Navios Maritime Partners L.P.
Q1 2015 Earnings Call Transcript

Published:

  • Operator:
    Thank you for joining us for this morning’s Navios Maritime Partners’ First Quarter 2015 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Efstratios Desypris; and EVP of Business Development, Mr. George Achniotis. As a reminder, this conference call is also being webcast. To access the webcast please go to the Investors Section of Navios Maritime Partners’ website at www.navios-mlp.com. You will see the webcasting link in the middle of the page, and a copy of the presentation reference in today’s earnings conference call that will also be there. Now let me read the Safe Harbor Statement. The conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners’ management, and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Partners’ filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today’s call is as follows. First Ms. Frangou will offer opening remarks; next, Mr. Desypris will give his overview of Navios Partners’ financial results; finally, Mr. Achniotis will provide an operational update and an industry overview; lastly, we’ll open the call to take questions. Now I turn the call over to Navios Partners’ Chairman and CEO, Ms. Angeliki Frangou. Angeliki?
  • Angeliki Frangou:
    Thank you, Laura, and good morning to all of you joining us on today’s call. I am pleased with our results for the quarter. We earned $38 million of EBITDA and $10.9 million of net income. We recently announced a quarterly distribution of $0.4425, representing an annual distribution of $1.77 per unit. This annual distribution provides a current yield of 13.4%, more than 2 times the yield of the Alerian MLP. Again, this quarter reaffirm Navios Partners’ commitment to the existing distribution at least through 2016. We have maintained distribution even during difficult phases of the cycle for the dry bulk shipping and are prepared to increase it when the shipping market stabilizes and the market reward us with such an ability of this distribution. Today, Navios Partners is a container-focused MLP, as the container segment is effectively the workhorse of our company. Since the end of 2013, we acquired eight container vessels. These vessels are expected to generate about 43% of 2016 EBITDA. In total the containers are expected to generate about $1 billion in revenue, representing 66% of our expected contracted revenue. The average charter length of our container fleet is about 8 years. The average charter duration of our entire fleet is about 3.5 years. In contrast, the dry bulk segment, where our historical roots are, and in which we have material exposure, offers Navios Partners significant upside when the dry bulk market improves. Recently, the decline in commodity prices while creating some uncertainty provided a strong catalyst for growth. Over the past 10 years, the container trade has a positive correlation of over 90% with U.S. personal consumption. We believe this correlation is that largely attributable to increases in consumer spending, supporting greater volumes for consumer goods, a large portion of which are typically transported by containers. NMM will benefit from the economic growth that will occur from this virtual circle emanating from lower oil prices. Consumer spending additional disposable income generated which in turn provides as a great input to our global economy. NMM starts to benefit from the resulting increased trade, not only from the increased container traffic, but also as the increased economic activity will also stimulate the dry bulk sector. As you can see from Slide 2, Navios Holdings is a sponsor of Navios Partners in those 20.1% of Navios Partners. Today, NMM owns 31 vessels, and it has a market capitalization of about $1.1 billion and an enterprise value about $1.5 billion. Slide 3, provides some of our company highlights. Our 8 container vessels are expected to generate about $1 billion in revenue representing 56% of our expected contracted revenue. The average charter duration of our entire fleet, including the dry bulk segment, is about 3.5 years. Overall, NMM has a secure revenue stream of 92.6% of our company’s contracted revenue and two charters longer than 3 years. NMM has not only maintained a solid distribution through the cycle but also increased distribution by 26.4% since inception. Slide 4, displays our competitive position within the industry. NMM has minimized rechartering risk, with fixing almost 100% of our open days for 2015, thereby eliminating any dry bulk spot market volatility. Our balance sheet has strengthened as evidenced by a 10% reduction in our net debt to book capitalization ratio compared to year-end 2014. NMM’s container sector exposure provided long-term charters cash flow stability and strong distribution coverage. With the addition of the vessel of the MSC Cristina, Navios Partners now has about $850 million in contracted revenue from the container vessels representing 66% of our total contracted revenue. Slide 5 provides an update of our recent delivery of the 13,100 TEU MSC Cristina. The container vessel was acquired for a price of $147.7 million. The vessel is chartered out for 12 years at $60,275 per day to a strong counterparty. NMM may terminate the charter after year seven, which of course allows NMM to benefit if the future charter market exceeds the contracted rate under the existing charter rates. The vessel is expected to generate $18.4 million of annual EBITDA, and $217.8 million of aggregate EBITDA. In addition, the profitability of renegotiation is such that we will have no residual value exposure on the completion of the initial charter. Upon the expiration of this charter the vessel will have 10 years of useful life remaining. The container acquisition is financed using $80 million in debt and the remaining with cash from our balance sheet. The debt financing is at attractive terms with an amortization profile of 13.5 years, interest rate of LIBOR plus 2.75% and maturity in 2022. We also have an option to acquire an additional 13,100 TEU container vessel similar to the MSC Cristina. The option which did not require any payment is exercisable by June 2015 with expected vessel delivery in the third quarter of 2015. Under the terms of the option agreement, if we choose to exercise the option, we would only have to make a 10% deposit with the balance due in the delivery of the vessel in the third quarter of 2015. Slide 6 shows the liquidity. At March 31, 2015, we had a total cash of $101 million and total debt of $529.7 million. We have a low net debt to book capitalization of 32.4% and no significant debt maturity until 2018. Slide 7 shows how we have grown our fleet and distribution regardless of where we are in the shipping cycle. Since our IPO in late 2007, we grew our fleet capacity as mentioned by deadweight tons by 420%. We did this with the assistance of our sponsor and acquisition from the open S&P market. And at this point, I would like to turn the call to Mr. Efstratios Desypris, Navios Partners’ CFO, who will take you over the result of the first quarter of 2015. Efstratios?
  • Efstratios Desypris:
    Thank you, Angeliki, and good morning, all. I will briefly review our most recent financial results for the first quarter ended March 31, 2015. The financial information is included in the press release and is summarized in the slide presentation on the company’s website. As Angeliki mentioned earlier, the company continues to take actions to solidify its distribution and strengthen its balance sheet. We expand our cash flow generation through the acquisition of container vessels with long-term charters. The containers now represent more than 40% of our expected EBITDA for 2015. Also during the quarter, we reduced our net debt to book capitalization ratio by approximately 10% through the prepayment of a portion of our credit facilities. Our strong balance sheet and accretive expansion of our cash flow has allowed us to reaffirm our commitment for a minimal annual distribution of $1.77 per common unit through the end of 2016. We anticipate that market will give us for the durability of this distribution. Moving to the financial results as show in Slide 8, our revenue for the first quarter of 2015 increased by 1.2% to $56.8 million, compared to $57.5 million for the respective quarter of last year, the decrease was mainly due to the 11% decrease in the time charter equivalent rate achieved in the quarter of $18,625 per day, compared to $20,785 per day for the same quarter of 2014, and it was partially mitigated by the increase in available days by 10.6%. EBITDA for the first quarter 2015 was positively affected by the $29.8 million accounting effect from reinsurance settlement. Excluding this item, EBITDA for the first quarter of 2015 decreased by 3.2% to $38 million compared to the same period of last year. The main reason for the decrease was the decrease in the revenue discussed above. Net income for the first quarter of 2015 has been affected by the same item that affected EBITDA described above. Also it has been negatively affected by a non-cash write-off of an intangible asset. Excluding these items net income for the quarter was $10.9 million, $0.3 million higher than the same period of last year. Operating surplus for the first quarter of 2015 amounted to $27.6 million, a replacement in maintenance CapEx reserve was $3.2 million. Fleet utilization for the first quarter of 2015 was 99.9%. Turning to Slide 9, I will briefly discuss on key balance sheet data as of March 31, 2015. Cash and cash equivalents was $101 million. During the first quarter of 2015, we prepaid $44.6 million in our debt facilities. By doing that, we decreased the company’s leverage by approximately 10%. Net debt to book capitalization was 32.4% at the end of the quarter. The prepayment also resulted in the reducing our cash pledge for the debt service for 2015 by $5.9 million. As shown in Slide 10, we declared the distribution for the first quarter for $0.4425 per common unit. Our current annual distribution of $1.77 provides for an effective yield of approximately 13.5% based on prior closure in price. The record date for the distribution is May 13 and the payment date is May 14 of 2015. Our common unit coverage for the quarter is 0.8 times. To provide a more meaningful ratio going forward we present a pro forma coverage ratio of 1.04 times. This pro forma calculation gives effect to the full quarter run rate operating surplus of the two 15,100 TEU container vessels and the normalized revenues on hires of vessels received upfront. The increased exposure to the container segment, with a long-term charter duration, result in a very healthy pro forma coverage ratio going forwards. The stability we have built in our cash flow generation and our coverage ratio allowed us to reaffirm our commitment for a minimum annualized distribution of $1.77 per common unit through the end of 2016. I would like to remind you that for U.S. tax purposes a portion of our distribution is treated as a return of capital. Also we report the cumulative annual distribution to common unit-holders on Form 1099. Slide 11, shows the details for our fleet. We have a large modern diverse fleet with a total capacity of 3.3 million deadweight tons. Our fleet is young with an average age of 7.8 years, well below the respective industry averages. Our fleet consists of 31 vessels, 8 Capesizes, 12 Panamaxs, 3 Ultra-Handymax, and 8 container vessels. Slide 12 demonstrates our strong relationship with key participants in our industry. Our charters have an average remaining contract duration of 3.5 years. Approximately 93% of our contracted revenue is from charters longer than 3 years. Our charters are spread among a diverse group of counterparties. In Slide 13, you can see the use of our fleet with contracted rates and the respective expiration dates per vessel. We have almost eliminated our exposure to the dry bulk market. Currently, we have we have fixed 98.4% revenue days for 2015, and we have 58.3% fixed for 2016. We do not have charter rate exposure to the container sector as well vessels have fixed for an average period of approximately eight years. The expiration dates have staggered and the charter durations extend to 2027, the latest. As shown in Slide 14, we are an efficient, low-cost operator. We are benefiting from the economies of scale of our sponsor and we have fixed our operational costs at low levels. Our OpEx is more than 20% below the industry average. I now pass the call to George Achniotis, our Executive Vice President of Business Development to discuss the industry section. George?
  • George Achniotis:
    Thank you, Efstratios, and good morning all. Please turn to Slide 16. As Angeliki has already mentioned, Navios Partners has shifted its cargoes on the Container segment, where industry fundamentals are improving. As you can see on the chart, there is a strong correlation between annual GDP growth and expanded container traffic in both the U.S. and Europe. With increases was our income from lower oil prices, container demand should grow further. Forecasts are for U.S. personal consumption expenditure to grow 3.8% on average over the balance of the year. Following the recent container building plan Europe is also expected to recover. Moving to Slide 17. Over the past 18 years, container trade has expanded at a 7.5% CAGR. The rate of growth has been increasing since 2012, is expected to continue to increase by 6% in 2015, and 6.5% in 2016. Turn to Slide 18. At the end of March, the container fleet grows 5,134 vessels of 18.7 million TEU capacity. Up to the end of March, 350,000 TEU capacity have delivered vessels 470,000 projected giving a non-delivery rate of 26%. Scrapping of older vessels has continued and up to the end of April 2015, 34 vessels with a capacity of 69,000 TEU have been demolished. The current rate environment should encourage additional scrapping of older less efficient vessels. Last year, 201 vessels delivered and 171 vessels were scrapped, which expanded the TEU capacity by 6.4%. Estimates of the net fleet growth on a TEU basis will be close to demand growth rates at around 6%. Fundamentals improved further in 2016, where net fleet growth is forecasted to be lower than the 6.5% estimated increase in container demand. Moving to Slide 19 in the dry bulk market fundamentals, the global economies global GDP continue to grow creating raw material demand for primary industries, particularly steel and energy production. This is especially important in the emerging market regions experiencing rapid urbanization and industrialization, such as China, India, and the surrounding Pacific countries. The rate of world GDP growth is expected to increase from 3.5% in 2015, to 3.8% in 2016, and emerging and developed markets are expected to grow by 4.3% in 2015, and 4.7% in 2016. Turn to Slide 20, dry bulk trade has expanded by 12.5% CAGR since China joined the WTO 14 years ago. Forecast for 2015 for the dry bulk trade growing between 3% and 4% and ton may grow between 4% and 5%. The second-half of 2015 is where forecast is expected bulk of the growth to be - for the year, following the downward price adjustment in most major dry bulk commodities. At 600 BDI, the dry bulk market has risen 20% from the Q1 seasonal low reach in February. However, the market is still suffering in a 30 years cycle low, but charter rates in general are slowly recovering. Moving to the next slide, currently over 60% of the world’s population resides in urban areas. That figure is expected to grow to 67% by 2015, adding approximately 2.8 billion nearby residents. A large portion of this urbanization trend will occur in the Asia Pacific region, particular importance to dry bulk is construction of housing commercial real estate, infrastructure developments, and energy production. Together seaborne iron ore and coal shipments made up about 60% of world dry bulk movements. China imports almost 70% of old seaborne iron ore. With iron ore prices covering the $50 to $60 per ton range, China will continue to subside expensive low-grade domestic iron ore with high quality imported ore. Since the end of Chinese New Year in February, it is apparent that Chinese domestic ore production levels are dropping confirm this trend. Forecasters expect an 8% increase in Chinese iron ore imports in 2015. Coal is still the lease expensive fuel for producing the electricity, particularly important to the emerging market region. The coal market in China is the largest worldwide consuming about 3.8 billion tons annually. In 2014, and so far in 2015, we have seen the Chinese authorities protecting their domestic mining industry. These costs caused the global coal price to fall, giving India the opportunity to increase the imports. The current mine of India has made it their priority to provide electricity to all, which will drive growth in electricity consumption for many years to come. India’s domestic coal mining activities are not able to keep up with the pace of growth, giving opportunities to import increasing volumes of coal going forward. As many of the new Indian electricity plants are based near the coast, this trend looks likely to continue. India and China can benefit from their cyclical low international coal prices, low in their cost of providing energy to their growing consumers. Chinese and Indian combined coal imports are estimated to increase by about 2% in 2015. Please turn now to Slide 22. So far this year about 14.6 million deadweight tons delivered from an expected 24 million, resulting in a non-delivery rate of 39% continuing the pattern over the last several years. Scrapping volumes for older and less fuel efficient vessels have dramatically increased in 2015. In the whole of 2014, 16 million deadweight tons were scrapped. Through April 24, approximately 13 million deadweight tons were scrapped, including 50 Capesize vessels, compared to 24 capes in the whole of 2014. The current rate environment should encourage 12 scrapping of older vessels. About 10% of their fleet is over 20 years old, providing about 75 million deadweight tons of scrapping production. Current projections for the year are for scrapping in excess of 40 million deadweight tons, which could set an all-time record in deadweight ton basis. In addition to high scrapping, owners have refrained from ordering. Through Q1 this year 21 ships of 1.1 million deadweight ton were order, as a comparison during Q1 2014, 365 ships of 31.6 million deadweight tons were order. At scrapping and low ordering we eventually improved the overall fundamentals for dry bulk. Net fleet growth for 2015 is projected at about 2.5%, the lowest in many years. With dry bulk demand for the balance of 2015 expected to increase at about 5%, the improved fundamentals we have in dry bulk market although with cyclical 30-year low we have experienced for the last four months. This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?
  • Angeliki Frangou:
    Thank you, George. This concludes our presentation and we open the call to questions.
  • Operator:
    [Operator Instructions] Your first question comes from the line of Amit Mehrotra of Deutsche Bank.
  • Amit Mehrotra:
    Yes. Thank you very much. Angeliki, I was so much surprised by your comments in the press release about being prepared to increase the distribution as the market stabilizes. Clearly, up until now, the comments have been sort of a reaffirmation of that commitment as opposed to any sort of perspective increases. And so I thought that was interesting, and I would appreciate it if you can sort of elaborate on what exactly you mean by the word stabilize? And the implication is clearly that you’re more confident about the company sort of being able to maintain the current commitment, and so if you could sort of also talk about some of the sources of that confidence? Thank you.
  • Angeliki Frangou:
    Amit, it’s a good question. If you see the way we have structured the company right now is that, we have moved as of late 2013 in the Container segment. This provided over 900 million worth of contracted revenue, eight years of duration. So it has totally stabilized the company and you’re having, your long-term cash flows are coming visibly from the container sector, which is an area, where we see further expansion. With that in mind, and taking a 100% out - almost a 100% out of the export exposure on the dry bulk, we know that the company is stable, strong, and delever also this quarter, so we have a very strong balance sheet. And the way we are, we see that as market - dry bulk market recover, this will give us a further potential as a majority of our vessels in dry bulk to provide additional cash distribution.
  • Amit Mehrotra:
    Okay. I just like to follow-up on one of the comments and talk about sort of the dry bulk market in general, because - I think it’s fair to characterize sort of your view on the market as less structural and more cyclical in terms of the downturn. But, with that being said sort of the company did lock-up the remaining open days in - what is the sort of seasonally with the weakest period. And so was this really just more to balance the visibility with the potential operating leverage upside? Or has your view on sort of the dry bulk market changed a little bit at least in terms of the remainder of 2015?
  • Angeliki Frangou:
    I think for Navios Partners that its build is more important than spot market exposure. So reality is that we’ll have to take that spot market exposure out, so that we get credit from the market for the cash flows we have on the Container segment, for the visibility we provide for the distribution we provide, which is quite significant. So we weighted that - this is mostly because we weighted the ability for investors to see that their distribution is stable. And taking the spot market exposure was a beneficial thing. It has nothing to do with our future on the market.
  • Amit Mehrotra:
    Okay.
  • Angeliki Frangou:
    On the dry bulk what we see that dry bulk is in a low point, a structurally low point. And with that, you know that will be recovery. We see that very significant scrapping. You have - you will reach the all-time-high, I mean, annualized rate we’re going it’s almost 44 million deadweight tons, which is 10 million tons more than the 2013, which was 32 million. And you’re seeing deficit in actual net deficit of Capesizes this year. We have send 52 - up to now 52 Cape scrap vessels, 34 coming to the water, so you have a net deficit of vessels in the Capesize this year, most probably next year. So these are - if you look the statements there is a clear of the fleet and at the appropriate moment it will make this recover, because at the end of the story scrapping is the way out of this, encapsulation of orders. So for Navios Partners, you are not - what you care about is really having the certainty of the distribution and the visibility. That’s why we’re fixed.
  • Amit Mehrotra:
    Okay. Just one follow-up, Efstratios, can you just provide the share count or the unit count at the period end of the quarter, please?
  • Efstratios Desypris:
    Yes. At the end of the quarter, we had approximately 85 million of total units outstanding, around 1.6 of that is the GP units. But you have to take into account that this do not participate on the full quarter, because we did raising back in February. So you have to weight average the number of the units.
  • Amit Mehrotra:
    Great, great. Okay, thank you all very much.
  • Angeliki Frangou:
    Thank you.
  • Operator:
    Your next question comes from the line of Ben Nolan of Stifel.
  • Ben Nolan:
    Yes, thanks. I had a couple of sort of debt balance sheet type of questions. You guys mentioned and saw on the cash flow statement, that you repaid some debt in the quarter. Is that something that you can draw down upon again if you need to, or once that’s been repaid, it’s no longer available to you? I guess, so that’s my first question.
  • Angeliki Frangou:
    If we want to level up, it’s no difficult. One of the things we saw that we felt was attractive is that, I mean, important for the balance sheet and healthy for our investors is that value from the dry bulk have moved down and we saw down-side pressure, we wanted to make sure that we have a strong balance sheet having also with a reduction in the debt we provided those reduction of our debt service so that created further visibility for the company. And we view that having the distribution, making sure that this is extremely safe for our investors, the protection from reduction of debt and value volatility is very important.
  • Ben Nolan:
    Okay. That’s helpful, and then sort of gets to and answers part of my next question. So with respect to the option you guys have and given that you have used some of the cash you used in your equity offering to repay the debt, how do you think about exercising that option and availability of capital for that? Do you have enough borrowing capacity in cash in the balance sheet to be able to exercise that option or do you think it would require additional equity capital?
  • Angeliki Frangou:
    We could. I mean we have the capacity to borrow and be able to do that. The thing that we like very much about this option is that we have not - we don’t have to declare it until June. And then we only have to put 10% deposit when we declare without payment until the delivery of the vessel.
  • Ben Nolan:
    Okay. The delivery of the vessel would still be relatively short - shortly after though, right, I mean, still third quarter there.
  • Angeliki Frangou:
    Yes.
  • Ben Nolan:
    Yes.
  • Angeliki Frangou:
    In Q3, yes.
  • Ben Nolan:
    Yes. Okay, so just related to your commentary there a second ago. I know in the last conference call it sounded to me at least like the primary focus of growth going forward, at least in the immediate term was on the container side. And just now you said that, it sounds like asset prices or little bit more on the dry bulk side asset prices are a little bit more appealing now and maybe that is an area that you would be a little bit more willing to expend capital towards. Is that correct? And then, if so, how do you think about acquiring assets, I mean, are we talking just sort of spot assets or doing more sort of sale leaseback kind of structure deal?
  • Angeliki Frangou:
    Ben, to be honest, I mean, for Navios Partners, what I said about the values on dry bulk is because there was volatility we like to make sure that debt ratios are very appropriate for the company that provides a nice dividend like NMM. On acquisitions we will say that we concentrate on Container segment, right now, because that provides the visibility of cash flows that are in vessels we care and also on the contracted revenue that really gives you long periods in duration. So for acquisition of vessels we believe the best strategy for NMM is to really focus on the Container segment, as we have enough dry bulk vessels to get an up-side if - when rate increase.
  • Ben Nolan:
    Okay, perfect. So it’s still container focused with respect to incremental although I guess just sort of corporately you feel that dry bulk asset values are now a bit more attractive although that might not be the right set for NMM, is that - it sounds like what you…?
  • Angeliki Frangou:
    Ben, you have a nice portfolio I mean, at the end of the story, you have eight containers and two-thirds on NMM [ph], two-thirds dry bulk. So you have sufficient position there. What you hear about is contracted revenue durations and cash flows.
  • Ben Nolan:
    Definitely, I totally understand. All right, well that - well, one last question. Could you maybe lay out for me, I know the maturity schedule was laid down in the slide presentation, but Efstratios maybe could you following this most recent loan, what is the new debt amortization profile look like for the next several years?
  • Efstratios Desypris:
    Ben, except for this year, that we have reduced amortization profile by $5.9 million, as part of the facility that we prepaid. As you can see that more or less it has reduced slightly by approximately $1 million over a year, but you can see in Slide 6 of the presentation, the final maturities in all our debt facilities and how this has - have developed after the prepayment done.
  • Ben Nolan:
    Right, right, right. But although that’s just maturities, correct, that’s not the actual required amortization schedule?
  • Efstratios Desypris:
    What - like I said, it’s $5.9 million for this year, and the couple of millions, $2 million to $3 million per year after the next vessels.
  • Ben Nolan:
    Okay. All right, very good. Thank you very much for the time.
  • Operator:
    Your next question comes from the line of Christian Wetherbee of Citi.
  • Prashant Rao:
    Good morning, guys. This is Prashant in for Chris. My first question sort of following up on what Ben was talking about. If the - taking sort of opposite view maybe for a second, if the recoveries are a little bit more slow than we think in the dry bulk side going into 2016 with some of these vessels coming off charter at that point. Is disposition of the vessels maybe part of this story, or what - how would you think about that in terms of maybe rationalizing the dry bulk side of the fleet, what would the market need to look like at that point, what are kind of the key levers there, if you could just help out kind of thinking about that?
  • Angeliki Frangou:
    Well, one of the things we are saying is that, we have taken a 100% out oil well export exposure on the dry bulk. So majority of your exposure is about a year from today. We do believe that next we go from the dry bulk is going to be - is going to have a record scrapping this year over 40 million deadweight ton, if you annualize the rate of what we see. And on the demand side, we see that demand next year will be more or less as - this year will be like last year. So you should - can't see balance at some point. The thing is that, we do not want that uncertainty, that’s why we have taken this export exposure out.
  • Prashant Rao:
    Yes, got it, which is excellent. So fundamentals are expected to recover in your view strongly enough that we shouldn’t need to see vessel dispositions or rationalization on the dry bulk side of the fleet. Then on the other thing that I wanted to ask was, you talked about the coal in India and China, and I just wanted to get a sense of the economics behind LNG price sensitivity vis-à-vis coal and how that affects your trade for what you see in terms of India and China?
  • Angeliki Frangou:
    I think on the coal you are seeing a demand in China being more subdued with India being which is about the same size of a market, having the stronger growth. So overall, the two markets together provide you with a 2% growth. On the - mainly on the tons it’s approximately same size, I mean, if you take it on same size. LNG, I think is more used to have some big demand, I think coal is what is used on a regular base, and I think the person who is smart will be doing that and hydro substitution.
  • Prashant Rao:
    Okay, great. Thanks, guys. That’s it from me. Appreciate it.
  • Operator:
    Your next question comes from the line of Shawn Collins of Bank of America.
  • Shawn Collins:
    Great. Thank you. Good morning, good afternoon, Angeliki, Efstratios, and George. On the container ship side, I wanted to ask what you are seeing in a way of trade activity into Europe? And if you are seeing any change there in terms of volume or trade activity and whether that might be positive or negative or neither?
  • Angeliki Frangou:
    Actually even though Navios Partners is not in the export market of containers, I can say that, we have seen on a smaller container that Navios controls a very strong growth on the rate and something that has nicely surprised us. And is also coming from the - Israel coming also from Europe and really is the impact of consumption around the world from the U.S. and Europe. We have seen a smaller number that - on the container, you don’t have anything up and, but the smaller containers, the 2,500 to 3,500 we are really seeing a nice pickup.
  • Shawn Collins:
    Your next question comes from the line of Jon Chappell of Evercore ISI.
  • Jonathan Chappell:
    Thank you. Good afternoon. Angeliki, I wanted to ask a follow-up to Ben’s question regarding the option. I understand that you have till next month to exercise it and still need to put 10% down at the time. But in your Slide 10, we talked about the cash distribution and the pro forma common unit coverage, and it says it reflects the full operation of two container vessels. So am I right to assume that that pro forma number assumes that you’ll exercise that option?
  • Angeliki Frangou:
    Yes, I think we have - we see it as an attractive transaction unless we see something that is better positioning, I mean, we like this vessel, we like the cash flow.
  • Jonathan Chappell:
    And then just what are the assumptions when they get to that 1.04 times unit coverage? Is there some assumption on 50% debt, 50% equity, of that what are the components that get to that coverage ratio on a pro forma basis?
  • Angeliki Frangou:
    The usual debt of about 70% to 80% and cash we have.
  • Jonathan Chappell:
    Okay. That’s great. Another question I had was on the maintenance CapEx. It’s obviously been marching up as you’ve grown the fleet and then basically cut in half in the first quarter here, despite the - taking delivery of the MSC Cristina. So Efstratios, can you just talk about why the maintenance CapEx dropped to the lowest quarterly number it looks like since 2009, and what run rate we should use going forward for that?
  • Angeliki Frangou:
    One of the things that - Efstratios will go through the details of that, but one of the realities that you have to see that as the company used to have - we have that capital reserve through the down cycle of the dry bulk. Values have dramatically been reduced from the time we have all our acquisitions. I mean, values on the dry bulk have dropped - just even over these years has been dropped quite significantly. So that is mostly reflects the capital reserves that we already - that capital reserve amount that we use to have due to the dry.
  • Efstratios Desypris:
    And just one clarification, Jon. The MSC Cristina is not part of the calculation for the first quarter, it’s if you remember the vessel was delivered in April, so it’s not part of calculation for the maintenance we have for our Q1.
  • Jonathan Chappell:
    Okay. So that now you’ve taken the Cristina, what should the run rate be then starting in 2Q?
  • Efstratios Desypris:
    You should expect an increase of approximately 700,000 to 800,000 on an annual basis from the Cristina.
  • Jonathan Chappell:
    Okay. So you should assume the 1Q run rate for the existing fleet 3.2 then it’ll get to about 4 with the Cristina. And then, if you exercise the option on the fast containership another 700,000, 800,000?
  • Efstratios Desypris:
    More or less than the same vessel, so I assume this is correct.
  • Jonathan Chappell:
    Okay. And then just one last follow-up on other question that was asked earlier as well about potentially disposing some of your vessels, I do understand that you want to retain upside for the recovery. However, you have four ships that are 15 years or older, one is over 20 years already as well. Obviously, the third-party market for those aren’t great, but at the same time they’re getting pretty expensive from a special survey perspective as well. So at what point when those charters expire, do you just start to modernize the fleet by ridding yourself of the ‘90s built ships?
  • Angeliki Frangou:
    Just to remind you, Jonathan, if you remember, we already have both vessels in 2013 the second half, where we got delivery of our Panamaxs, Tonsomaxs [ph] and Cape. So we already have bought the replacement. The disposal of the vessels will be done when we find that in the most attractive point.
  • Jonathan Chappell:
    Okay. Thanks. Great…
  • Angeliki Frangou:
    So you already have taken the replacement of these vessels. The disposal, we will do it in a most appropriate. You cannot really get a lot on the value of the vessels while they can still earn. So after that at an appropriate time, we have no issues of selling these vessels and already rationalizing the fleet.
  • Jonathan Chappell:
    Understand. Thanks, Angeliki. Thanks, Efstratios.
  • Efstratios Desypris:
    Thank you.
  • Operator:
    Your next question comes from the line of Michael Webber of Wells Fargo.
  • Unidentified Analyst:
    Hi, this is Valerie [ph] calling in for Mike. Thanks for taking my question. I’m sorry if you’ve covered this already. I missed part of the presentation. But you’ve announced the joint venture to acquire 14 vessels from Nordbank AG recently. I was wondering if there is any cash flow impact or any type of impact that’s worth talking about.
  • Angeliki Frangou:
    Actually, this is not very significant NMM as is a small percent of genre to this venture. So this has risk and this is far more significant for NM or NNA. And NMM is only participating in 5%, but we do believe that this is an attractive transaction and as you have seen we have already had the press release out. I mean the combination of dry bulk vessels and containers provide us good mixture of vessels over an average age of 4 years.
  • Unidentified Analyst:
    Okay. Good. And all my other questions have been answered. Thank you very much.
  • Operator:
    Ladies and gentlemen, I apologize that we have reached the allotted time for questions-and-answers. I will now return the call to Angeliki Frangou for any additional for closing remarks.
  • Angeliki Frangou:
    Thank you. This completes this presentation for the first quarter 2015.
  • Operator:
    Thank you for participating in the Navios Maritime Partners first quarter 2015 earnings conference call. You may now disconnect.