I can not understand why they dont adjust distribution payout to current real operating surplus. They are paying out 20% than real operating surplus (so 20% is just return of capital but the cash they cen return will soon finish). With $1.4 of real annual operating surplus NMM would be still offering really attractive and strong yield without being questioned about distrubution securing.
It is better to be $1.40 and 12% yielding stock with potential of distribution rising than being $1.77 stock and 15% yield being questioned, at risk of lowering and comprising in 20% of return of capital.
Keebon thank you for the info. I went through these numbers and run estimated +/- effect of these updated rates. The result is increase by $3.8m in operating surplus for Q2-Q4 2015 in total.
Then the gap between operating surplus vs total distribution in 2015 will be not as previously estimated of $-33.5m but $-29.7m. As you can see the difference is not material and still there is issue of paying much more then generating. operating surplus.
The total payout for 2015 if they want to maintan $1,77 per share is $152.4m so the deficit of operating surplus of $29.7 in 2015 still makes big gap.
Could you send me the details of these increases. My email is marek602 at yahoo com
I will check it, however if your calculation is right and increase of revenues is just $1.3m that will not change the situation that NMM is still will be short of app. $7m per quarter (!) to fully secure $38.1m distribution level.
Yes they can increase the debt even more, maybe even 100% leveraged purchase of second container but that does not change the situation that NMM is paying 15%-20% higher distribution than their operating surplus. No possibility to maintain such situation. They have just $30m cash left, out of this $7-8m is eaten with each quarterly distribution. For 1Q they are paying $38m while operating surplus was $27.6.
How do you think this will end up?
There will be share offering since they do not have enough money to close the deal. NMM already (on April 16, 2015) entered into a term loan facility agreement to finance container purchase but this facility was for $83m (you can check it in their quarterly report), they also put $15m as deposit for this vessel. So it gives $98m funding secured. The purchase price is $148m so still lacking $50m. They have app. $34m of cash left on its balance sheet after payment for Cristina and May distribution.
I do not know if this will crash so deep but I do expect share issuance in May or June to finance cash part for second 13.100 TEU container. Probably 7-8% share dillution.
I do not expect cutting the distribution till end of 2015 (despite I wish so to fully adjust distribution to operating surplus of app. $1.4) because NMM is consuming cash from latest share issuance to pay out distribution of $0.4425 per quarter (despite generating just $0.35 operatiing surplus per q).
But I do not expect double hit (new share issuance and cutting the distribution) since it might hit share price hard.
Even with adjusting distribution to real operating surplus NMM can still pay healthy $1.40 so why would you expect $9. BAC target of $12 is still reasonable.
I prepared analysis of NMM distribution coverage however yahoo does not allow to put the link here so I put the link on investor village page in SFL board (there was no board for NMM).
You are still taking incorrect distribution value it is not $37.5m
It is $38.1m with a split:
a. $36.8m to going to common units
b. $1.3m to GP units (General Partner)
see slide no 10 from NMM presentaion on 1Q 2015 results
If you then compare $27.6m from their operation surplus you derive 72.5% distribution coverage in 1Q 2015
I will run the figures for full year distribution coverage but I can tell you from what I already anaysed that I have some doubts on the full coverage for this year distribution without eating cash balance. I am also cautious and doubtful on possibility ot second 13.100 TEU container purchase withous durther stock dilution. But I will provide you with my analysis on Sunday.
Not sure how they arrived to 80% distribution coverage in Q1 2015. It was 75% for common units ($36.8m)
Operating surplus was $27.6m while total distributions (common units and GP units) was $38.1m so the distribution coverage was just 72.5%.
I think you are incorrect on 3Q coverage because Fulvia contract expires in September 2015 so this will impact 3Q cash flow. But I did not run the numbers in details. Do you have any excel file I could verify?
GOV purchased SIR shares mainly using debt so the increase in debt is a result of SIR purchase.
Buying SIR in 28$-31$ range was total dosaster and overpaying. Management needs to be judged for this. But whats done is done.
$200m just gone, erased from shareholders equity.
GOV owns 24,9m shares of SIR with carrying value on the balance sheet 721m so the carrying value per share is $28.9
SIR is now trading at $22.70 while GOV have av. cost value on SIR shares (after this -$40m valuation adjustment) of $28.9 so still $155m loss is to be recorded into P&L and written down from balance sheet.
As of now the distribution is not questioned but :
1. Increase in interest rates by FED will hit GOV profits as they have leveraged balance sheet. If interest go up by 0.25-0.5% GOV should still maintain current distribution but higher increases will be painful
2. Watch out for covenenat regarding debt/total assets that should not be higher than 60%. If we take into consideration that this SIR proper valuation should finally be reflected in the books then we have this ration over 50% so coming closer into covenant max. level.
In my opinion, in the long term share issuance is inevitable to repay some of the debt but this will dilute shares and affect distribution per share.
On the other hand with SIR now yielding 8.7% and potential debt issuance at 4.5% GOV should consider getting more SIR but at current (!) marekt price with final idea of merger with SIR.
As SIR was conducting merger with CCIT, SIR issued new shares to finance the transaction. SIR was issuing approximately 28.4 million common shares in the merger.
"During the three months ended March 31, 2015, SIR issued 28,453,447 common shares, including 28,439,111 common shares issued in connection with SIR’s acquisition of Cole Corporate Income Trust, or CCIT, on January 29, 2015. We recognized a loss on issuance of shares by an equity investee of $40,771 during the three months ended March 31, 2015 as a result of the per share issuance price of these SIR common shares being below the average per share carrying value of our SIR common shares."
So in summary, new shares issuance by SIR was done at lower issuance price than cost of shares held as investment (SIR shares held by GOV). GOV had to reflect this and made the adjustment of -$40m.
Hope that answers your question.
Agree. May 2016 is key point for 8 dry bulk contracts expiring - hard to predict what market conditions will be at that time.
I think Navios Fulvia contract expiration Sept 2015 will hit top line and bottom line hard.
It is the biggest top line contributor among NMM dry bulk segment contracted at $50.588 per day while similar vessels in NMM fleet are getting app. $30.000 per day.
If NMM get new contract for Fulvia in $30.000 range than this will hit NMM topline by -$7m per annum basis.
The other dry bulk that expires in 2015 (Helios) is a peanut and getting new contract with the previous rate shoul not be a big challange.
But Navios Fulvia is really the issue.
They just lost app. 20% ($200m) of GOV equity on SIR investment. This is not yet presented in the books what makes GOV management even less reliable.
What did you expect when comapny is loosing 20% of its equity?
With debt rising over 1 year by $0.5b and interest rising in the coming future GOV is no longer a safe dividend bet.
Debt at 31 Mar 2014 $0.6b
Debt at 31 Dec 2014 $1.08b
Debt at 31 Mar 2015 $1.14b
SIR is also yielding 8.5% with less risks and less leveraged balance sheet that is not overstated by missed investments.
Now GOV also hits 8.5% what is correct level for RMR and risk/reward level.
Shareholders equity at 31 Dec 2014 $1.29b
Shareholders equity at 31 Mar 2015 $1.23b
Unrecorded loss on SIR investment -$200m
Shareholders equity incl. loss on SIR investment $1.03b
Debt at 31 Mar 2014 $0.6b
Debt at 31 Dec 2014 $1.08b
Debt at 31 Mar 2015 $1.14b
Shareholders equity impact since 31 Dec 2014 = -20% !!!!