see for yourself, it was not a great market.

[Jon Chappell:]

Okay. And then just super quick follow up on that part, I mean can you help us kind of quantify the scheduled, the unscheduled repairs on those seven ships. I mean, are we talking like a couple of hundred thousand that reach over the aggregate into $1 million as we kind of think about rightsizing the forecast going forward.

[Jerry Kalogiratos:]

Well, I can tell you that if you look at the Aristotelis’ impact including voyage expenses and loss of revenue, that was just north of $1 million. So one big part was there. The -- on the OpEx side, I think it's difficult to, it is entangled, what is one-off and what is normal. You might have two high quarters and then suddenly four low quarter. So, OpEx must be seen on average across a period of time. So I wouldn't want to go there, but again dry dock over as suezmax will cost you probably of what vintage, around $1 million or more and a big part of that is expense. So that gives you an idea as to what drove the miss.

[Operator:]

Our next question today is from Ben Nolan from Stifel.

[Ben Nolan:]

So on the -- for the two container ships with the new contracts, obviously, those are a meaningful step up from the prior rates. I’m curious if you could maybe give some color as to whether or not there's much depth or capacity to do contracts with a little bit more duration than that. Just in in terms of how you guys would think about it and turn to lock in the longer term cash flow, but first of all I guess is that something that you would want to do and then secondly what do you think is the appetite among the liner companies to go a little longer in duration.

[Jerry Kalogiratos:]

Look, to give you a bit of color first with regard to the container market, I think the fundamentals outlook appears better than it has for a very long time. It's the third year in a row with higher demand than supply. You've seen the idle fleet fall drastically to around 2%. And if you look at analyst projections, you would expect that next, at least the next couple of years, we’ll remain positive if demand growth continues at today’s pace. The contracting on the other hand has picked up compared to last year. We have about 440,000 TEU ordered. So -- in 2017 and in the first quarter ’18, we have about 240,000 TEU. But as we had a number of operators finalizing projects for large donors, but all in all, it points to a tighter market, and especially for post-Panamax vessels that saw a solid recovery last year, but also since the beginning of the year. Now, it's a very delicate market, especially in the bigger sizes. So when you have, suddenly a few liners come and pick up donuts like they have done over the last couple of months, you'll see charter rates increase and then also people willing to give you a longer period. But then that can also turn very quickly as soon as there is a surplus of one or two post-Panamax vessels, especially of 8000 TEU plus in the market. So we are, I think, a little market opportunity driven. If we see market opportunity to fix longer term at what we perceive to be rates that makes sense, we would definitely look at it. It's not necessarily on offer at this point to fix, let's say, for three years or longer, but in any case, while these rates that we fixed are quite high compared to the historical average of 30 plus thousand, they still come at a discount. So the answer is twofold. Yes. We would look at it, but not necessarily at these levels and you will need also better market for these longer term period deals to appear.

[Ben Nolan:]

And then secondly for me, there was not, in slide presentation, there wasn’t sort of the update of potential dropdown candidates, could you maybe just frame in what you view as the portfolio or roughly what’s the portfolio of candidates to maybe do something like you're talking about, which on is swapping assets, what's available from the sponsor.

[Jerry Kalogiratos:]

Sure. The only reason that we did not include those slides is because I think it would have become a little repetitive, but very much what we discussed and last time around, it's very much in place. So the vessels with employment are the ones where we have the right to first refusal amount to around 240 million in value and that includes MRs, eco MRs. It includes the sister of the Aframax again with another four years of charter or so. As you might recall, in the last earning slides, we also had a VLCC with almost 4.5 years of bareboat charter and so in addition to this 240 million, if you look at the other type of assets, that's about another 400 plus million dollars. So when you look at the combined value of the potential dropdowns from our sponsor, this is well in excess of 700 million or 50% of the book value of our existing fleet. So there are plenty of opportunities. It's not – the reason that we not included was simply not to be repetitive.

[Ben Nolan:]

But there wasn’t any major changes though in that backlog growth?

[Jerry Kalogiratos:]

No major changes. No major changes.

[Operator:]

Thank you very much. Our next question today is from the line of Randy Giveans from Jefferies.

[Randy Giveans:]

So a few quick question for re-chartering for the MRs with the charter expirations. It looks like current one and three year time charters around 14000 a day for the MR IIs. So how deep are those time charter markets? Is it pretty easy to find counterparties at those terms, both for one or three years?

[Jerry Kalogiratos:]

Hi, Randy. So on the -- I would call the non-eco MR product tanker market between 13.5 to 14, maybe 13.250 to 13.750 as of the last quarter. It was a slight weakening or our product tankers’ period rates and 14.5 to 15 for eco vessels. Q1 and also April was a little slower than usual in the period, but there is more liquidity than for any other tanker segment for sure. We are working on certain transactions, potentially also in block transactions and hopefully we would be able to give more details on that. Soon maybe over the next couple of months, but yeah, the answer is that there is liquidity and -- and especially for one year deals. Again, we are not always in a rush to fix. We are trying to get a better deal when we can.

[Randy Giveans:]

Okay. Makes sense. And now, one quick modeling question. So for the voyage expenses, you stated that the increase is mainly attributable to the increase in the number of voyage charters during 1Q and it has been trending higher in each of the last four quarters or so. So going forward, do you expect that number to continue to climb or should be model in around a 9 million run rate kind of quarterly for the rest of this year?

[Jerry Kalogiratos:]

It's very much driven by the number of vessels as you say that trade in the spot market. I think, it would be -- happy to take this also offline to have a more detailed discussion, but let's wait it out as I said until maybe the next quarter where we can give you a little more hopefully color with regard to employment of the product tankers. But with regard to the suezmax tankers, I think at least for the two or three vessels, maybe 50% to 75% of them, I would expect that they will be trading in the spot until we see a more sustained recovery. So that line will remain elevated, but happy to take this offline and maybe go through the rationale.

[Operator:]

[Operator Instructions] The next question is from Ben Brownlow from Raymond James.

[Ben Brownlow:]

You actually touched both on the product tanker side and the containership side in terms of the kind of two to three year charters and congrats on the containership charters that you secured this morning. Can you just kind of translate that around to what you're seeing in the suezmax market? I know you mentioned earlier that you aren’t seeking long term charters, but just given that seems to be one of the biggest spreads kind of a 20% to 25% premium versus one year time charter rates. Can you just talk about what you're seeing around the opportunity there?

[Jerry Kalogiratos:]

Well, if you look at what brokers will quote you in terms of one year charters or three year charters, it would be around 15,000 for one year and maybe $18,000, $19,000 for three years, but it's really very, very liquid. Mostly, you see shorter term charters which are also very much position dependent and as I alluded to in my prepared remarks, there is a lot of profit sharing or index related chartering as well when it comes the period. So these numbers are probably quite artificial if you wanted to fix something with profit share, I would expect that you would need to look at $12,000, $13,000 plus profit share and then it also pretty much depends on what indices you look at. And the three year deals are, we haven't really seen much being reported. I think there's very little that is being discussed. So that number is very artificial and in any case, even if it wasn’t other thing, we would be rushing to fix. The prospects for suezmaxes remain bright, despite the depressed spot market. I think, we are going through this capitulation phase where the supply side has to rationalize itself, but demand is actually quite robust and I think we are saying a number of negative short term factors that could quickly turn. So not in a rush there and in any case little liquidity to what is being reported.

[Ben Brownlow:]

That's helpful. And just one last one for me, on the product tanker active, that day rate, I mean, it's a pretty narrow range of 15,000 to 16,000 day rate range, but can you just talk about the factors there to determine that range.

[Jerry Kalogiratos:]

Yes. Sure. I mean this is a charter that has some optionality baked in. So this is either a trip charter that will last 30 to 60 days or in the option of a charter that can turn to a 6 plus 6 months’ time charter and that's what will drive the, this range that we have quoted, but we will know that towards the, I think, end of May.

[Operator:]

Our next question is from Mike Gyure from Janney.

[Mike Gyure:]

Can you go through the dry dock schedule .I think you touched on it in your commentary, but maybe once again, I think I missed some of that kind of what you have scheduled for the second quarter and the rest of the year?

[Jerry Kalogiratos:]

Sure. So, we have, in the second quarter, we have the dry docking of the suezmax and the Aristotelis II as is being redelivered from here, bareboat employment and we're also passing special survey for two 5000 TEU container vessels but without drydocking. So that means a bit of an increased OpEx, but not necessarily as much as you would expect from a proper drydock. Then as far as the next quarter is concerned, we have an additional vessel, the Aris II that will be dry docked and that's all really for 2018. And then in 2019, we have only two vessels scheduled at this point, the Ayrton II and the Amore Mio II.

[Operator:]

And our next question is from the line of Hillary Cacanando from Wells Fargo.

[Hillary Cacanando:]

Earlier, you talked a little bit about, you said there was a regulatory change in China that I guess affected the arbitrage opportunity for Aristotelis. Could you talk about what that regulatory change was and is this something that could impact your business in the future.

[Jerry Kalogiratos:]

Not really, does only affect a small part of the clean product tanker market. It was with regard to the use of aromatics for certain -- for distillation in China. It is another cargo that used to come up from time to time. I understand from the continent to the Far East and it was, if you want, an ideal repositioning cargo for the vessel that we sold since the delivery range was in the Far East, but it's not the major change I think for the product tanker market. It's a bit of a niche cargo.

[Hillary Cacanando:]

Is it not something that would have impacted the business in the future sense?

[Jerry Kalogiratos:]

No.

[Hillary Cacanando:]

And then just a follow-up question regarding dropdowns, so you talked about which vessels are available. Could you talk a little bit about your plans for the rest of the year, in terms of how many you are looking to do if any? What that would depend on?

[Jerry Kalogiratos:]

Sure. As you know, we completed the acquisition of the Aristaios earlier this quarter and then we have also the swap of the Anikitos-Aristotelis. Hopefully, we will conclude that over the next few days. Now with regard to the growth and how we can take advantage of these dropdown menu, as far as that is concerned, as you might recall, a lot of these vessels have debt in place that can be innovative to CPLP. And for these vessels that do not have credit facilities of that sort, with that optionality and confidence, we’ll be able to line up the required debt. It is more of the equity side that I think it's more difficult at this point when we are discussing dropdowns. So definitely, one option will be internally generated cash flows so we will need to see our common unit distribution coverage increase going forward. In order for this to happen, on the other hand as far as external capital is concerned, to complement internal generated cash flows or fully finance the equity side of these acquisitions, we will see what sort of capital makes sense. In the end, acquisition to long term distributable cash flow remains a main criterion. Our common equity price is quite depressed and makes that quite difficult. So we will need to see what sort of capital, if any, external capital, I mean, makes sense for further dropdowns. So I think for the moment and until we solve that equation and that's I think not unique to us, I think that applies to many MLPs, the internally generated cash flows is our best bet.

[Operator:]

[Operator Instructions] Okay, sir. There are no further questions coming through. Please continue.

[Jerry Kalogiratos:]

Thank you all for joining us today.

[Operator:]

Thank you very much. Ladies and gentlemen, thank you for participating. You may now disconnect your lines.