Navios Maritime Acquisition Corporation
Q3 2015 Earnings Call Transcript

Published: 10 Nov 2015

[Operator:]

Thank you for joining us for this morning's Navios Maritime Acquisition Corporation’s Third Quarter 2015 Earnings Conference Call. With us today from the Company are Chairman and CEO, Mrs. Angeliki Frangou, Vice Chairman, Mr. Ted Petrone and Chief Financial Officer, Mr. Leonidas Korres. As a reminder, this conference call is also being webcast. To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.com. Also on the website, under the Investors section, you will see a corresponding presentation that we'll reference throughout this conference call. I would now like to read the Safe Harbor statement. This conference call contains forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition's 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 Acquisition's filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in this conference call. Thank you. Now I would like to outline the agenda for today's call. First, Mrs. Frangou will offer opening remarks. Then Mr. Petrone will explain the operational update and industry overview. Next, Mr. Korres will review Navios Acquisition's financial results, and finally we'll open the call to take questions. Now, I would like to turn the call over to Navios Acquisition's Chairman and CEO, Mrs. Angeliki Frangou. Angeliki.

[Angeliki Frangou:]

Thank you, Laura and good morning to all of you joining us on today's call. Navios Acquisition reported net income of almost $70 million for the nine months of 2015 and $23.2 million for the third quarter. This represents an increase of almost six times and 13 times over the prior comparable periods in 2014. We declared the dividend of $0.5 per share for the quarter resulting in a dividend yield of about 5.7%. We also repurchased about 2.5 million shares of common stock under our share repurchase program. In total Navios Acquisition is providing a 7.3% return of capital to invest those through its dividend and share repurchase program. During the quarter, we acquired two VLCCs for the $173 million, one of the vessels has delivered already and we expect the other to deliver by the end of this month. These vessels will provide immediate cash flow in the strong chopper market. As you can see, we are conservatively using our cash flow to satisfy a mix of closer priorities, including delevers in the balance sheet, returning capital to shareholders through share buyback and dividend and opportunistic growth. Please now turn to Slide Four, for the company highlight. NNA has 39 vessels with an average age of 4.8 years. Our entire fleet is almost fully fixed for 2015 and about 52% fixed for 2016. We benefit from the economical scale of the Navios Group, and our OpEx is 18% less than industry average, and it has been fixed through mid 2016. We earned $26.2 million in profit sales for the first nine months of 2015 and are well positioned for further upside as we have profit sharing on about 53% of our available base for the fourth quarter of 2015 and about 56% of our fixed days in 2016. Slide Five shows how we have gone about creating shareholders value. We have created a leading tanker company of 39 vessels, we have reported almost $70 million in net income for the first nine months of 2015, we are also the sponsor of Navios Midstream Partners NMLP. Our common equity was about $106 million, which add a $1.13 [indiscernible] per share NAV. In our vision, Navios Midstream is expected to pay about $23 million in distribution to NNA for 2016. [indiscernible] relevant during the quarter. NNA reported net income of about $0.44 per share for the first nine month of the year. NNA also reported total EBITDA of a $154.4 million for the period that company will create strong cash flow in 2015 as fixed by a profit sharing arrangements of $26.2 million through the first nine months of 2015 that profit sharing was about four times the amount with the [full gear] (Ph) of 2014. During the quarter, we acquire two VLCCs for a total purchase price of $153 million, the vessels one of which had already delivered and the other one, which we will be delivering by the end of the month are expected to provide immediate cash flow in [indiscernible]. We also secured a $169 million in bank financing in two separate debt facilities. The first facility secured four existing product tankers newly acquired VLCC and the second $44 million [indiscernible] by another newly acquired VLCC vessel. $175 million which we are announcing provides the company about $600 million of additional liquidity and reduces the overall the margin by 20 basis points. We have consistently returned capital to our shareholders with [indiscernible] of consecutive distribution totally at $1 per share. We have repurchased 2.5 million shares under a $50 million share repurchase program providing a tax free return to our shareholders of an additional 1.7%. Slide Seven, Further highlights the acquisition of VLCC vessels, Nave Spherical a 2009 build, this vessels was delivered in our fleet on November 6 and is chartered out for two years at the net charter out rate of $41,475 per day. The Nave Photon, a 2008 build will be delivered to our fleet by the end of the month and will be chattered out upon delivery. [indiscernible] basis two vessels provide $0.5 accretion per common share [indiscernible] multiple of 5.9 times. Pro forma leverage for the transaction [indiscernible] at 4.12 times debt to EBITDA with an healthy EBITDA to interest coverage of 7.75 times. Slide Eight, details our balance of management, we purchased new buildings when we felt the market [Indiscernible]. Today we have no new building commitment. At September 30, 2015 our leverage ratio 62.4% and 19% improvement since 2012. We intend to use a significant cash flow to deliver our balance sheet while we also return capital to our investors through the share buyback program in our existing dividend policy. Slide Nine, demonstrates our strong liquidity position. We have a total liquidity of $121.4 million at the end of the Q3, including $81.4 million in cash. We have no significant debt maturities until the fourth quarter of 2021. Slide 10, shows the cash flow cushion from our lower breakeven. 99.8% of our fleet is contracted for 2015. We expect to an average contracted daily charter-out rate of $21,250 compared to 2015 average fully loaded cost of $15,312 per day. In 2015, 51.5% of our fleet is contracted at an average contracted daily charter out rate of $18,891 compared to a fully loaded cost of $16,334 per day. This increase is due to the acquisition of the two vessels. As you know, our daily cost includes operating expenses, drydocking, general and administrative expenses, interest expense and capital repayment. As you can see at the bottom of the slide, our breakeven analysis. NNA should be able to generate significant cash flows in 2015 and 2016. And at this point, I would like to turn the call over to Mr. Ted Petrone. Ted.

[Ted Petrone:]

Thank you, Angeliki. Please turn to Slide 12. With the completion of our new building program earlier this year and the recent purchase of two VLCCs, our fleet under water stands at 38 vessels with one VLCC to be delivered. Navios acquisition continues the Navios Group policy of locking in secure cash flow with creditworthy counterparties. So, far in 2015, we have extended the coverage of our fleet to almost 22 year via new fixtures and exercise option periods at higher levels with profit sharing. Rates continue at higher levels than last year and charters are looking for longer periods. Please turn to Slide 13. Navios acquisition diversified fleet consists of 39 vessels totaling $4.1 million deadweight, included a two VLCCs just purchased. The fleet consists of eight VLCCs, 19 MR2 product tankers, eight LR1 product tankers and four chemical tankers. Navios acquisition currently has 38 vessels on the water with an average age of 4.8 years. Since the beginning of 2013, our product tanker fleet in the water has grown 125% from 12 to 27 vessels, and the total fleet on the water grew 105% to 39 vessels. 17 product tankers have delivered since the beginning of 2013. Turning to Slide 14. We have fixed particularly all of our capacity for 2015 in what should be a continuing healthy environment, we have fixed just 51.5% in 2016 and about 16% of our fleet of revenue days for 2017. About 56% of our contracted fleet has profit sharing in 2015. The average contracted daily charter out rate for our fleet is $21,250 for 2015. The rates for 2016 and 2017 are $18,891 and $24,091, respectively, reflecting existing charters which we expect to re-charter at higher rates. Please turn to Slide 15. Our chartering strategy revolves around capturing market opportunities, while also developing dependable cash flow from a diverse group of first-class charters. As a result, the average duration of all our charters is about one year. Due to the continuing strong market for our vessels, we earned $10 million of profit sharing in the third quarter and a total of $26.2 million for the first nine months of the year. In comparison, we earned $6.7 million of profit sharing in all of 2014. Please turn to Slide 16. Slide 16 recaps our strong relationship with key participants in our industry. We continue to build a portfolio of quality charter counterparties which provides vessels employment with a strong diversified customer base. The attributes we seek in our counterparties are strong credit quality and the ability to conclude long-term charters. I note that these charters are only available to those owners that have been thoroughly vetted. Turning to Slide 17. Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently, Navios Acquisition's daily OpEx is about 18% below the industry average. We achieved these operational savings through a management agreement with Navios Holdings. The operating cost under these management agreements are in force until May of 2016. Please note that the operating cost shown here includes all drydocking costs. Please turn to Slide 19. During the fourth quarter of 2014, we had launched Navios Midstream Partners and Midstream MLP. Navios Midstream brings Navios Acquisition's flexibility and liquidity while providing a new platform in the West sector for dividend seeking investors. Navios Acquisition owns 60.85% of Navios Midstream Partners including a 2% GP interest with a market value of approximately $169 million as of Monday's closing price. Turning to Slide 20. Navios Midstream Partners fleet of six VLCC is fixed with average charter duration of 5.6 years providing approximately $600 million in long-term revenue with top Tier counterparties. In the first nine of months of 2015, Navios Midstream earned $42.8 million of EBITDA including $4.6 million of profit sharing. Navios Midstream declared a cash dividend of [$42.4] per unit, representing $0.01 increase over the second quarter distribution as mentioned during this October earnings call. This distribution provides Navios Acquisition with approximately $19 million in annualized distributions. Navios acquisition reiterates intention to raise dividend by $0.01 over the next three quarters. Turning to Slide 22. According to the IEA, refinery capacity is expected to increase by 6.4 million barrels per day for the period from 2015 to 2020. About 70% of the capacity will be added in Asia and in Middle East with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 1.5 million barrels per day and 1.2 million barrels per day respectively. New low-cost capacity in Asia is forcing rationalization of old high-cost capacity in the OECD. Recent refinery closings in Europe and the Caribbean as well as closures due in Australia and Japan can be partly attributed to the age inefficiencies of these facilities, the cost of this structural shift, the growth in ton miles of refined oil products is expected to continue to outpace the general demand for refined oil products in the long run. Turning to Slide 23. U.S. crude production has increased by 87% since the end of 2008, reaching 9.3 million barrels per day in August. Since U.S. crude exports are prohibited by law, the U.S. has increased its total product exports by 359% to over [4.3] (ph) million barrels per days since 2004. U.S. Gulf refineries has benefit from inexpensive domestic crude and natural gas supplies or finding a natural export markets to neighboring Mexico and Latin America, as well as Africa. U.S. product imports have declined over the past couple of years, but continue to come from further away adding the product tanker ton miles. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes. Please turn to Slide 24. Oil refineries vary greatly in quantity variety and specifications of products that they produce. As depicted in this slide, regional surpluses and deficits combined with relatively low-cost of transportation drive arbitrage trades and increased product ton miles. Increasing worldwide products and balances point to increased ton mile development. This global multidirectional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue. Please turn to Slide 25. In the product sector, demand for transportation expressed in the terms of ton miles increased by about 79% in the period 2004 to 2014, equivalent to a CAGR of 6.5% projections indicate similar growth in 2015. The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades and arbitrage possibilities due to the volatility in crude pricing. The map at the bottom of the slide depicts existing product trade routes, as well as prospective routes basically anticipated eastward shift in global refinery capacity. Please turn to Slide 26. Through October we saw a 37% non-deliveries regime with 7 million delivered deadweight out of 11.1 projected. When combined with the 1 million deadweight in scrapping this lead to a 6 million deadweight or 4.4% net fleet growth through October. About 4.7% of the product tanker fleet is 20 years of age or older. As of the end of October, the order book totaled $23.8 million deadweight or about 70% of the fleet, a level usually considered adequate for regular replacement of an existing fleet with little or no demand growth. The order book for 2016 onwards is only $20.3 million deadweight. General listing price of the period depend on overall steel prices and not the supplier vessels. Please turn to Slide 28. As global demand for energy continues to grow, major oil companies and oil producers should seek to secure more vessels on longer term charters, while there is always these seasonality healthy rates are projected going forward. Note, on the right hand graph there were 60 fixtures of longer time term time charters through early November, which has double the number of long-term fixtures for 2014. Please turn to slide 29. The IMF projected global GDP growth for 2015 and 2016 at 3.1% and 3.6% respectively led by emerging and developing markets growth of 4% in 2015 and 4.5% in 2016. Increases in world GDP growth year-on-year have generally led to higher time charter rates in vessels as we have seen since the middle of last year. The IEA’s forecast of global demand for 2015 has been raised seven times this year most recently to 94.5 million barrels per day or an increase of 1.7 million barrels per day, the largest yearly increase in five years. The IEA further increased its forecast for 2016 to 95.6 million barrels per day on a persistent macroeconomic strength. Please turn to Slide 30. According to the April IMF report, the largest oil consumers and importers will benefit from the recent drop in oil prices. The top five crude oil importers are expected to get a GDP increase as a result of lower oil prices. This could move global output by 0.5% to 1% higher into 2016 and is one of the reasons that the IEA once again recently raised its oil consumption estimates for this year and next. Lower oil prices and increased consumption has been beneficial for VLCC period rates as you can see in the lower graph. Please turn to Slide 31. As noted on top half of slide 31, in terms of ton miles, the movement of crude from West Africa and South America and China uses about as many VLCCs as the movement from the Arabian Gulf - even though the Arabian Gulf shipped 1.9 times more oil to China. The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa, as it diversifies its sources of oil. In addition with U.S. shale production decreasing slightly, there has been an increase in VLCC movements from the AG to U.S. Gulf. Other half of the slide shows that spot fixtures are following this trend as long haul trades fixtures have increased substantially this year over the last year. Please turn to slide 32. China is the world's second largest consumer of oil, importing more than half of its requirements. Chinese imports have more than doubled since January of 2009, representing a 12% CAGR. Crude imports reached a record 7.4 million barrels in April, surpassing U.S. imports for the first time, September imports was 6.8 million barrels per day are just above the year-to-date average of 6.7 million barrels per day. Refinery openings this year will add about 400,000 barrels in crude demand. As you can see on the upper right and in the table below, on a per capita basis, the U.S. oil usage is 7.5 times out of China. European usage is 3.5 times and world usage is 1.6 times. As China grows to world per capita consumption levels, China would require an additional 285 VLCCs, assuming all crude is imported by sea. This represents an expansion of an existing fleet by about 50%. Please turn to Slide 33. Refinery expansion in both the Asia-Pacific and Middle East regions is a key driver to VLCC demand. As the Middle East refines more crude and its expanding refinery network, there will be less crude available for export. As a result, the new refineries being built in the far East will have to secure crude from further away. New refinery requirements additionally requires stockpiling by existing refineries and the SPR fills should all we met by shipment on VLCCs. The uppers graph spotlights the additional crude demand that is likely to come as the Chinese completes remain a 150 million barrels as part of the Phase 2 of the strategic petroleum reserve. Current capacities estimated at just over 200 million barrels because of eight storage facilities with current stores estimate and adapt 15 days of crude inputs whereas the U.S. as the 137 days of cover. Current projections of China's crude oil imports will likely surpass the U.S. this year growing to about 13 million barrels per day in 2015 as the country as - 2035 the country continues the urbanization, industrialization and motorization of its economy. Please turn to Slide 34. Through October 2015, non-deliveries were 24%, 5.3 million deadweight delivered against an unexpected 7 million deadweight and scrapping amounted to 800,000 deadweight. This led to a modest growth of 2.6% so far this year. Thank you. This concludes my review and I would like to turn the call over to Leonidas Korres for the Q2 financial results. Leo.

[Leonidas Korres:]

Thank you, Ted. I will discuss financial result for the third quarter and the nine month period ended September 30, 2015. As shown in Slide 36, our operating metrics for the third quarter of 2015 have significantly improved compared to the same period in 2014. With 37 vessel on water we were able to benefit from the strong tanker market. Revenue from Q3 2015, increased by approximately 12% to $77.7 million from $69.3 million in Q2 2014. We had almost 100% fleet utilization and an increased time charter rate equivalent of $22,551 per day compared with $19,327 per day time charter equivalent of Q3 2014. During the quarter we earned $10 million in profit sharing. Operating and voyage related expenses were $24.2 million and G&A expenses were $3.1 million. Equity in net earnings from affiliated companies was $4.8 million, mainly reflecting our equity portion in Navios Midstream Partners earnings. We continue to have significant EBITDA growth adjusted for the 0.7 million on share based compensation expenses. EBITDA for Q3 2015 increased by 39.2% to $55.2 million from $39.7 million in the same period of 2014. Other expenses include depreciation and amortization of $15.9 million and interest expense and finance cost of $17.9 million. Net income increased to $23.2 million or $0.15 per share from a net income of $1.7 million in Q3 2014. Turning to the financial results for the nine months period ended September 30, 2015. Revenue increased by 23% to $236.7 million from $192.5 million last year, reflecting a time charter equivalent of $22,538 per day and 99.7% fleet utilization. During the nine month, we earned $26.2 million through profit sharing. Operating and voyage related expenses were $74.7 million and G&A expenses were $10.2 million. The equity net earnings from affiliated companies for the nine month period was $11.9 million. Adjusted to exclude $5.8 million gain on sale of VLCC Navios [indiscernible] to Navios Midstream Partners and $2 million from non-cash sale based compensation expenses. EBITDA for the nine month of 2015 increased by 48.7% to $164.4 million from $110.5 million in 2014. Depreciation and amortization was $46.6 million and net interest expense and finance cost was $55.2 million. As a result, net income for the nine month period of 2015 increased to $69.6 million. Slide 38, provides a latest balance sheet data as of September 30, 2015. Cash and cash equivalents including receivable cash was $81.4 million. Net booked value of our 37 vessels fleet as of September 30, 2015 was 1.3 billion. Investment in affiliates was $185.5 million mainly reflects Navios Acquisition subordinated units in deep interest in Navios Midstream Partners accounted for under the equity method. Total assets amounted to $1.7 billion. Total debt as of September 30, 2015 decreased by $45 million compared to December 31, 2014 to $1.1 billion. As a result, net debt to book authorization ratio declined by approximately 6% to 62.4%. As of September 30, 2015, Navios Acquisition was glad with all with all of the covenants of its credit facilities and fleet mortgage notes. Turning to Slide 38, our financial strength has enabled us to announce a dividend of $0.05 per share for third quarter, equivalent to $0.20 per share on an annualized basis providing a yield of about 5.7%. The dividend will be paid on December 31, 2015, to shareholders on record as of December 17, 2015. Furthermore year-to-date, company has provided an additional return on capital equal to 1.7%, while repurchasing 2.5 million common shares, under its $50 million share repurchase program. At this point, I would like to highlight that given our 60.9% ownership in NAP, we expect to receive in 2016 a minimum of $22.4 million in dividends from NAP at an expected distribution of $1.75 per unit. Please turn to Slide 39. Navios Acquisition has a prudent financial strategy. Approximately 60% of our debt is non-amortizing and expiring at the end of 2021, providing significant cash flow flexibility. Overall, our financial structure provides lenders additional comfort relating to the stability of our balance sheet. Our liquidity position is strong and we have significant cash flow visibility since 99.8% of our available days are contracted in 2015 and 51.5% in 2016. With profit sharing is a majority of our contracted base and with our vessels open [indiscernible] in an improved rate environment we are well positioned to benefit from the strong tanker market. Moreover, Navios Midstream Partners provides a platform to increase liquidity and grow through the dropdown of vessels at favorable prices into the MLP. And now, I will pass the call back to Angeliki. Angeliki.

[Angeliki Frangou:]

Thank you, Leo. This completes our formal presentation. We'll open the call to questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Mike Webber of Wells Fargo.

[Donald D. McLee:]

Hi, this is Donald stepping in for Mike. Congrats on the call guys. Looking at the purchase price of the two VLCC's, they look generally in line with the view that your asset value had foot lowered from peak summer levels. Can you comment on your forward view on assets and just the idea of a generalize upwards NAV largely played out within the tanker space given downward pressure from new building availability or is that primarily other factors driving the downward pressure.

[Angeliki Frangou:]

Don well I think beyond the asset prices as on anything else, but the vessels that we selected and the purchases we did. The way we did is with rather more than vessels which prompt on delivery, immediately you can put cash flows into that those vessels, we showed that within two years on that 42,000 creating EBITDA and actually eliminating the residual value risk. So I don’t comment on general values that could have different fact. The acquisitions that NNA likes is things that are at the good prices, strong deliveries, immediate cash flows and eliminating the residual value risks.

[Donald D. McLee:]

Got you. Thanks for that color. And then thinking about your current cash flow position and optionality moving forward, it seems like this is still the preference for the leveraging and share repurchases relative to increase in dividends. What is your current leverage target and how should we think about the potential timing for increasing distributions moving forward, would you call that more of second half of 2016 or could it be more near-term?

[Angeliki Frangou:]

Let's go the leverage. A target of the company to delever and this is something that you have seen with a improvement on our grading ratio and even recent position is an evidence of the directional that we are going. We like to delever to about 50% below 50%, but the other priorities to return capital and NNA has been great, very direct and very particular about that our policy. We have returned dividend, quarterly dividend from a long time, this is giving almost 6% and we have a share repurchase program of 50 million that under these program report 2.5 million share this quarter that added to about 2%. So your total return to that investment is six plus two is 8% return and this is in a tax attrition way and is actually producing the best result with the bottom line. if you take this together you know a to our stakeholders is over a 50% of our net income and is down already, because the vessels are in the water, our full fleet in the water and is producing these cash flows in today's market.

[Donald D. McLee:]

Got you. I Appreciate the color. Nice seeing you guys.

[Leonidas Korres:]

Thank you.

[Operator:]

Your next question comes from the line of Amit Mehrotra of Deutsche Bank.

[Amit Mehrotra:]

Yes, thank you very much. Good afternoon everybody. Angeliki you just said the target is to get to below 50% leverage, but I think that that's - correct me if I'm wrong, but I think it's highly dependent on where you are in the cycle. And you and the rest of the management team have done a really good job of sort of balancing the cash deployment to take all the boxes, but if you could just talk about where you think you are in the cycle vis a vis the target to deliver to that below 50% level. Because right now, you are sitting pretty well above that and I'm just trying to understand what the slope of the line will be to get to that sub 50% level based on where we are in the cycle? Thanks.

[Angeliki Frangou:]

The number you have could evolve and it’s very difficult to say that what it is exactly. I mean, we are looking at this target at somewhere mid cycle and we see that still we have a good way to go, I mean we are very protective if you see our acquisition showed with the time charters. We do a balance portfolio on our deals having a lot of profit sharing, but on the same side also covering two and three years. So there is a balance approach on this and we see that the target on the levels is somewhere about mid cycle. You see that our credit ratios have improved already and there is a material improvement over a period of 16% to 17%. This transaction we did expect a temporary effect on net debt, you will see that as we are proceeding into 2016, our ratios are very-very improving. so looking on a two, three year horizon you have a very good deleverage in [indiscernible].

[Amit Mehrotra:]

Yes. And one more sort of bigger picture question and then I have a couple for Leo, but and forgive me here, but the stock is you guys have really done everything possible here in terms of delivering on the earnings growth, deleveraging dividends. I mean but your stock is sort of stuck in this level here. I know it's a hard question for you to answer, but is there anything that you can sort of talk about that maybe explains this performance and what else you could do essentially to maybe capture some of this dislocation. I know you are doing the share buyback, but is there a way you can accelerate that or do something to maybe capture this dislocation?

[Angeliki Frangou:]

Listen we have a huge buyback. We bought 2.5 million shares, guess our share price is at the discount to NAV, but in that sense you have to be patient, I mean we are very mindful on returning to our stakeholders and to our investors, very consistent and you will have the performance over time. The good thing is that vessels are in the water generating cash flows and dividends and buybacks today, so you are giving over 50% of your net income today to your investment, not tomorrow, today. So I think that over time will capture the market

[Amit Mehrotra:]

Right. Thanks, Angeliki. Just a few housekeeping items for Leo. Leo can you give us the net leverage pro forma for the acquisition of the two VLCC's or just maybe give us the change the pro forma change in the debt levels and the cash levels both from a…

[Leonidas Korres:]

As Angeliki mentioned, there is going to be temporary increase in Q4 so we will look at around 66% net debt to book authorization pro forma, but going forward with a cash flow generation of the transaction the company will go below 60 in 2016.

[Amit Mehrotra:]

Got it, great. And then the period in share accounts related to the share repurchase program because the 9.2 million that you have done, just wanted to clarify is that for 3Q or is that the total under the $50 million authorization?

[Leonidas Korres:]

This is a total, year-to-date on Q3 we had 1.5 million shares.

[Amit Mehrotra:]

And then the period on share account?

[Leonidas Korres:]

Sorry.

[Amit Mehrotra:]

Sorry. The period and share count?

[Leonidas Korres:]

2.5 million of share repurchase program is year-to-date as of today.

[Amit Mehrotra:]

Okay, got it.

[Leonidas Korres:]

So, probably 1 million shares.

[Amit Mehrotra:]

Okay. Last housekeeping one for me on the profit sharing agreement. The 4Q level should be consistent if not maybe a little bit better than the third 3Q, is that a fair assumption?

[Angeliki Frangou:]

I think that you have seen that we have a very strong generation of profit sharing about 10 million on Q3. I mean as we've seen there is a volatility on the earnings [indiscernible] it was up to 90, down to…

[Ted Petrone:]

In the 50s, but also you had on the product tankers, October is a big month from refinery maintenance. So, they were bit lower back then and they are coming back now in the strong way. So, let's see how it averages out in the end.

[Amit Mehrotra:]

Okay. Very good. Thank you so much, I appreciate it.

[Leonidas Korres:]

Thank you.

[Operator:]

Your next question comes from the line of Christian Wetherbee of Citigroup.

[Prashanth Dev:]

Hi, this is Prashanth in for Chris. I wanted to touch upon something that’s been previously asked on this call already about the dividend. The total 8% return to capital is very attractive and I was just wondering as going forward, when you think about the mix of balance sheet incorporating other priorities. Where would you rank - provide that income component to your shares. I'm thinking specifically, because of the headline sort of - at least one of your peers is giving that as kind of an [indiscernible] towards a low double-digit sort of yield. And not to say that that’s something that you would do, but how do you think about that as far as investors looking at the stock

[Angeliki Frangou:]

I mean, the corporate priorities are very threshold and we articulate, it's deleveraging the balances, which is something on the long-term a very important ingredient for a shipping company. Returning capital to our shareholders via dividend and cash repurchases and opportunistic growth. So, I think this is our priorities and we remain flexible of what we use when. So I think that is a number one - these are our priorities and we have been focused on delivering on those

[Prashanth Dev:]

Okay thanks that’s helpful. And then looking at the two deals this quarter, just looks they were at competitive good prices, just wanted to get a sense of what you are seeing in terms of your acquisition pipeline? Are there incrementally more opportunities in the near-term? I understand, that you are opportunistic and maybe can't disclose everything, but just a sense of how the opportunities that is building up as we look over the next couple of quarters and how resale prices are inflecting especially as we're seeing an increasing in chartering activity and a more stable net fleet growth outlook?

[Angeliki Frangou:]

One of the things that Navios is very strong is that we have a real platform with a lot of engineers, captains and lot of professionals with who can cover these. It is easy to doing a building [indiscernible] vessel, it’s the easiest thing that once that buying vessel for me, directly a dealership. The reality is having the knowledge of every vessel that is in the market and being able and opportunistic when you see weakness on a corporate level on that company to go in bid the asset and get it delivered. Let's not forget that by getting the [indiscernible] in October and November in the seasonally strong period provides quite significant better cash flows, it gives ability to charter a much better environment and a better visibility in eliminating your residual value. I think this is one thing that Navios can provide is knowledge of the market and knowing every vessel that is or - weak time that may change hands. You can always buy a vessel from a dealer.

[Prashanth Dev:]

Okay I appreciate that and yes and the timing as to where the rate cycles right now is very strategic and I appreciate that. Just a couple of housekeeping questions to you. The photon, how meaningful do you expect that to be, as a contribution to 2014 or 2015 or how many days should we be thinking that contributes in the fourth quarter and is there a profit. Do you think there will be a profit sharing elements to that and is there one for this [indiscernible]?

[Leonidas Korres:]

In Q3 the days, you should not [indiscernible] the VLCC s in Q4, we took delivery of one vessel last Friday. The second vessel would be delivered by the end of November [indiscernible].

[Prashanth Dev:]

Okay and is there a profit sharing on - charter disclosed for the Photon, but is there a profit sharing on the circle, is it the straight charter rate that you listed in the press release.

[Angeliki Frangou:]

On the first on the Spherical is a time charter two years and that 42 gross, at 41 - five times than a mix.

[Prashanth Dev:]

Excellent. Thank you very much for you time. Great quarter guys.

[Angeliki Frangou:]

Thank you.

[Operator:]

Your next question comes from the line of Noah Parquette of JPMorgan.

[Noah Parquette:]

Thanks. Just going back to the VLCC acquisition, I wanted to get the sense of how asset values where they may go from here. How competitive was that bidding process, how flexible was the purchase price and maybe give some color that and did the charter come with that deal or was that secured separately afterwards?

[Angeliki Frangou:]

No. The tail was totally separate to the time charter for the employment and to be honest, this is a deal we work for like several months, it was involving a major Chinese company and we worked in a way that we show the opportunity - don’t forget as opportunities come because of corporate balancing they may be irrelevant [indiscernible]. So I think this is a deal and we have done that in the past where we come into market, we see full need to sell what we may be expecting the vessels negotiating for a period and we step in when we think that is attractive.

[Noah Parquette:]

Okay and then with the extension Galactic and new charter in the Neutrino, you have a few vessels that are fixed up to 2017 is that when you look at NAP are those attractive candidates with those charters or would you need something longer I mean as the back step options still in the table for further assets?

[Angeliki Frangou:]

I think and also we are looking also for a longer duration of charters that we negotiate.

[Noah Parquette:]

Okay. And then on your deleveraging can you talk a little bit about how you prioritize the debt that you have and it's just based on the maturity as it the public notes, would those be considered as the repurchases?

[Angeliki Frangou:]

I think if you have seeing the page we have where we have the maturities in page nine. You can see that we have vessels that are coming to the end that of the duration, by paying this kind of facilities that can provide us also with vessels without mortgage that is a draft that gives better flexibility for a balancing. So the reality is going to be mostly on the bank debt, let’s not forget that our bonds and bank debt is about 50/50. So you have the [Indiscernible].

[Noah Parquette:]

Okay. And then I just have one question on the market, I mean Ted it's for you, but we just saw a Chinese exports this import data is showing on this net product exports and they spend really at the record it’s the trend obviously. How is that affecting trade and trade flows in Asia, particularly in diesel exports and where do think changing - kind of how do you think that's plays out in terms of ton mile?

[Ted Petrone:]

Well I think the diesel exports in China are moving the MRs and the specific - you have a lot of refineries. Remember, again we go back to - our total wasn’t a great month for refineries, but the refining margins are coming back from across the world. The U.S. is now putting out more, but I do think what China does really is more for the MR trade, India and the sort of Persian Gulf, Arabian Gulf area helps submit the MRs and LRs together. But I think China has done - they are exploiting more, but if you look at the IEA report that just come out today, they are really looking for a continued strong growth not only in China, but also in India. So the whole pacific region looks very good on the product tankers as going forward and off course through imports.

[Noah Parquette:]

And as the Chinese refined product exports does that stay in kind of local right, I mean it’s not going…

[Ted Petrone:]

Yes, MRs that the MRs are intra ocean and the LR is sort of cross ocean trading is the general rule of thumb.

[Noah Parquette:]

Okay, alright. Thanks. That’s helpful.

[Operator:]

Your next question comes from the line of Magnus Fyhr of JMP Securities.

[Magnus Fyhr:]

Good morning. Congratulations to a good quarter. Just an industry question, maybe you can talk a little bit about your view on the crude tanker market versus product tanker market going forward. I know you laid out a lot of good industry information here making a case for the long-term positive outlook, but definitely product tankers have lagged a little bit towards the crude and most of your acquisitions have been on the crude side.

[Ted Petrone:]

You know the rule of thumb, whatever market you are is the bigger the ship the higher the volatility. So the smaller ships are bringing the profit along, the product tankers are doing very well and of course you have gone pass sort of the hump in the delivery. So going forward, look at the area have 5.5% net fleet growth and product tankers is on the low 20s on the MRs and the high 20s on the LRs. I think it's a very good. I think if you want to look at a baseball terminology, you are probably in the third of what’s in here for both of them. I think on the crude a lot of people are worried about in new building program, but when you drill down the numbers, you would looking in about 90% on paper, nobody is talking non deliveries. If you take that a conservative 20%, you are down to 14% of what the fleet that’s on the water and if you look at the age of the fleet about 20% of that fleet for this year and that number is going to go up is about 15 years are over. So, in terms of the age profile for both the products and the crude, it looks very good in terms of rates going forward for the next few years.

[Magnus Fyhr:]

Alright and then just within the product tanker group, the long range versus the MR, I mean you got exposure to both, I mean the LR once kind of underperformed here, I think vis a vis the MRs. Any near-term thoughts here, I mean, I know we had refinery turnarounds, but how do you see that going into the winter market?

[Ted Petrone:]

Yes and the LR is also - the Saudi and the core OPEC were using more oil during the summer and lot of that was normally now going to be cracked and become naphtha, which is with the LRs are moving out of the [PG AG] (Ph) area. So I think you will be seeing the LRs moving back of also and the MRs stepped up here first in terms of coming off the October low, but we have lot of confidence in LR, we expect it to continue moving forward.

[Magnus Fyhr:]

All right. Thank you.

[Operator:]

Your final question comes from the line of Charles Rupinski of Seaport Global.

[Charles Rupinski:]

Thank you for taking my question and congratulation on the quarter. Most of my questions have been answered, but I guess I was curious about just an industry view on the balance water potential regulations, I know it’s sort of influx right now and I'm wondering what your views are, how that plays out in terms of some of the older vessels and some overall supply and demand. Thanks.

[Angeliki Frangou:]

I'll let Ted speak, but one quick thing that I would like to say is that water balance [indiscernible] the vessels at already have done drydocking, they have some period of excluding, but in general regulation work to go benefit on the demolition and on vessels that have been moved from the supply. So as a rule, I would say that that will be net positive, because we see more vessels from the supply.

[Ted Petrone:]

I think Angeliki you are exactly right. That's why we point to on the tanker side, ships that are more than 15 years of age. I think the balanced water treatment system will have a big impact, those ships get scraped or unutilized, within balance [indiscernible] is here, but as you go forward for us the numbers continue to go down in terms of cost for owners. Remember, this really technically hasn't been ratified, yet although, the U.S. is now saying that they are going to - they are going to be the [indiscernible] here, but don’t thinking the U.S. and the states have gotten together especially California. So it's a bit of mess going into this, but I think everyone is expecting it to be finalized within the next six months. And as Angiliki said, a lot of the ships have been drydocked this year, so by the time you come around five years from now to do your special survey again, I think the quest for balanced water treatment would be non material.

[Charles Rupinski:]

Okay great. Well thanks for the color and thanks again for taking my question.

[Ted Petrone:]

Thank you.

[Operator:]

Thank you. I'll now turn the call to Mrs. Angeliki Frangou for any additional or closing remarks.

[Angeliki Frangou:]

Thank you. This completes our third quarter results. Thank you.

[Operator:]

Thank you for participating in today's conference call. You may now disconnect.