Navios Maritime Partners: A stable and attractive shipping company (Part 9 of 9)
Since its IPO (initial public offering) in November 2007, Navios Maritime Partners’ operational fleet capacity and number of vessels have grown 389% and 275%, repectively. Yet, the company’s distribution per share has grown just 40% from 2008 to 2013.
As a limited partnership, Navios Maritime Partners (NMM) pays out most of the cash available from operations. This means it has to raise capital, either via new shares or debt, to fund vessel acquisitions to grow. This is different from DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), and Navios Maritime Holdings Inc. (NM), which may save cash from operations in order to fund vessel acquisitions when prices and the dry bulk shipping market are depressed.
At the end of first quarter 2014, Navios Partners had $140 million in cash and cash equivalents, supported by a follow-on public offering of 6,325,000 common units at $17.30 per unit in February 2014, which amounted to gross proceeds of $109.4 million. With the 109.4 million in proceeds, the company can raise a debt for fund growth.
However, given a distribution yield of ~10%, Navios Partners will have to find vessels that will together generate more than ~$11 million in annual cash flow available for distribution ($109.4 million x 10%) to the new unitholders. Otherwise, the company can’t maintain its current quarterly distribution per share of ~$0.44 forever, and Navios will have to cut distributions per share in the future, which will negatively weigh down on share prices. Of course, if management can find vessels that will generate more than ~$11 million in additional cash available for distributions, share prices would rise.
Positives and negatives
This brings us to an important point. Distributions will make up investors’ largest share of return, unless distributions per share grow because of market fundamentals. Navios Partners will underperform when the shipping cycle is about to turn up, but note that selling the investment means the investor can be subject to tax, and the investment may still outperform over the long-run as it navigates through the ups and downs of the shipping industry. So, Navios Partners is perhaps more suited for really long-term investments. It’s probably a good idea for investors to consult with their tax account on tax implications before making decisions.
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