Safe Bulkers, Inc. Expects Improvement in Profitability
Safe Bulkers, Inc., an international provider of marine drybulk transportation services, announced its unaudited financial results for the three and twelve months period ended December 31, 2020.
Dr. Loukas Barmparis, President of the Company, said: ”Having a consistent strategy for fleet renewal and environmental upgrading, hands on operations and strong balance sheet, we believe we are well positioned to take advantage of a strengthening charter market.”
Update on COVID-19, Company’s actions and status
There has been a negative effect from the COVID-19 pandemic on the Company’s results of operations and financial condition year to date, due to lower demand which resulted in relatively lower charter rates, and higher crew and related costs. 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 are highly uncertain and cannot be predicted, including any potential third wave of the pandemic and any new potential restrictions imposed as a result of the virus, new information which may emerge concerning the severity of the virus and/or actions taken to contain or treat its impact, including distribution and effectiveness of the vaccines, as well as political implications that could further impact world trade and global growth.
The COVID-19 pandemic had significant impact on the shipping industry and our seafarers as port lockdowns were imposed globally in 2020 and certain ports that have since reopened have subsequently closed again for crew changes. The Company has worked extensively to find solutions focusing on effectively managing crew changes despite the ongoing port closures and travel restrictions imposed by governments around the world. 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 and mitigate and address the risks, effects and impact of COVID-19 on our operations and 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 may offer and sell shares of its common stock (“Shares”) from time to time for up to aggregate gross offering proceeds of $23.5 million through an “at-the-market” equity offering program (the “ATM Program”). As of February 12, 2021, the Company had not offered to sell and has not sold any Shares under the ATM Program.
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.
In December 2020, the Company agreed the early termination of an existing charter of the Capesize-class vessel MV Lake Despina, which was contractually due to expire in January 2024. In exchange for the early redelivery of the vessel, the charterer paid the Company cash compensation of about $8.1 million, 50% of which was received in December 2020, and the balance in January 2021. The vessel was redelivered in February 2021 and was subsequently deployed under a new period time charter with a different charterer for a duration of 12 to 14 months at a gross daily charter rate linked to the 5 TC Baltic Exchange Capesize Index (“BCI-180 5TC”) times 119%.
Orderbook and financing
During the fourth quarter of 2020, the Company, as part of its plan to implement a gradual fleet renewal with modern, energy efficient vessels, entered into agreements for the acquisition of two Japanese dry-bulk newbuild vessels, one Kamsarmax class, 82,000 dwt and of one Post-Panamax class, 87,000 dwt, with scheduled deliveries within the first half of 2022 and the third quarter of 2022, respectively. The vessels are designed to meet the Phase 3 requirements of Energy Efficiency Design Index, (”EEDI Phase 3”) related to the mandatory reduction of green house gas emissions, 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).
Concurrently with the ordering of the newbuild vessels, the Company has concluded the financing arrangements: i) for the Kamsarmax newbuild, a sale and lease back through a ten-year bareboat charter agreement for 90% financing with a purchase obligation at a predetermined price on termination and purchase options after the third year in the Company’s favor, and, ii) for the Post-Panamax newbuild, a new term loan facility of up to 60% post-delivery financing and an increase of the existing revolving credit facility from $20 million to $30 million, the maturity of which was extended from 2022, by up to 2 years.
Vessel sales and second hand acquisition
In the framework of fleet renewal the Company has entered into memoranda of agreements for the sale of two of its older vessels and for the acquisition of a 2011 second-hand Panamax.
During the last quarter of 2020, the Company made available for sale, a 2003-built, Panamax class, dry-bulk vessel, the Paraskevi. In January 2021, the Company signed an agreement for its sale at a price of $7.3 million before commissions with expected delivery date in March 2021. As of February 12, 2021, the respective outstanding loan balance of about $4.0 million, net of deferred finance charges, which was secured by the vessel, has been repaid. Upon consummation of the sale transaction, we expect that our debt will be decreased by $4.0 million and our liquidity will be increased by $3.2 million and expect to incur a non-cash loss on sale of asset in the approximate amount of $0.3 million.
During January 2021, the Company made available for sale a 2004-built, Panamax class, dry-bulk vessel, the Vassos, and signed an agreement for its sale at a price of $8.7 million before commissions. The respective outstanding loan balance of about $6.0 million, net of deferred finance charges, which is secured by the vessel, will be repaid prior to the expected conclusion of the sale in April 2021. Upon consummation of the sale transaction, we expect that our debt will be decreased by $6.0 million and our liquidity will be increased by $2.5 million and expect to incur a non-cash loss on sale of asset in the approximate amount of $1.0 million.
Upon consummation of both sale transactions, we expect that our debt will be decreased by $10.0 million in the aggregate and our net liquidity will be increased by $5.7 million in the aggregate.
In February 2021, the Company entered into an agreement for the acquisition of a Panamax class, 2011 Japanese-built, dry-bulk, 75,000 dwt at a price of $14.0 million before commissions, which will be funded from available cash. The vessel, which is sister-ship with two of the Company’s existing vessels, is scheduled to be delivered within February 2021 and has been chartered for 11 to 14 months at a gross daily charter rate of $13,800.
Mezzanine equity redemption and financing
In February 2021, a Company’s subsidiary issued a notice of redemption for all issued and outstanding shares of series A cumulative redeemable perpetual preferred stock, recorded as mezzanine equity (the “Mezzanine Equity”) with a redemption price of approximately $18.1 million, including the accrued dividend. The Mezzanine Equity was issued in 2018 to a third party investor in relation to the financing of the then newbuild vessel Pedhoulas Cedrus. The redemption is expected to be completed within February. In addition, the Company entered into a sale and lease back of Pedhoulas Cedrus through a bareboat charter agreement with a purchase obligation at a predetermined price on termination and purchase options after the third year in the Company’s favor. This agreement will be consummated concurrently with the share redemption. The net increase of our liquidity from this refinancing is expected to be $6.4 million.
As of December 31, 2020, we had liquidity of $171.2 million, which included cash and cash equivalents, time deposits, restricted cash and funds available under the sale and lease back agreements, new term loan agreement and the revolving credit facility. Our aggregate remaining capital expenditure requirements for the acquisition of the two newbuilds as of December 31, 2020, amounted to $52.0 million, of which $0.6 million is payable in 2021 and $51.4 million in 2022.
As of February 12, 2021, we had liquidity of $184.3 million, which included cash and cash equivalents, time deposits, restricted cash and funds available under the sale and lease back agreements, new term loan agreement and the revolving credit facility. Our aggregate remaining capital expenditure requirements for the acquisition of the two newbuilds and the second hand vessel, which will be debt-free, were $64.0 million, of which $12.6 million is payable in 2021 and $51.4 million payable in 2022.
Management Discussion of Fourth Quarter 2020 Results
Statements of Operations
During the fourth quarter of 2020, we operated in a relatively weaker charter market environment with lower operating and interest expenses compared to the same period in 2019, while our revenues were partly supported by the additional earnings from scrubber fitted vessels, the operation of one additional newbuild vessel from April 2020 and reduced voyage expenses. The net effect is reflected in our reduced TCE of $12,319 for the fourth quarter of 2020, compared to $13,707 during the same period in 2019. The net income for the fourth quarter of 2020, amounted to $7.6 million compared to net income of $3.6 million during the same period in 2019. In more detail the change in net income resulted from the following main factors:
Net revenues: Net revenues decreased by 2% to $52.2 million for the fourth quarter of 2020, compared to $53.2 million for the same period in 2019, mainly due to the reduced TCE rate because of a weaker market, partially offset by the additional revenues earned by our scrubber fitted vessels and the additional vessel delivered in 2020.
Voyage expenses: Voyage expenses decreased to $4.7 million for the fourth quarter of 2020 compared to $5.1 million for the same period in 2019, as a net effect of decreased vessel repositioning expenses and lower loss on bunkers sales and the inclusion in 2020 of bunker consumption costs for scrubber fitted vessels under charter agreements which provide for variable consideration based on the bunker consumption.
Vessel operating expenses: Vessel operating expenses decreased by 20% to $15.4 million for the fourth quarter of 2020 compared to $19.2 million for the same period in 2019, which is associated with reduced dry-dockings and provision of technical services and increased crew repatriation expenses due to the COVID-19 pandemic in 2020. In more detail the changes were: i) spares, stores and provisions of $2.8 million for the fourth quarter of 2020, compared to $4.4 million for the same period in 2019, ii) repairs and maintenance of $0.8 million for the fourth quarter of 2020, compared to $1.5 million for the same period in 2019, and iii) dry docking expense of $0.1 million related to one partially completed dry docking during the fourth quarter of 2020, compared to $2.1 million related to five fully and one partially completed dry dockings for the same period of 2019, partly offset by the increase in crew wages, repatriation and related costs of $9.1 million for the fourth quarter of 2020 compared to $8.3 million for the same period in 2019. 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 $0.1 million and $2.1 million for the fourth quarter of 2020 and 2019, respectively, vessel operating expenses decreased to $15.3 million for the fourth quarter of 2020 compared to $17.1 million for the same period in 2019, despite the increased crew repatriation expenses due to COVID-19. Dry-docking expense is related to the number of dry-dockings in each period and pre-delivery expenses to the number of vessel deliveries and second hand acquisitions in each period. Certain other shipping companies may defer and amortize dry-docking expense and others do not include dry-docking expenses within vessel operating expenses costs and present these separately.
Depreciation: Depreciation increased by 8% to $13.9 million for the fourth quarter of 2020, compared to $12.9 million for the same period in 2019, as a result of the commencement of depreciation of environmental investments that were completed following the third quarter of 2019 and depreciation of the newbuild delivered during the second quarter of 2020.
Interest expense: Interest expense decreased to $4.3 million in the fourth quarter of 2020 compared to $6.2 million for the same period in 2019, as a result of the decreased USD LIBOR12 affecting the weighted average interest rate of our loans and credit facilities.
Daily vessel operating expenses: Daily vessel operating expenses, calculated by dividing vessel operating expenses by the ownership days of the relevant period, decreased by 22% to $3,978 for the fourth quarter of 2020 compared to $5,103 for the same period in 2019. Daily vessel operating expenses excluding dry-docking and pre-delivery expenses decreased by 13% to $3,955 for the fourth quarter of 2020 compared to $4,540 for the same period in 2019.
Daily general and administrative expenses14: Daily general and administrative expenses, which include management fees payable to our Managers and daily company administrations expenses, increased by 4% to $1,469 for the fourth quarter of 2020, compared to $1,414 for the same period in 2019, as a result of the increase of the management fees associated to the strengthening of the exchange rate of Euro versus USD, partly offset by the lower company administration expenses.
Source: Safe Bulkers Inc.