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Safe Bulkers, Inc. Bets on Newbuildings To Reduce CO2 Emmissions

Safe Bulkers, Inc., an international provider of marine drybulk transportation services, announced its unaudited financial results for the three and six month periods ended June 30, 2022. The Board of Directors of the Company also declared a cash dividend of $0.05 per share of outstanding common stock.

Management Commentary
Dr. Loukas Barmparis, President of the Company, said: “Key highlights of the second quarter, were a very satisfactory financial performance of $0.40 per share and the delivery of our first Kamsarmax newbuild. We believe that this newbuild with the addition of the others we have on order, will provide us with substantial operational and commercial advantages coupled with a reduction of CO2 emissions per vessel. We believe, our strong liquidity and relatively low leverage will enable us to be flexible with our capital, while still rewarding our shareholders.”

Update on COVID-19, company’s actions and status

The COVID-19 pandemic has had a significant impact on the shipping industry and seafarers in general, as port lockdowns and travel restrictions were imposed globally during 2020 and 2021 and continue in 2022. The Company has worked extensively to find solutions focusing on effectively managing crew changes despite such ongoing port lockdowns and travel restrictions. The Company has also taken measures to protect its seafarers’ and shore employees’ health and well-being, keep its vessels sailing with minimal disruption to their trading ability, service its charterers, continue vessels’ maintenance and dry-dockings and mitigate and address the risks, effects and impact of COVID-19 on its operations and financial performance.

There has been a negative effect from the COVID-19 pandemic on the Company’s results of operations and financial condition during the second quarter of 2022, due to crew repatriation and related costs of about $0.5 million compared to pre-COVID-19 period. Certain delays are also expected in relation to dry-docking durations and schedules due to restrictions imposed in China. Any future impact of COVID-19 on the Company’s results of operations and financial condition and any long-term impact of the pandemic on the dry bulk industry, will depend on future developments, which could impact world trade and global growth.

Conflict in Ukraine

As a result of the conflict between Russia and Ukraine which commenced in February 2022, the US, the EU, the UK, Switzerland and others have announced unprecedented levels of sanctions and other measures against Russia and certain Russian entities and nationals. We intend on complying with these requirements and addressing their potential consequences. While we do not have any Ukrainian or Russian crew, our vessels currently do not sail in tea and we otherwise conduct limited operations in Russia and Ukraine, we will continue to monitor the situation to assess whether the conflict could have any impact on our operations or financial performance.

At-the-market equity offering program

In August 2020, the Company filed a prospectus supplement with the Securities and Exchange Commission (“SEC”), under which it could offer and sell shares of its common stock (“Shares”) from time to time up to aggregate sales proceeds of $23.5 million through an “at-the-market” equity offering program (the “ATM Program”). In May 2021, the Company filed a supplement to its prospectus supplement to increase the capacity under the ATM Program to allow for sales of Shares for aggregate gross offering proceeds of up to $100.0 million.

Since September 27, 2021 the Company has not sold any shares of common stock under the ATM Program. Since the inception of the ATM Program the Company had sold 19,417,280 shares of common stock under the ATM Program with aggregate net offering proceeds to the Company of $71.5 million. Shares of common stock with aggregate sales proceeds of up to $28.5 million remain available for sale. Presently, the ATM Program is inactive.

Redemption of Series C Preferred Shares

On March 30, 2022, the Company issued a notice of redemption of 1,492,554 Series C Preferred Shares representing approximately 65% of the outstanding Series C Preferred Shares. The redemption was completed on April 29, 2022, at a redemption price of $25.00 per Series C Preferred Share, plus all accumulated and unpaid dividends to, but excluding, the redemption date, in the aggregate amount of $38.1 million. Following this redemption, there are 804,950 Series C Preferred Shares outstanding.

Common Stock Repurchase Program

In June 2022, the Company authorized a program under which it may from time to time in the future purchase up to 5,000,000 shares of its common stock. As of July 22, 2022, 1,000,000 shares of common stock had been repurchased and cancelled under the repurchase program.

Fleet update

As of July 22, 2022, we had a fleet of 42 vessels, consisting of 12 Panamax, 8 Kamsarmax, 15 Post-Panamax and 7 Capes with an aggregate capacity of 4.2 million dwt and average age of 10.5 years, having taken delivery of one newbuild Kamsarmax class and one second-hand Capesize class vessel during the second quarter of 2022. In addition, during the second quarter of 2022 we have agreed to acquire one second-hand Capesize class vessel and in the aggregate we have on order 10 newbuilds.

Newbuild deliveries

In May 2022, the Company acquired the first of its 11 ultra eco newbuilds on order, the MV Vassos, a Japanese IMO GHG -EEDI Phase 3, NOx-Tier III, Kamsarmax class vessel. Upon its delivery MV Vassos was sold to a third party and leased back on a bareboat charter basis, for a period of 10 years with a purchase obligation at the end of the 10th year and purchase options after the third year of the bareboat charter, at predetermined purchase prices. In view of the repurchase obligation, the Company has assessed that the transaction be recorded as financing transaction.

Second-hand acquisitions

In April 2022, the Company agreed to purchase the MV Michalis H, a 2012-built, Chinese, dry-bulk, 180,400 dwt, Capesize class vessel for $30.0 million before commissions. The vessel was delivered to the Company in May 2022, and the purchase was funded from the cash reserves of the Company.

In May 2022, the Company agreed to purchase a 2012-built, Chinese, dry-bulk, 176,000 dwt, Capesize class vessel, to be named MV Aghia Sofia, for $31.75 million before commissions. The vessel is expected to be delivered to the Company in August 2022, upon completion of its scheduled dry docking by its current owners, which includes ballast water treatment installation, sandblasting and painting of cargo holds and environmental upgrading with ultra-low friction paints, as per our requirements. The vessel’s purchase will also be funded from the cash reserves of the Company.

Newbuild orders

As of July 22, 2022, the orderbook of the Company, having been increased by two newbuilds in May 2022, consisted in the aggregate of 10 ultra eco, dry-bulk newbuilds, of which seven were Kamsarmax class vessels and three were Post-Panamax class vessels, with scheduled deliveries of one in July 2022 (the Post-Panamax class MV Climate Respect), five in 2023, three in 2024 and one in 2025. All newbuilds on the Company’s orderbook are designed to meet the Phase 3 requirements of Energy Efficiency Design Index related to the reduction of green house gas emissions (”GHG -EEDI Phase 3”) as adopted by the International Maritime Organization, (“IMO”) and also comply with the latest NOx emissions regulation, NOx-Tier III (IMO, MARPOL Annex VI, reg. 13).

Chartering our fleet

Our vessels are used to transport bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes. We intend to employ our vessels on both period time charters and spot time charters, according to our assessment of market conditions. Our customers represent some of the world’s largest consumers of marine drybulk transportation services. The vessels we deploy on period time charters provide us with visible and relatively stable cash flow, while the vessels we deploy in the spot market allow us to maintain our flexibility in low charter market conditions and provide an opportunity for a potential upside in our revenue when charter market conditions improve. The chartering of our vessels is managed by our Managers15 without management commission. The average total chartering commission including 3rd party brokers was approximately 4% during the second quarter of 2022; lower than the standard industry average of 5%, as a result of our Managers’ relations forged over the years with our Managers’ counterparts.

As of July 22, 2022, we employed, or had contracted to employ, 9 vessels in the spot time charter market (with up to 3 months original duration) and 33 vessels in the period time charter (with original duration in excess of 3 months), 12 of which have original duration of more than 1 year, and 11 have original duration of more than 2 years. As of July 22, 2022, the average remaining charter duration across our fleet was 1.1 years.

In May 2022, the Company entered into a long-term period time charter for the Capesize class vessel MV Pelopidas, with forward delivery date in June 2022, for duration of 3 years at a gross daily charter rate of $25,250 plus compensation for the use of the exhaust gas cleaning device (“Scrubber”). The charter agreement also grants the charterer an option to extend the period time charter for an additional year at the same gross daily charter rate. This employment is anticipated to generate approximately US$27.6 million of gross revenue from charter hire and about $5.4 million from scrubber use assuming a $220 spread per metric ton, for the minimum scheduled 3 year period of the time charter.

In June 2022, the Company entered into a long-term period time charter for the Capesize class vessel MV Michalis H, with forward delivery date in September 2022, for a minimum duration of 3 years at a gross daily charter rate of $23,000 plus compensation for the use of the Scrubber. The charter agreement also grants the charterer an option to extend the period time charter for an additional year at the same gross daily charter rate. This employment is anticipated to generate approximately US$25.2 million of gross revenue from charter hire for the minimum duration of 3 years and about $5.4 million from scrubber use assuming a $220 spread per metric ton, for the minimum scheduled 3 year period of the time charter.

During the second quarter of 2022, we operated 41.04 vessels on average earning a TCE of $25,050 compared to 41.49 vessels earning a TCE of $21,098 during the same period in 2021. Our contracted employment profile is presented below in Table 1.

Table 1: Contracted employment profile of fleet ownership days as of July 22, 2022

Debt Profile

As of June 30, 2022 our consolidated debt before deferred financing costs was $432.6 million, including the €100 million unsecured bond issued in February 2022 maturing in 2027. During the first half of 2022, we made scheduled principal payments of $16.6 million and made voluntary debt prepayments of $81.8 million.

The repayment schedule of our debt as of June 30, 2022 is presented in Table 2 below:

Liquidity and capital resources, capital expenditure requirements and debt as of June 30, 2022

We had $139.4 million in cash, cash equivalents, bank time deposits and restricted cash, $135.4 million in undrawn borrowing capacity available under revolving reducing credit facilities and $20.0 million in undrawn borrowing capacity available under a loan agreement in relation to one newbuild vessel. We had paid $58.9 million for our capital expenditure requirements in relation to our orderbook. Furthermore, we had contracted revenue of approximately $393.7 million, net of commissions, from our non-cancellable spot and period time charter contracts excluding the scrubber benefit, and additional borrowing capacity in relation to seven unencumbered vessels and nine newbuilds upon their delivery.

We had a fleet of 42 vessels, an orderbook of ten newbuilds and had contracted to buy one second-hand vessel. The remaining capital expenditure requirements were $319.5 million in aggregate, consisting of $314.6 million in relation to the ten newbuilds on order and the one second-hand vessel contracted to be bought, and $4.9 million in relation to five Scrubbers and two ballast water treatment systems (“BWTS”) retrofits. The schedule of payments of the remaining capital expenditure requirements is $70.8 million in 2022, $158.0 million in 2023, $74.3 million in 2024 and $16.4 million in 2025.

We had $432.6 million of outstanding consolidated debt, including the unsecured bond issued in February 2022, before deferred financing costs.

Liquidity and capital resources, capital expenditure requirements and debt as of July 22, 2022

We had $167.8 million in cash, cash equivalents, bank time deposits, restricted cash, $115.4 million in undrawn borrowing capacity available under revolving reducing credit facilities and $25.0 million in undrawn borrowing capacity available under a loan agreement in relation to one newbuild vessel. We had paid $59.2 million for our capital expenditure requirements in relation to our orderbook Furthermore, we had contracted revenue of approximately $361.5 million, net of commissions, from our non-cancellable spot and period time charter contracts excluding the scrubber benefit, and additional borrowing capacity in relation to seven unencumbered vessels and nine newbuilds upon their delivery.

We had a fleet of 42 vessels, and had placed orders for ten newbuilds and had contracted to buy one second-hand vessel. The remaining capital expenditure requirements were $319.1 million in aggregate, consisting of $314.4 million in relation to the ten newbuilds on order and the one second-hand vessel contracted to be bought and $4.7 million in relation to five Scrubbers and two BWTS retrofits. The schedule of payments of the remaining capital expenditure requirements is $70.5 million in 2022, $157.9 million in 2023, $74.3 million in 2024 and $16.4 million in 2025.

We had $449.1 million of outstanding consolidated debt, including the unsecured bond issued in February 2022, before deferred financing costs.

Environmental Social Governance and Responsibility – Environmental investments – Dry-dockings

The Company continues the retrofit of its vessels with BWTS having installed such systems on 40 out of 42 existing vessels as of July 22, 2022. Furthermore, the Company has installed Scrubbers on 18 out of 42 existing vessels as of July 22, 2022 and has agreed five additional Scrubber installations, for four of its existing Capesize class vessels and for the second-hand Capesize class vessel expected to be delivered in August 2022.

Furthermore, the Company is pursuing a vessel upgrade program during dry-dockings, in the amount of about $2.2 million for 2022, which involves environmental upgrades including application of low friction paints and installation of energy saving devices. The upgrades on the MV Efrossini, MV Pedhoulas Rose, MV Venus Horizon and MV Pelopidas were completed during the first half of 2022, and we expect to implement such upgrades during the remainder of this year in the vessels MV Katerina and MV Sophia.

The Company has scheduled three dry-dockings for the second half of calendar year 2022, with an estimated aggregate number of 57 down-time days during the third quarter 2022 and 35 down-time days during the fourth quarter 2022.

Environmental Social Governance and Responsibility – 2021 Sustainability Report

In July 2022, the Company issued its 2021 Sustainability Report describing the progress of its environmental, social and governance (“ESG”) practices and its vision towards a continuous enhancement of its ESG standards. The report is available for download and can be accessed from the Company’s website using the link: www.safebulkers.com/sustainability

Dividend Policy
On July 27, 2022, the Board of Directors of the Company declared a cash dividend on the Company’s common stock of $0.05 per share which is payable on September 1, 2022 to the shareholders of record of the Company’s common stock at the closing of trading on August 22, 2022. As of July 22, 2022, the Company had 120,663,339 shares of common stock issued and outstanding.

In May 2022, the Board of Directors of the Company declared a cash dividend on the Company’s common stock of $0.05 per share which was paid on June 15, 2022 to shareholders of record of the Company’s common stock at the at the close of trading on June 8, 2022.

In July 2022, the Company declared a cash dividend of $0.50 per share on each of its 8.00% Series C Cumulative Redeemable Perpetual Preferred Shares (NYSE: SB.PR.C) and 8.00% Series D Cumulative Redeemable Perpetual Preferred Shares (NYSE: SB.PR.D) for the period from April 30, 2022 to July 29, 2022, which will be paid on August 1, 2022 to the respective shareholders of record as of July 22, 2022.

The declaration and payment of dividends, if any, will always be subject to the discretion of the Board of Directors of the Company. There is no guarantee that the Company’s Board of Directors will determine to issue cash dividends in the future. The timing and amount of any dividends declared will depend on, among other things: (i) the Company’s earnings, fleet employment profile, financial condition and cash requirements and available sources of liquidity; (ii) decisions in relation to the Company’s growth, fleet renewal and leverage strategies; (iii) provisions of Marshall Islands and Liberian law governing the payment of dividends; (iv) restrictive covenants in the Company’s existing and future debt instruments; and (v) global economic and financial conditions.

Management Discussion of Second Quarter 2022 Results
During the second quarter of 2022, we operated in an improved charter market environment compared to the same period of 2021, with lower interest expenses and increased revenues which also include earnings from Scrubber fitted vessels. During the second quarter of 2022, we had a TCE of $25,050 compared to a TCE of $21,098 during the same period in 2021. The net income for the second quarter of 2022 reached $50.3 million compared to net income of $32.4 million during the same period in 2021. In more detail, the change in net income resulted from the following main factors:

Net revenues: Net revenues increased by 12% to $91.6 million for the second quarter of 2022, compared to $81.6 million for the same period in 2021, mainly due to the increased TCE rate as a result of the improved market, assisted by the additional revenues earned by our Scrubber fitted vessels.

Vessel operating expenses: Vessel operating expenses marginally increased by 1% to $18.6 million for the second quarter of 2022 compared to $18.4 million for the same period in 2021. Certain detailed information for the costs included in the vessel operating expenses are subsequently provided: (i) dry docking expense decreased to $0.9 million related to three partially completed drydockings during the second quarter of 2022, compared to $1.2 million related to two fully and one partially completed dry dockings for the same period of 2021, (ii) spare parts decreased to $1.7 million for the second quarter of 2022, compared to $2.2 million for the same period in 2021, (iii) crew repatriation and related costs decreased to $1.1 million for the second quarter of 2022 compared to $1.3 million for the same period in 2021, as a result of gradual easing of travelling restrictions, (iv) repairs and maintenance marginally increased to $1.3 million compared to $1.2 million for the same period in 2021, (v) insurance cost marginally increased to $1.1 million for the second quarter of 2022 compared to $1.0 million for the same period in 2021 and (vi) lubricants cost increased to $1.4 million for the second quarter of 2022, compared to $0.9 million for the same period in 2021 due to lubricants cost appreciation. The Company expenses dry-docking and pre-delivery costs as incurred, which costs may vary from period to period. Excluding dry-docking and pre-delivery costs of $1.2 million and $1.3 million for the second quarter of 2022 and 2021, respectively, vessel operating expenses increased by 2% to $17.4 million during the second quarter of 2022 in comparison to $17.1 million during the same quarter of 2021. Dry-docking expense is related to the number of dry-dockings in each period and pre-delivery expenses are related to the number of vessel deliveries and second hand acquisitions in each period. Other shipping companies may defer and amortize dry-docking expense and many do not include dry-docking expenses within vessel operating expenses costs but present these separately.

Depreciation: Depreciation expense decreased by $0.8 million, or 6% to $12.2 million for the second quarter of 2022, compared to $13.0 million for the same period in 2021, mainly as a result of changing the estimate of vessels’ residual value, from a scrap rate of $182 per light weight ton to $375 per light weight ton, effective January 1, 2022. The basic and diluted net earnings per share for the three months ended June 30, 2022 would have been $0.38 per share and $0.38 per share, respectively, if there was no change in the estimated scrap value, representing a $0.02 and $0.02 change to the basic and diluted net earnings per share, respectively.

Interest expense: Interest expense decreased to $3.5 million in the second quarter of 2022 compared to $4.1 million for the same period in 2021, as a result of the reduction of the outstanding loans.

(Loss)/Gain on derivatives: Loss on derivatives amounted to $0.3 million in the second quarter of 2022 compared to a loss of $2.3 million for the same period in 2021, as a result of the termination of all outstanding interest rate derivative contracts during the first quarter of 2022.

Daily vessel operating expenses: Daily vessel operating expenses, calculated by dividing vessel operating expenses by the ownership days of the relevant period, increased by 2% to $4,981 for the second quarter of 2022 compared to $4,874 for the same period in 2021. Daily vessel operating expenses excluding dry-docking and pre-delivery expenses increased by 2% to $4,648 for the second quarter of 2022 compared to $4,539 for the same period in 2021.

Daily general and administrative expenses17: Daily general and administrative expenses, which include management fees payable to our Managers and daily company administrations expenses, decreased by 7% to $1,382 for the second quarter of 2022, compared to $1,488 for the same period in 2021, as a result of the weakening of the Euro / U.S. Dollar exchange rate during the 2nd quarter of 2022.

Balance sheet
Right-of-use asset/Lease Liability: As of June 30, 2022, we had classified the asset and liability directly associated with the acquisition of the vessel Stelios Y: as (a) Right-of-use asset and presented it on the balance sheet separately under Fixed assets in the amount of $31.2 million, which represents (i) the advance payments and additional purchase costs paid for the vessel and (ii) the future payments under the 12-month period bareboat charter that commenced in November 2021 net of accumulated depreciation of $1.0 million, and as (b) Current Lease liabilities of $19.6 million, representing the outstanding balance of the present value of the lease payments of the above mentioned 12-month bareboat charter.

Full Report

Source: Safe Bulkers, Inc.

 

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