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Star Bulk Carriers Reports First Quarter Loss on Higher Costs

Star Bulk Carriers Corp., a global shipping company focusing on the transportation of dry bulk cargoes, announced its unaudited financial and operating results for the first quarter ended March 31, 2019.

Petros Pappas, Chief Executive Officer of Star Bulk, commented:

“Star Bulk announced today its first quarter 2019 financial results, reporting TCE Revenues of $99.0 million, $43.9 million of Adjusted EBITDA and a Net Loss of $5.3 million during a challenging and seasonally weak period of the year, which included approximately 300 off-hire days for scrubber installations. By the end of May 2019 we are on track to have 40 vessels scrubber fitted. We expect to have a fully scrubber fitted fleet by January 2020. Because we expect 2020 to be a more profitable year, we want to maximize the operating days in 2020 and we thus bring forward to 2019 all our drydocks that would otherwise be due in 2020. We expect to undergo 52 drydocks during this year mostly concurrent with scrubber installations which, in combination with 50 at sea installations, will reduce as much as possible our off hire time during 2019.

“Our average TCE for the quarter, including realized freight and bunker hedging, was $11,192 / day per vessel with 96.5% fleet utilization, and average daily Opex and Net Cash G&A expenses per vessel, at $4,015/day and $971/day respectively. As of today, we have fixed a minimum of 76% of our Q2 2019 days at average TCE rates of $10,006 per day.

“We continue being busy on the financing front, having drawn and agreed to refinance approximately $329 million of debt since the beginning of the year, reducing our average margin in these facilities by 217bps. Over the past nine months, we have agreed to refinance approximately $1.04 billion creating savings of about $10 million annually in interest expense, or $250 per vessel day. We have also drawn $22.4 million of scrubber financing with another $112.2 million in place to be drawn later in the year.”

Recent Developments

FLEET UPDATE

In April 2019, entities affiliated with E.R. Capital Holding GmbH & Cie. KG (“E.R.” or “Sellers”) and ourselves mutually waived our respective Put and Call Options relating to the four (4) optional dry bulk vessels (the “Step 2 Vessels”) (the “Step 2 Acquisition”), as previously disclosed in the press release issued on August 29, 2018.

On April 16, 2019, we took delivery of the Newcastlemax vessel Katie K (ex- HN 1388), with carrying capacity of 206,839 deadweight tons, built at Shanghai Waigaoqiao Shipbuilding Co., Ltd. (“SWS”). The vessel is financed under a bareboat lease with CSSC (Hong Kong) Shipping Company Limited (”CSSC”).

On March 6, 2019 and March 8, 2019, we sold and delivered the M/V Star Aurora, a 2000 built Capesize vessel, and M/V Star Kappa, a 2001 built Supramax vessel, respectively, to their new buyers.
DEBT FINANCING UPDATE

On May 8, 2019, we entered into a loan agreement with Citibank N.A., London Branch, the “Citibank $62.6 million Facility”. The aggregate amount of $62.6 million drawn under the respective facility, was used together with cash on hand to pay all the outstanding amount under the lease agreements of M/V Star Virgo and M/V Star Marisa. The Citibank $62.6 million Facility is secured by a first priority mortgage on these two vessels and will mature in May 2024.

In May 2019, we finalized a loan agreement with CTBC Bank Co., Ltd, the “CTBC Facility”, for an amount of $35.0 million which will be used to refinance the outstanding amount under the lease agreement of M/V ABOY Karlie. The CTBC Facility will be secured by first priority mortgage on the respective vessel and will mature in May 2024.

On March 29, 2019, we entered into an agreement to sell the vessel Star Pisces and simultaneously entered into a bareboat charter party contract with SK Shipholding S.A. to bareboat charter the respective vessel for 7 years, with purchase obligation at the expiration of the bareboat term. The amount of $19.1 million provided under the respective sale and lease back agreement was used to pay the outstanding amount of $11.7 million under the NIBC facility.

In April 2019, we drew down an amount of $11.7 million under the Atradius Facility, which was used to finance the acquisition of scrubber equipment. In May 2019, we drew down an amount of $9.4 million and $1.4 million under the DNB $310.0 million Facility and ING Facility respectively, for the same purpose. The undrawn portion of scrubber related financing following these drawdowns stands at $ 112.2 million.
UPDATED SHARE COUNT

During 2019, we repurchased 1,535,322 of our common shares in open market transactions at an average price of $7.45 for aggregate consideration of $11.4 million, pursuant to the previously announced share repurchase program, all of which were canceled and removed from our share capital until the date of this release. Following the cancelation of the repurchased shares, we have 91,750,000 common shares outstanding as of the date of this release.


Employment update

As of today, we have fixed employment for approximately 76% of the days in Q2 2019 at average TCE rates of $10,006 per day.

More specifically:

Capesize / Newcastlemax Vessels: approximately 69% of Q2 2019 days at $10,152 per day.

Post Panamax / Kamsarmax / Panamax Vessels: approximately 73% of Q2 2019 days at $10,131 per day.

Ultramax / Supramax Vessels: approximately 89% of Q2 2019 days at $9,712 per day.

Amounts shown throughout the press release and variations in period–on–period comparisons are derived from the actual numbers in our books and records.

First Quarter 2019 and 2018 Results

Voyage revenues for the first quarter of 2019 increased to $166.5 million from $121.1 million in the first quarter of 2018. Adjusted time charter equivalent revenues (“Adjusted TCE Revenues”) (please see the table at the end of this release for the calculation of the Adjusted TCE Revenues) were $98.3 million for the first quarter of 2019, compared to $81.6 million for the first quarter of 2018. Adjusted TCE Revenues primarily increased as a result of an increase in the average number of vessels in our fleet to 107.3 in the first quarter of 2019, up from 72.0 in the first quarter of 2018. The TCE rate though for the first quarter of 2019 was $10,624 compared to $12,586 for the first quarter of 2018 reflecting the weaker dry bulk market environment prevailing during the first quarter of 2019 compared to the same period in 2018.

For the first quarter of 2019, operating income was $17.2 million, which includes depreciation of $29.8 million. Operating income of $23.3 million for the first quarter of 2018 included depreciation of $21.2 million. Depreciation increased during the first quarter of 2019 due to a higher average number of vessels in our fleet as described above. Operating income declined in the first quarter of 2019 as compared to the first quarter of 2018, because of higher depreciation expense, lower TCE rates as well as the significantly higher dry-docking expense following our management’s decision to bring forward to 2019 all the 2020 dry-docking services in order to install scrubbers and take advantage of the low market environment.

For the first quarter of 2019 we had a net loss of $5.3 million, or $0.06 loss per share, basic and diluted, based on 93,080,589 weighted average basic and diluted shares. Net income for the first quarter of 2018 was $9.9 million, or $0.15 earnings per share, basic and diluted, based on 64,107,324 weighted average basic shares and 64,303,356 weighted average diluted shares, respectively.

Net loss for the first quarter of 2019, included the following significant non-cash items, other than depreciation expense mentioned above:

Unrealized gain on forward freight agreements and bunker swaps of $3.1 million or $0.03 per share, basic and diluted; and
Amortization of the fair value of below market acquired time charters of $0.6 million, or $0.01 per share, basic and diluted, associated with time charters attached to two vessels acquired during the third quarter of 2018. These below market time charters are amortized over the duration of each respective time charter agreement as an increase to voyage revenues.
Net income for the first quarter of 2018, included the following significant non-cash items, other than depreciation expense:

Stock-based compensation expense of $1.1 million, or $0.02 per share, basic and diluted, recognized in connection with common shares granted to our directors and employees; and
Unrealized loss on forward freight agreements and bunker swaps of $0.9 million, or $0.01 per share, basic and diluted.
Adjusted net loss for the first quarter of 2019, was $8.5 million, or $0.09 loss per share, basic and diluted, compared to adjusted net income of $11.9 million, or $0.18 earnings per share, basic and diluted, for the first quarter of 2018. A reconciliation of Net income/(loss) to Adjusted Net income/(loss) and Adjusted earnings/(loss) per share basic and diluted is set forth in the financial tables contained in this release.

Adjusted EBITDA for the first quarters of 2019 and 2018, was $43.9 million and $46.4 million, respectively. A reconciliation of EBITDA and Adjusted EBITDA to net cash provided by/(used in) operating activities is set forth in the financial tables contained in this release.

For the first quarters of 2019 and 2018, vessel operating expenses were $39.1 million and $26.3 million, respectively. This increase was primarily due to the increase in the average number of vessels to 107.3 from 72.0. Vessel operating expenses for the first quarter of 2019 included pre-delivery and pre-joining expenses of $0.3 million compared to $0.4 million in the first quarter of 2018. Excluding these expenses, our average daily operating expenses per vessel for the first quarter of 2019 and 2018, were $4,015 and $3,991, respectively.

During the first quarter of 2019, dry docking expenses amounted to $9.7 million. During the respective period six of our vessels underwent their periodic dry docking surveys, resulting in expenses of $5.6 million and remaining $4.1 million were incurred in connection with upcoming dry dockings. During the first quarter of 2018, none of our vessels underwent their periodic dry docking surveys, but we incurred expenses of $1.1 million in connection with upcoming dry dockings.

General and administrative expenses for each of the first quarters of 2019 and 2018 were $7.2 million and $7.3 million, respectively. Our average daily net cash general and administrative expenses per vessel together with management fees for the first quarter of 2019 were reduced to $971 from $1,101 during the first quarter of 2018 (please see the table at the end of this release for the calculation of the Average daily Net Cash G&A expenses per vessel).

Charter-in hire expense for the first quarters of 2019 and 2018 was $22.6 million and $16.5 million, respectively. The increase is due to charter-in days of 1,740 in the first quarter of 2019 compared to 928 in the first quarter of 2018. In both quarters, the charter in days are attributable to the activities of our subsidiary Star Logistics.

Management fees for the first quarters of 2019 and 2018 were $4.1 million and $1.9 million, respectively. The increase is attributable to the new management agreements entered into in connection with the acquired fleets during the third quarter of 2018.

For the first quarter of 2019 we incurred a gain on forward freight agreements and bunker swaps of $8.3 million, consisting of realized gain of $5.2 million and unrealized gain of $3.1 million. For the first quarter of 2018 we incurred a loss on forward freight agreements and bunker swaps of $0.8 million, consisting of realized gain of $0.1 million and unrealized loss of $0.9 million.

Interest and finance costs net of interest and other income/ (loss) for the first quarters of 2019 and 2018 were $21.8 million and $13.4 million, respectively. The increase is primarily attributable to the increase in the weighted average balance of our outstanding indebtedness of $1,462.1 million during the first quarter of 2019 compared to $1,045.1 million for the same period in 2018.

Liquidity and Capital Resources
Cash Flows
Net cash provided by operating activities for the first quarters of 2019 and 2018 was $12.4 million and $31.6 million, respectively.

The reduction was due to the weaker dry bulk market environment prevailing during the first quarter of 2019 compared to the same period in 2018, which resulted in a relatively lower TCE rate of $10,624 compared to $12,586 for the first quarter of 2018. Despite the increase in the average number of vessels in our fleet, the decrease in TCE rates as well as the increased dry-docking activity during the first quarter of 2019, resulted in a decrease of Adjusted EBITDA to $43.9 million for the first quarter of 2019 from $46.4 million for the corresponding period in 2018. The respective decrease in Adjusted EBITDA was combined with a (i) net working capital outflow of $11.0 million during the first quarter of 2019 compared to a net working capital outflow of $1.8 million for the first quarter of 2018 and (ii) higher net interest expense for the first quarter of 2019 compared to the corresponding period in 2018.

Net cash used in investing activities for the first quarters of 2019 and 2018 was $40.0 million and $71.3 million, respectively.

For the first quarter of 2019, net cash used in investing activities mainly consisted of i) $32.3 million paid in connection with our newbuilding and newly acquired vessels and other capitalized expenses and ii) $31.0 million paid for the acquisition and installation of scrubber equipment and ballast water management systems for certain of our vessels, offset partially by proceeds from the sale of three vessels of $20.4 million and insurance proceeds of $2.9 million.

For the first quarter 2018, net cash used in investing activities mainly consisted of $71.3 million paid for advances and other capitalized expenses for our newbuilding and vessels delivered during the quarter.

Net cash used in financing activities for the first quarter of 2019 was $26.0 million and net cash provided by financing activities for the first quarter of 2018 was $30.5 million.

For the first quarter of 2019, net cash provided by financing activities mainly consisted of:

$175.0 million of proceeds from financing including financing from leases;
offset by:

$194.1 million lease and debt obligations paid in aggregate in connection with: (i) the regular amortization of outstanding vessel financings and capital lease installments, and (ii) early repayment due to the refinancing of certain of our lease agreements and the sale of three of our vessels;

$1.7 million used mainly to repurchase 195,605 of our common shares in open market transactions;

$4.4 million of financing fees paid in connection with the new financing agreements; and

$0.8 million of prepayment fees paid in connection with early repaid debt.
For the first quarter of 2018, net cash provided by financing activities consisted of:

$70.0 million increase in lease obligations, relating to two delivered newbuilding vessels, under bareboat charters;
offset partially by:

$39.5 million paid in aggregate in connection with: (i) the regular amortization of outstanding vessel financings and capital lease installments and (ii) the excess cash for the quarter ended December 31, 2017, which we paid to our lenders pursuant to the cash sweep mechanism in our Supplemental Agreements, during the first quarter 2018.

Full Report

Source: Star Bulk Carriers Corp.

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