Diana Shipping Inc.
Q4 2020 Earnings Call Transcript

Published: 22 Feb 2021

[Operator:]

Greetings, and welcome to the Diana Shipping, Inc.'s 2020 Fourth Quarter Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Edward Nebb, Investor Relations. Thank you. You may begin.

[Edward Nebb:]

Thank you, Darryl, and thanks to all of you for joining us for the Diana Shipping, Inc. fourth quarter and year-end conference call. The members of the management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mrs. Semiramis Paliou, Deputy Chief Executive Officer and Chief Operating Officer; Mr. Anastasios Margaronis, President; Mr. Ioannis Zafirakis, Interim Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

[Simeon Palios:]

Thank you, Ed. Good morning and thanks for joining us today to discuss the results of Diana Shipping, Inc. for the fourth quarter and full-year 2020. The story of the past year, as we know, all too well, was one of our sales frontier and economic dislocation caused by the COVID-19 pandemic. Now, as we look forward towards 2021, we can hope that the increasing availability of vaccines will help an eventual return to more stable, less volatile market conditions. In any event, we will continue to pursue well-established strategies to maintain the company's financial strength, manage our fleet in a prudent manner and focus on enhancing shareholders value. Before I summarize our financial results, I wish to comment on today's announcement regarding several senior management appointments approved by our board of directors. These actions who will be effective as of March 1, 2021 and are intended to provide for an orderly succession and to ensure the continued sound strategy management of the company. The leadership appointments are as follows; Mrs. Semiramis Paliou has been appointed Chief Executive Officer, having previously served as Chief Operating Officer and Deputy Chief Executive Officer. My position as Chairman of the Board of Directors remains unchanged. I will share in large capacity as non-executive chairman when the Chief Executive Officer role is assumed by Mrs. Paliou. Mr. Anastasios Margaronis will continue to serve in his current capacity as President and the Director of the company, position he has held since 2005. Mr. Ioannis Zafirakis has been appointed Chief Financial Officer on a permanent basis. He has served in that role on an interim basis since February 2020. He also will remain the Chief Strategy Officer, Treasurer, and Secretary of the company. Mr. Eleftherios Papatrifon has joined the company and has been appointed to the position of Chief Operating Officer. Mr. Papatrifon is highly qualified having more recently served as the Chief Executive Officer, Co-Founder and Director of Quintana Shipping Limited, and previously as the Chief Financial Officer and Director of Excel Maritime Carriers Limited.

[Anastasios Margaronis:]

Thank you, Simeon, and welcome to all the participants to this latest quarterly conference call of Diana Shipping, Inc. During the last quarter of 2020 and the first few weeks of 2021, the market has certainly given all participants reasons to pay careful attention to current developments and make some exciting predictions about the short and medium-term developments. The Baltic Exchange Index started the year at 1,374 and closed the last Friday, February 19th at 1,698. The Baltic Cape Index moved down from 2,008 to 1,715. And the Baltic Panamax Index started the year at 1,364 and has moved up to 2,332 as of last Friday. Turning to macroeconomic developments. According to figures released recently by the IMS, global GDP growth is expected to rise by 5.5% this year and by a further 4.2% in 2022. This follows the shrinking of global GDP by an estimated 3.5% in 2020. We sincerely hope these optimistic forecasts come to pass, as the pandemic is continuing to affect economic activity this year and will not allow our businesses to work at their pre-pandemic pace for some quarters to come. Chinese GDP is expected to grow by 8.1% this year and by 5.6% in 2022. These growth forecasts follow growth of just 2.3% in 2020. In the United States, GDP after shrinking by an estimated 3.4% last year is expected to grow by 5.1% this year and by a further 2.5% in 2022. Europe, whose economic activity dropped by about 4.6% last year is estimated to grow by 3.9% in 2021 and by a further 3.4% in 2022. Let's have a quick look at newbuilding deliveries during the last year. According to Banchero Costa, 480 bulk carrier units or 48.6 million deadweight tons were delivered last year. This total included 25 VLOCs, 84 Capes, both totaling about 25 million deadweight; 24 post Panamaxies and 128 Panamaxies, both these categories totaling about 12.65 million deadweight. These figures are to be compared with a new building order book we mentioned later in this discussion.

[Ioannis Zafirakis:]

Thank you, Stacey. Good morning to everyone. I'm pleased to be discussing today with you the Diana’s operational results for the quarter and year ended December 31, 2020. During that quarter, we recorded a net loss attributed to our common share stockholders of $8.9 million. That's $0.10 per share. But of course, that includes an impairment of $1.9 million impairment loss. In 2020, as you are aware, we saw two vessels that decrease the ownership date for the quarter to 3,680 compared to 3,915, the same quarter in 2019. You are probably aware that we - as of December 31, we’d have also agree to schedule three more vessels, of which the two were delivered to their new owners in January 2021. And there is one still remaining two which vessel for sale. The less ownership days together with the deteriorating market conditions during that quarter led to lower revenues of totaling of at $42.7 million compared to $51.7 million in the fourth quarter of 2019. There was a decrease in the voyage expenses that were $3 million compared to $4.5 million for the same quarter in 2019. And this is mainly because of decreased commissions and decreased loss from the bankers. The decrease in revenues that we talked earlier resulted in decreasing the daily time charter equivalent rate, which was $10,094, compared to $12,264 for the same quarter of 2019. We had less of hire days in that quarter and the utilization improved at 99.6% compared to 96.9% the same quarter last year. There was a decrease to the operating expenses, which was $22.4 million compared to $23.4 million last year. And, of course, this is a result of the sale of the vessels. Although, the total number of operating expenses was lower than the previous year's quarter, daily operating expenses were more or less the same, they stood at $6,089 per day compared to $5,969 for the same quarter 2019. We had achieved the reason is because there was an increase in the crew expenses insurances. And operating expenses, they were partly offset by the decreased expenses that were partly offset by the decreased spares and repairs. The general and administrative expenses decreased to $7 million compared to $7.8 million for the same quarter last year and this is because of decreased payroll costs including compensation cost on restricted stocks. The good thing is that we had interest in finance cost continuing to decrease in this quarter due to the decreased interest rate and decreased average debt which was at $4.6 million in that quarter compared to $6.7 million in Q4 2019. And towards that, of course, it helped the repurchase of the bond of the $8 million worth of bonds. For the year end December 31, 2020, the net loss attributed to common stockholders attributed to $140 million or $1.62 per share. And again, this includes a big impairment loss of $104.4 million and $1.1 million loss on the sale of vessels. As you can understand, the time charter revenues decrease also to $169.7 million compared to $220.7 million for the same period in the previous year, and the reasons have been already explained. And similarly, the daily time charter equivalent rate decreased to $10,910 per day, compared to $12,796 last year. The fleet utilization for the year decreased to 97.9% compared to 98.6% in 2019. And that was related to COVID-19 issues and increased drydocking days. The vessel operating expenses amounted to $85.8 million, compared to $9.6 million for 2019. That decrease in operating expenses was due to the decrease in ownership days and was offset by increased expenses in insurance expense, repairs and operations and taxes. Daily operating expenses in 2020 were $5,750 compared to $5,510 for the year 2019. There was an increase for the year in the general and administrative expenses, which was at $32.8 million compared to $28.6 million for 2019. But this is an excellent ordinary increase because of the accelerated vesting of the restricted shares of board members which was due to the company's restructuring in 2020 and its complete separation from Performance Shipping, Inc. Interest and finance costs, they decreased to $21.5 million, compared to $29.4 million last year as we explained earlier. We would like to thank you for your attention and we will of course be pleased to respond to your questions. And now, I will turn the call to the operator who will instruct you as to the procedure for asking questions.

[Operator:]

Our first question comes from the line of Randy Giveans with Jefferies. Please proceed with your questions.

[Randy Giveans:]

Howdy team Diana, yes, congrats to all on the promotions and new positions?

[Simeon Palios:]

Thank you.

[Semiramis Paliou:]

Thank you.

[Randy Giveans:]

Also, so yes you've done a great job obviously with the asset sales, the tender offers, chartering strategy, your stocks more than doubled right, in the last few months so, congrats on all that. Now that your share price is closer to NAV, if not above NAV, and the market outlook is fairly attractive. What are your plans for your fleet in terms of ongoing sales, maybe some acquisitions or for the share repurchases?

[Ioannis Zafirakis:]

Now, you correctly pointed out this is Ioannis - Randy, you correctly pointed out that it is very important to see where we are in the cycle and where we are based on our NAV. So, you should not be expecting to pay any dividend if we are trading below NAV and if for the market conditions are not such that we can make sure that this dividend is going to be sustainable for the short to medium term. Now, as regards further sales of vessels, of course, we couldn’t combine it with buying back some of our shares at a discount to NAV. We will consider or if we can combine it with buying back some of our expensive debt. Buying new vessels at the moment is the last option that we have. But I want to stress out again that, we have managed even in the last 15 years to always have various options ahead of us to act accordingly. And this is, I think the main characteristic of Diana Shipping, Inc. that we have always a lot of options on how to react listening to other companies. They don't have as many options. So be certain that we will choose whatever is most appropriate for our shareholders.

[Randy Giveans:]

Sure, okay. And then, in terms of the - just the market looking at Panamaxes now currently still outperforming Capesizes. Obviously, the forward curve is showing that inflection coming soon where Capesizes outperformed Panamaxes? Do you have a preference for one size of vessels over the other? And then also, can you describe maybe the situation, and how that will drive that inflection of Capesizes outperforming Panas in the coming months?

[Simeon Palios:]

Sure. We have said many times in the past in the medium to long-term, we do not see - people should be expecting that one type of a vessel should go along with the other. And more or less everything is included in the price of the asset. So, the fact that you have for the short-term kind of inefficiency or the one type outperforming the other is something that we have seen in the past. And we don’t consider that to be as the new norm or something that is going to continue. Certainly, you’re correct in your assumption, but I think what has happened in the Panamax sector has to do more with the sentiment as regards to the Chinese New Year. You know that sentiment is very important. And if we overdo it with that and if we are afraid, for example, what is going to happen in the Chinese New Year regarding fixed use and demand. Then you have the results of the things that you show happening two weeks ago or a week ago in the Panamax sector. So, fundamentals are going to prevail. And at the end of the day, I think you are going to see a universal move of rates upwards, as Stacey said earlier in the short to medium-term. Having said that, we think that we are very well invested to that respect and to take advantage of this happening, and we will not try to make some more by doing moves today as we speak, i.e., buying vessels and so on and so forth. We think we are very well invested. And if the market moves upwards, we are going to be there and take advantage of that. We have a lot of vessels to fix in the months to come. And we are there to take advantage of the situation.

[Randy Giveans:]

Sure, good deal and that's it for me. Keep up the great work. Thank you.

[Simeon Palios:]

Welcome.

[Operator:]

Thank you. Our next questions come from the line of Omar Nokta with Clarksons Platou Securities. Please proceed with your questions.

[Omar Nokta:]

Yes, hi. Thank you. And also congratulations on the management succession and also joining as well. I wanted to maybe just touch on kind of the last topic from Randy. It’s been obviously a long time coming, but it’s notable to hear you speak fairly positively here on the outlook. I understand - at this point you've got the fleet that you can fix and there's no rush right now to go out and buy assets? In thinking about deploying the fleet, I know generally you've or basically since your existence as far as I can remember, you don't do spot trading. Everything is generally on time charter. In the past, you've intended to have one, two, or three-year time charters. But more recently, they've generally been around that 12-month range I would say? Any changes do you see happening to how the fleet is deployed going forward from here? Do expect to put more ships on longer-term contracts? Any color you can give on that would be great?

[Ioannis Zafirakis:]

Okay. You have well noticed that we have kind of shortened the hedging period of ours. We still have a hedging period. Having said that, we cannot stay completely still and not try to take advantage of the short-term events, and therefore this is why you see us having a lot of vessels opening during the next quarter and the quarter to come in the last quarter of 2020. So, the only thing that I can say is that we have shortened the period of hedging. But at the moment, it's I would say close to a year where in a better market it is close to two years and in a fantastic market it is close to three years. And so yes, we have taken some steps towards the market moving up. Having said that, we will not put all of our eggs in one basket as you know and this is the absolute maximum risk that we are willing to take at the moment i.e. a year of hedging.

[Omar Nokta:]

Okay. That’s helpful. Thanks, Ioannis. And then maybe just on that point. When it is time to deploy capital on vessels, I've been thinking about the larger ships. You operate both in Newcastlemax’s and the Capes? What would you prefer when it's time to spend money on a new larger vessel especially with the strategists ticking with time charters? Is there a clear preference in your discussions with customers on whether they prefer to put a Newcastlemax or a Cape on charter?

[Simeon Palios:]

People are having preferences, but you are not paying the same price for each preference, Omar. And therefore, theoretically in an inefficient market, everything should be included in the price of the assets that you are buying. We are not talking here that someone has an inside information, and he knows, that the one type of vessel is better than the other and the market has not taken care of that. So theoretically speaking there should not be someone trying to - someone should not try and explain why the one is better than the other, because we are not paying the same price. If we were to be asked what is our preference? We can say to you that we like the larger size of the vessels, not because we think that it is a more profitable business, but we think it's more volatile business. And for our model and the way we try to create value for our shareholders, the bigger the vessel the more favorable is we think for our model to create value.

[Omar Nokta:]

Okay, that’s pretty clear. Thank you. And maybe just one final one then I’ll turn it over. Just a comment the dividend, I joined the call a little late, but I've heard Stacy's comments about bringing back the dividend, and just want to make sure I heard correctly. Do you - have you officially decided to bring back the dividend or is that?

[Ioannis Zafirakis:]

No, no, no. This is wishful thinking. He said maybe or is - the time will come where we will introduce. We didn't say that we are going - we will introduce or we have taken a decision to that effect. As I said earlier, we have to see market conditions being such that the dividend is sustainable. And we have to see also the stock price being above NAV in order to introduce dividend because you know that if you are trading below NAV. The use of, your money may be better to buyback the stock rather than pay a dividend.

[Omar Nokta:]

Yes, I agree.

[Anastasios Margaronis:]

Yes, if I can add - the magic word was eventual. And when close to what we see here or we hope is developing something that we saw several years ago coming up, in other words, the stock trading at a significant premium and earnings going up. The ingredients to be there for the situation, that Ioannis described to develop and allow us to pay dividend, but we don't know when this will happen.

[Ioannis Zafirakis:]

Eventually, faulty towers, do you remember, eventually.

[Omar Nokta:]

I got it now. Yes. I appreciate you making that very clear, eventually all right. Thanks guys.

[Ioannis Zafirakis:]

Yes, yes.

[Operator:]

Our next question is coming from the line of Greg Lewis with BTIG. Please proceed with your questions.

[Gregory Lewis:]

I guess my first question is around realizing that Diana is not directly impacted on the smaller vessels. But that being said, strength in the Supermax market finds a way to spill into the Panamax market and vice versa. So, it's an interesting time in the market. In that, it seems like - that the Supermax market is really driving the strength in rates as opposed to typically the capes? Just kind of curious, what - if you're seeing anything, how that's happening, kind of any thoughts around that, that would be helpful?

[Simeon Palios:]

I think, Stacey was elaborate on his analysis. But I think the most important element to what you have seen recently, it had to do with the sentiment, Greg and how people were thinking about the beginning of the year. I think most of them, they were really careful and they rushed to fix vessels. And the market was a bit better than expected as regards the demand where some seasonal issues with the demand. And therefore, the market was caught without a lot of vessels being available for charter and this is how it happened, I think. At the end of the day, medium to long-term, everything has to do with fundamentals. How many vessels we have in the water and what's the demand for carrying goods by sea.

[Gregory Lewis:]

Okay, great. And then just as I think about it, I mean clearly - based on your prepared remarks, we're looking at renewing our fleet. This is something that's been going on for a while now. I guess I'm just kind of curious realizing that Diana is - I don't know if you're an aggressive seller, but clearly you have some older ships in the fleet you're thinking about and selling into the market? What is - we can kind of see that the state of the modern tonnage market, has there been any pickups - in interest in buying some of these older vessels in your fleet? Just kind of curious as we look out over the next six to 12 months just given the current upturn in rates, has the phone been ringing a little bit more from potential buyers of some of those vessels? Thanks.

[Simeon Palios:]

That is 100% correct. The interest on buying our older tonnage is much higher than what it used to be 20 days ago or 30 days ago. People are reacting to the higher rates that they saw recently and they have asked to buy older tonnage where the older tonnage seems to be having a bit better return. But I don't know about the risk reward ratio return for certainly.

[Anastasios Margaronis:]

Well don't forget the sale and purchase market is lagging the freight market or vice versa. You need the state strength for the sale and purchase market to come in line with the freight market. So, unfortunately the last three months, the market has been very volatile. We have not reached the steady state. Therefore, the values of the secondhand vessels have not come to a sort of line with the freight market.

[Operator:]

Our next question comes from the line of Tucker Long with Stifel. Please proceed with your question.

[Tucker Long:]

This is Tucker Long on for Ben Nolan. Thanks for taking my questions. With the recent developments and strength that we've seen in the dry bulk space, has there been an increased appetite from the charters for a longer duration contracts? You know, effectively hedging out on their end?

[Simeon Palios:]

Yes, but I don't think that this is an indicator. I know that people are trying to use that as an indicator on what the charterers are seeing in the market ahead. And this is why they may want to charter vessels for a longer period today as we speak. But this is not entirely correct because you have the FFAs where they dictate the number more or less of the - such a charter rate of two years or three years. And this has always been the case. You don't have the charter as pressing you saying I'm only wanting to fix a vessel for two years. They say to you, we can do two years if you want, we can do one year. So although, I think the question should be for the - from the - better ask the owners to see whether they have an interest because the rate that they're going to get is more or less, none. I don't know, probably I have confused you, but looking at what the charterers are asking. It's not the right thing to do recently, because charter is usually there to accommodate any type of request, as regards period, at a different number.

[Tucker Long:]

Yes, that makes sense. So my second question, I know you guys mentioned you're not looking to buy ships right now? But in the event that that changes, how do you guys think about your purchasing power to buy ships or I guess effectively? How much dry powder would you guys have to acquire vessels?

[Simeon Palios:]

I think it all depends on how comfortable we are feeling - with the cash that we have aside. You can see that our cash position is very strong. The question is, how much we want to leave aside and this is going to be influenced by what type of contracts and revenues we will have assumed. And at the same time we have the un-mortgaged vessels that if they are to be sold, they can buy more if we wish to do so. Although, we said that we are not interested. I think, if we were another company with a different risk profile, our buying powder would have been around $200 million.

[Tucker Long:]

Okay. Great…

[Simeon Palios:]

Equity, so that’s $400 million in new vessels, more or less.

[Tucker Long:]

Okay, great. Thank you. That’s it from me.

[Simeon Palios:]

You’re welcome.

[Operator:]

There are no further questions at this time. I would like to hand the call back over to management for any closing comments.

[Simeon Palios:]

Thank you, again, for your interest in and support of Diana Shipping, Inc. We look forward to speaking with you in the coming year.

[Operator:]

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.