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Edited Transcript of CPLP earnings conference call or presentation 5-Feb-20 2:00pm GMT

Q4 2019 Capital Product Partners LP Earnings Call

Piraeus Feb 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Capital Product Partners LP earnings conference call or presentation Wednesday, February 5, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gerasimos G. Kalogiratos

Capital Product Partners L.P. - CEO of Capital GP LLC & Director

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Conference Call Participants

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* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Liam Dalton Burke

B. Riley FBR, Inc., Research Division - Analyst

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Capital Product Partners' Fourth Quarter 2019 Financial Results Conference Call.

We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today, 5th of February 2020.

Statements in today's conference call that are not historical facts, including our expectations regarding cash generation and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates may be forward-looking statements, as such, as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise.

We assume no responsibility for the accuracy and completeness of the forward-looking statements.

We make no prediction of statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [2]

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This earnings call by emphasizing the partnership's common unit distribution track record.

CPLP has 12-year history of paying significant quarterly distributions and thus returning value to its unitholders without ever having faced balance sheet issues and despite having to navigate multiple shipping cycles and the associated volatility in charter rates and asset values.

In particular, since the Partnership's IPO in April 2007, CPLP has paid nonstop distributions to common and preferred unitholders for 51 consecutive quarters, corresponding total payments of approximately $800 (sic) [$801] million.

Adjusted for the recent reverse split, this translates into distributions of $82.10 per common unit between March 2007 and February 2020, and $6.05 per Class B preferred unit from August 2012 through March 2019 when we redeemed the Class B preferred unit series at par.

Going forward, the partnership has increased its common unit distribution by approximately 11%, and set a new quarterly distribution guidance of $0.35 per common unit compared to a previous distribution of $0.315 in view of the acquisition of the 3 Neo-Panamax containers and the partial refinancing of our 2017 credit facility.

While the acquisition of the 3 containers was completed in January 2020, and the refinancing is expected to be only completed later in the first quarter of 2020, the distribution increase becomes effective immediately for the fourth quarter 2019 distribution and the increased distribution will be paid on February 11 to common unitholders of record on February 3.

In addition, our common unit distribution coverage for the last 4 quarters has amounted to 1.7x after setting aside the capital reserve determined by our Board.

As discussed previously, our current annual capital reserve that has been set to equal our debt amortization is quite conservative, as it represents approximately 6% of the charter-free market value of our vessels as of year-end, when our fleet is, on average, less than 8 years old.

Despite the conservative reserve and the increased common unit distribution, we expect our common unit coverage to increase going forward due to the impact of the 3 new vessel acquisitions, the intended refinancing and the increased charter rates that some of our vessels will be earning into 2020, especially after their respective scrubber retrofits.

Now turning to Slide 3. The partnership's net income from continuing operations for the fourth quarter was $5.8 million compared to $3.4 million in the previous quarter.

We are pleased that during the quarter, we announced 2 major transactions. As aforementioned, we completed the acquisition of the 3, 10,000 TEU containers with long-term charters Hapag-Lloyd and we had entered into a term sheet to partially refinance the 2017 credit facility.

Moreover, during the fourth quarter, we successfully installed scrubbers of 3, 5,000 TEU container vessels.

The partnerships are to cover us for 2020 and 2021, including the new acquisitions, corresponds to 92% and 73%, respectively, while the partnerships remaining charter duration stood at the end of the fourth quarter at 4.6 years.

Moving to Slide 4. Revenues for the quarter were $27.7 million, slightly above revenue of $27.6 million during the fourth quarter of '18.

Total expense for the quarter were $18.2 million compared to $16.1 million in the fourth quarter of 2018.

Voyage expenses increased to $1.1 million compared to $0.8 million in the respective period in 2018. Total vessel operating expenses amounted to $7.7 (sic) [$6.7] million compared to $6.9 (sic) [$5.9] million during the fourth quarter of '18.

The increase in operating expenses was mainly due to costs incurred in connection with passing special survey of 4 of our ships. Total expenses for the fourth quarter also includes vessel depreciation and amortization of $7.5 million compared to $7.2 million in the fourth quarter of 2018.

The increase in depreciation and amortization during the fourth quarter of '19 was mainly attributable to the completion of the special surveys and installation of scrubber systems in 3 of our vessels during the second half of 2019.

General and administrative expenses for the fourth quarter of '19 amounted $2 million as compared to $1.2 million in the fourth quarter of '18. The increase reflects costs incurred related to the acquisition of the 3, 10,000 TEU containers. And certain noncash expenses related to the equity incentive plan.

The partnership recorded net income from continuing operations of $5.8 million for the fourth quarter of 2019 compared to $3.4 million in the previous quarter and $6.9 million in the fourth quarter of 2018.

On Slide 5, you can see the details of our operating surplus calculations and determine the distributions to our unitholders compared to the previous quarter.

Operating surplus is a non-GAAP financial measure, which is defined fully in our press release. We have generated approximately $15 million in cash from operations for the quarter before accounting for the capital reserve. We allocated $7.7 million to the capital reserve in line with the previous quarter.

After adjusting for the capital reserve, the adjusted operating surplus amount to $7.5 million, which translates into approximately 1.1 common unit coverage for the increased common unit distribution.

On Slide 6, you can see the details of our balance sheet. As of the end of the fourth quarter, the partners' capital amounted to $406.7 million, a decrease of $474.6 million compared to $881.3 million as of year-end 2018.

The decrease was primarily due to the spin-off of the tanker business. The distributions declared and paid in the total amount of $28.8 million in 2019 and a total net loss of $122.5 million for the year, including an impairment charge of $149.6 million related to the Diamond S transaction. Total debt decreased by $183.5 million to $262.4 million compared to the $445.9 million as of the end of 2018. The decrease is attributable to the prepayment of debt to the tune of $106.5 million in connection with Diamond S transaction and scheduled principal payments during the year. After the acquisition of the 3, 10,000 TEU container vessels and the quarterly debt repayment under our 2017 credit facility at the beginning of the first quarter 2020, our current debt outstanding is $370.2 million and is expected to increase to $405.6 million after we complete the previously announced refinancing of 3 of our vessels.

Finally, total cash of year-end amounted to $63.5 million, including restricted cash of $5.5 million.

Turning to Slide 5 -- sorry, turning to Slide 7. We are pleased that we completed last month the acquisition of 3, 10,000 TEU sister container vessels with long-term charters attached, namely the Athos, Aristomenis and Athenian. All 3 vessels are built in 2011 at Samsung Heavy in Korea and are high-specification vessels. They are among the largest container vessels that are available in the charter market, and hence, quite popular with charters.

All 3 vessels are fixed to Hapag-Lloyd with the charter firm period expiring in April 2024. The gross charter rate for its vessel currently amounts to $27,000 per day, increasing to $28,000 per day for the Aristomenis from October 2020, and from July 2021 onwards for the Athos and the Athenian.

The time charters include 2, 1-year options and $32,500 and 32 -- $33,500 gross per day, respectively. We expect that these new charters would significantly increase the partnership's cash flow visibility and distributable cash flow. With this transaction, we have further diversified our customer base with the addition of Hapag-Lloyd, to our customer base, which is the fifth largest container operator globally, controlling about 1.7 million TEU of capacity and is a member of the [VAC] container operator alliance. The vessels were acquired for a total consideration of $162.6 million. The acquisition of the Athenian was funded with $38.5 million drawn under the term loan entered with Hamburg Commercial Bank. And $15.7 million of cash at hand.

The acquisition of Aristomenis and Athos were funded through a sale and leaseback transaction entered into with the CMB Financial Leasing for an amount of $38.5 million [lease] and $31.4 million cash at hand.

Both financial arrangements bear a cost of LIBOR plus 255 basis points and principal amortization under the Hamburg Commercial Bank credit facility and the CMB Financial Lease amounts to $2.5 million per quarter in total.

Moving to Slide 8. The average remaining charter duration of our fleet is 4.6 years, with 92% charter coverage for 2020 and 73% for 2021.

Three of our ships will roll off their charters during 2020, namely the Cape Agamemnon, the CMA CGM Amazon and the CMA CGM Uruguay.

We discussed the market prospects for our 9,000 TEU container vessels in more detail on the next slide, that is Slide 9.

During the fourth quarter, Neo-Panamax charter rates remained remarkably stable despite the seasonally weaker demand towards the end of the year.

Currently, there are no idle 8,000 TEU vessels or larger. The idle fleet is presently estimated at 6% of the total fleet, but this includes a number of post-Panamax container vessels being retrofitted with scrubbers.

The remaining idle vessels are below 8,000 TEU in size, mostly figures below Panamax size.

Demolition for full year 2019 amounted to approximately 179,000 TEU compared to 119,000 TEU for the full year of 2018.

In terms of the order book, at the beginning of January 2020, it stood at 2.4 million TEU, equivalent to 10.6% of the total fleet.

Looking ahead, initial analysts forecasts expect slightly improved demand growth at 2.8% for 2020 compared to 2019, but still below vessel capacity growth, which is estimated at 3.1%.

These estimates, however, do not take into account vessels out of service for scrubber retrofits, as it is estimated that on average, approximately 1.9% of fleet capacity for the full year of 2020 will be offline for scrubber retrofits, thus continuing to materially restrict vessel supply.

It is currently too early to say what the impact of the Coronavirus is going to be on the global economy and, in turn, on container vessel demand, but it will almost certainly delay scrubber retrofits as [CPRs] are working at reduced capacity and service engineers have difficulty traveling in and out of China.

In addition, the implementation of IMO 2020 at the beginning of the year, so the price differential between compliant fuel and high-sulfur fuel widened significantly.

If the spread continues to remain at or close to present levels, it has the potential to further restrict vessel supply, as operators and owners may decide to send more vessel for scrubber retrofits and reduce selling speeds across their operating fleets.

In this environment, demand for post-Panamax vessels and especially wide beam eco-container vessels with high reefer intake, like our 9,000 TEU containers coming off charter this and next year remains robust.

Over the coming months and as we enter the seasonally more active period for operators, which we'll engage with potential charters for the employment of these vessels with the aim of striking the right mix between charter rate and charter duration.

Now turning to Slide 10. As previously discussed in our press release of 18th December, we have entered into a term sheet with ICBC Financial Leasing for the sale and lease back of 3 vessels currently mortgaged under 2017 credit facility for total amount of $155.4 million. The estimated repayment amount required to release the 3 vessels under the 2017 credit facility based on the current principal amount outstanding and vessels charter free fair market values as of year-end 2019 is $119.9 million.

Principal repayments under the ICBC lease amount to $2.8 million per quarter. The lease bears the cost of LIBOR plus 260 basis points and has a duration of 7 years after drawdown, including a mandatory purchase obligation for the partnership at the end of the lease at a predetermined price of $77.7 million in total.

In addition, the Partnership has various purchase options commencing from the first year of the lease.

Moving to Slide 11. We expect this transaction to lower our debt amortization costs and decrease the Partnership's liquidity. In particular, upon completion of the transaction, debt amortization under the 2017 facility and the ICBC lease will amount to $27.4 million per year. This compares to $30.8 million currently paid under our 2017 credit facility, which results in $3.4 million in annual debt amortization savings.

Moreover, the partial refinancing is also expected to generate approximately $35.4 million of additional liquidity, as we expect to receive $155.4 million from ICBC and repay $119.9 million under the 2017 facility.

On Slide 12, we outlined our fleet scrubber retrofit program. As previously highlighted, during the fourth quarter, we completed scrubber retrofits on 3 vessels, increasing the number of ships in our fleet retrofitted to 4, as the scrubber installation of the Agamemnon was completed in the third quarter of 2018.

Out of the remaining 3 vessels, one of our 5,000 TEU vessels has seen its scrubber retrofit completed and is completing sea trials as we speak. The remaining 2 vessels currently at the CPRs are expected to complete the retrofit in late February or early March, but is subject to delays associated with the Coronavirus outbreak.

I would like here to remind you that for our 5,000 TEU container vessels, maximum off-hire is capped at 12 days.

Moving to Slide 13. I would like to conclude by saying that the Partnership will continue to see growth opportunities across different shipping segments, with the aim of increasing long-term distributable cash flows. We will continue to seek opportunities in the container segment, as the container industry offers longer period employment that fits well with our business model. However, we remain open to other types of investments, including LNG carriers and tanker vessels, if there's suitable employment that fits our business model.

On this slide, you see a summary of certain assets that are currently controlled by our sponsor. And depending on their employment profile could be of interest to CPLP.

In addition to these assets, we continue to seek opportunities in the second-hand market. Given our expected cash flow generation going forward and subject to our ability to raise additional capital, if required, we believe that we are well positioned to further grow the Partnership in the coming quarters, which, in turn, can help us deliver further common unit distribution growth along the lines of the recently announced common unit distribution increase. And with that, I'm happy to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [2]

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This is Ben Nolan from Stifel. You do an extremely thorough job, makes it hard to ask more questions, but I'll do my best. The -- I was curious, if maybe you could talk a little bit about the thinking on the distribution increase, appreciating that there was the what we think is a really nice vessel acquisition. But at the same time, there's 4 vessels that are coming off contract in the next year or so, where -- at least for the containerships, the market looks pretty promising, but it's kind of unknown. So could you maybe talk through sort of how you're balancing that uncertainty against the decision to increase distributions.

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [3]

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Ben, that gives me an opportunity, I think, to answer 3 questions. Firstly, how we thought about the distribution. Secondly, on the rechartering of the Cape, which is obviously going to be rechartered at lower rates, as well as what we see in terms of the 9,000 TEU containers. So bear with me, I will use your question to answer all those issues.

So first, starting with the increase in the distribution. I mean, the accretion of the drop-downs going forward as well as the refinancing is obviously higher than the $0.035 quarterly increase. But I think apart from the obvious that we wanted to share a part of this accretion with our unitholders, for us, it's also effectively a signal for the following things. Firstly, I think it's a very strong signal that the current distribution is safe and sustainable, given the long-term employment profile of our vessels. And that we also feel very comfortable with the rechartering prospects of the 4 vessels that come up for charter renewals this and next year, and I will get back to this.

Secondly, I think it's a signal that we can deliver substantial distribution growth as we complete acquisitions. In this case, we grew the distribution by 11%. And I think if we can make accretive transactions like the one we just completed, we hope to be able to deliver similar annual distribution growth going forward.

Thirdly, we still want to balance distribution growth and returning value to unitholders with growing the partnership and replenishing our fleet and achieving scale that we believe in turn will enhance our equity valuation. We are currently trading at a yield of excess 11% despite the strong distribution coverage we have delivered so far as well as the distribution increase, and we expect that, if anything, distribution coverage is going to increase going forward. Hopefully, as we execute on our business plan, we will be able to achieve a lower cost of capital that will allow us in turn to achieve more accretive transactions going forward.

So that's the rationale on the -- if you want, on the distribution growth. But to your question on the rechartering risk, if I may start with the Cape Agamemnon. The Cape Agamemnon charter expires in late June 2020. She's currently fixed at a legacy rate of $42,200 per day, while market today for 12 months charter should be closer to $12,000 to $13,000 for a nonscrubber-fitted ships.

Expectations, of course, that also are partly reflected in that number is that the market will recover from the current sub OpEx lows that we experienced. But if we assume for a moment that we will fix around those levels, $12,000, $13,000, that's a loss of about $30,000 per day of EBITDA or annualized a bit less than $11 million.

But then if you just think about the uptick that we'll have from the HMM vessels, which compared to last year is an uptick, including the scrubber retrofit per ship of just short of $11,000 per day for its ship. This translates into approximately $54,000 per day across the 5 ships. So net positive compared to what we lose with the Cape Agamemnon is still $24,000 or approximately $8.6 million per year.

So the -- what I'm trying to say is that the effect of any charter renewal for the Cape Agamemnon will be more than offset from whatever is already locked in terms of higher rates.

Now with regard to the Cape Agamemnon, I'm not saying necessarily we're going to fix and keep the vessel. As I have said in previous calls, we will decide closer to its redelivery and be speculative about it whether we fix her for -- on long term or we sell and replace her with a more appropriate asset class.

And now finally, turning to our 9,000 TEUs vessels, which is the real elephant in the room, if you want. Because I think that will determine up to a large extent, not the distribution by any means, but the distribution coverage going forward for 2020 or 2021. When you look at the container industry, container order book is very close to historical lows. It's less than 11%. You have an idle fleet of about 5.5%, which really masks the fact that about 3% of this is really ships being retrofitted with scrubbers and the rest, the 2.5% is mostly ships below Panamax size. Because we have a bifurcated market right now. And any post-Panamax, Neo-Panamax vessels are doing very well, while limiting below Panamax or feeder sizes is doing very badly right now.

Container vessel demolition is quite robust. And really the scrubber retrofits having -- have a severe impact on the market. I think analysts expect a fairly balanced market for 2020, say, Clarksons will tell you that they expect 2.8% demand growth versus 3.1% supply growth. But at the same time, we expect that about 2% of capacity will be off-hired due to scrubber retrofits. And this scrubber retrofits affect mostly the larger post-Panamax vessels. So from the 195 scrubber retrofits in 2020, 140 of these are 6,000 TEU or larger ships.

Then you have the impact of the U.S.-China trade war. Last year, I think the impact was -- in terms of demand growth was minus 7 -- 0.7%. I think this year, it's expected to be more muted towards minus 0.5%. That's partly because of the Phase I trade deal that reduced tariffs on some imports from China and also because there are substitution volumes coming into the U.S. The unknown if you want is, the indirect impact of tariffs, but also Coronavirus that might affect global GDP and trade.

But in this environment, demand for our 9,000 TEU ships, which are wide beam eco ships, as very much sought after with high reefer capacity, is -- the prospects are quite good because such assets are very scarce. We have seen 2 recent data points. We have seen, as I think, I mentioned last call, a vessel very similar to ours being fixed for 1 year in the very high 30s, and we have seen also an older 8,000 TEU ship non-eco, non-wide beam, being fixed in the high 20s recently when the previous data point, a couple of months ago was in the mid- to low 40s -- 20s -- sorry, the vessel, the 8,000 TEU was fixed in high 20s when the previous November -- October, November data point was around 23,000, 25,000. So the market, if anything, has moved up over the last 2 or 3 months, the demand-supply situation is not expected to change. If anything, supplies expected to be further restricted a bit because delays in scrubber retrofits on the back of the Coronavirus which have been already quite long.

There is the issue of more ships going to -- for scrubber retrofits given the spread between compliant fuel and SFO and potentially lower speed. So we feel quite comfortable with the rechartering risk.

But even if you assume, let's say, significantly lower rates than what we have previously seen, again, you will find that we will still be able to deliver on distribution and strong distribution coverage on the back of this. So this is why we felt comfortable to go ahead with a distribution increase and quite a significant one if you want. Sorry for the long answer.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [4]

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For my follow-up, I'll try to give you something that is a little bit more quick to answer. But -- and by the way, that was very thorough appreciated. But the -- my follow-up is related to some of the scrubbers and maybe the out time associated with those. I know the HMM vessels only have 12 days associated with -- with respect to the Archimidis, any idea how much time that will take to install the scrubber? And also, are there any other dry dockings that are scheduled that we should think about in terms of modeling for this year?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [5]

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Not -- well, let me answer with regard to the Archimidis, we were expecting a duration of around 65 days. But as I mentioned in my prepared remarks, the Coronavirus impact is very difficult to quantify. Ship yards are really working at half of their capacity in the best of cases, and very often, our superintendent engineers or service engineers of the equipment manufacturers are not allowed to fly into China or from one place in China to another. Or they have -- or there are significant delays. So I think it's difficult to predict at this stage the completion date. I would expect that it will be within let's say, mid March. But I think we will have to revisit this when we have more information.

We were very fortunate that the fourth [Hyundai] ship effectively left the ship yard, it's actually completed its scrubbers sea trials today and is now being redelivered to charters. So that leaves only 2 ships, one, 5,000 TEU with the cap on (inaudible) days and the Archimidis. Now all our 5,000 TEU ships are passing simultaneously special surveys for the so called extended special survey. So that they have to, again, go into dry dock after 7.5 years. Same for the Archimidis. But it's a normal dry dock, so it's a 5-years dry dock. And then I think you also have the Agamemnon that will have to go into dry dock after this is redelivered from its charters in July. And also install a ballast water treatment system.

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Operator [6]

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We will now take our next question.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [7]

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Liam Burke, B.Riley FBR. Jerry, on some of the acquisitions -- on the acquisitions you mentioned, you saw the highlighted LNG carriers. That market seems to be a little more variable on a year-to-year basis based on LNG production versus the container market that has seen steady growth and is more open to longer-term charters. Why would an LNG carrier fit into how you lay out the longer-term strategy for the MLP?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [8]

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Well, I will disagree with the early part of your statement that if anything LNG -- the LNG industry tends to have longer-term charters than the container market. Of course, they have been shorter over the last few years, but still, I think it's more customary to find longer-term charters in the LNG side than on the container side. And I think that would be if we were to look at the LNG acquisitions, for example, or tanker acquisitions for that matter. I think that would be the important differentiating factor. If there is a charter in place that will alleviate any volatility. So the -- what I think we're trying to say is that we are open to any type of shipping investments as long as they tick certain boxes. If we like the assets, if there are long-term charters attached, and we can put an accretive deal together. Now we tend to be a little agnostic on the segment as we have done in the past. But I think having cash flow visibility is important there, I fully agree with you.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [9]

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Great. And just on the overall macro market, if it's possible to look past the coronavirus. Is there -- the container market in general has been typically a steady grower for the past 20, 30 years, except for 1 or 2 years. Do you see any change to that continued growth?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [10]

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The -- I think, containerized goods movement will continue to grow. The only thing that we have seen over the last, I think, a few years is a step-down in terms of the rate of growth, it tended to be almost double what it is today. But in terms -- but in the end, it's also very much correlated to global GDP growth. But the trend, as you say, continues to be positive, and it is interesting that despite the trade wars, we have seen positive momentum. And at the same time, which is also very important, operators have been fairly disciplined for a change when it comes to -- and owners, of course, when it comes to ordering ships. So we have a fairly reasonable demand-supply balance.

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Operator [11]

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(Operator Instructions) We will now take our next question.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [12]

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Randy Giveans from Jefferies. All right, a few quick just brief questions here. So looking at your scrubber strategy, 4 installed, I guess, 5 now, 2 to be installed next month. The 5 HMM ships, those come with 5,000 a day rate step-ups. What about the 8,200 TEU containership. Are those also including charter rate step-ups? Or does the charter pay for those scrubbers?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [13]

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Well, there, the charter rate is blended. So I cannot tell you what the exact rate is. We have disclosed an EBITDA number because the charter wants to keep it confidential, unfortunately. But there, once the scrubber is fitted, then the new charter begins, you'll see that I think we have disclosed previously that during the duration of this charter's -- this vessel charter is expected to generate an EBITDA of $44.5 million. Again, I'm sorry if we're not being able to disclose the exact rate, but this was the charter's sensitivity. But the answer is that the rate there is one, and it takes into account the scrubber retrofits. It's not a two-tiered rate.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [14]

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So that $44 million goes through, I guess, February 2024, and that's for both ships total?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [15]

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Correct. Yes.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [16]

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All right. So the next 4 years, $44 million EBITDA. Got it. All right. And then the 3 recently acquired vessels to those sub scrubbers, if not, what is the kind of plan for those?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [17]

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So for those, it is -- since they have a charter already, we are not -- and for another 4 years, we are not really incentivized to install a scrubber unless the charterer wants us to. If we enter into that discussion, we will have to negotiate a rate increase or potentially also the duration increase or both for us to install the scrubber. Typically, we prefer to install the scrubber ourselves so that we can also negotiate a better premium.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [18]

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Yes. Okay. But that is upside from there. They do not have scrubbers?

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [19]

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Correct.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [20]

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All right. And then, I guess, third part of the same question, thoughts or negotiations on installing scrubbers on the CMA CGM ships. I know they're obviously up for rechartering here pretty soon. But there's one thought of maybe chartering or extending those charters with scrubbers.

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [21]

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That's absolutely right. These are eco-ships, and as such, so they tend to have a lower consumption profile compared to, let's say, to the 8,000 TEU containerships. But in the end, given where the spread is today, it -- it still makes sense to install scrubbers on the ships. I think we will follow the same policy that we have followed with the rest of our vessels. So as we negotiate we will see what the charterer wants if the charterer wants us to install the scrubber, then we will -- we don't have any problem of doing it, but we will need to get paid for it.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [22]

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Got it. All right. And then, I guess, segueing last question, CMA CGM. There's been some concern around their balance sheet, their liquidity situation. Has there been discussions with obviously, amendments to kind of the current charters? Again, I know they all expire in the next year. Or maybe plans for rechartering those containerships, would you expect those to stay with CMA CGM? Or a third party? Kind of a 2-part question there.

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [23]

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No. No concerns whatsoever. I mean, CMA CGM, I know what you referred to, but I think as charterer even in -- even if when the post-Lehman, let's say, crisis when they faced the worst financial difficulties, they have been -- they have done always right by their owners. And definitely, we haven't heard anything from them partly because also these vessels are currently chartered probably in the money. So I don't think CMA would want to renegotiate those ships. It will do us a favor, actually. I think the idea is that they have been performing well with CMA and there is a potential for direct continuation. But in the end, we will have to do what's best for us in a sense that we will have to shop around and see where we can get the best combination of charter rates and duration.

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Operator [24]

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And there are no further questions waiting, sir.

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Gerasimos G. Kalogiratos, Capital Product Partners L.P. - CEO of Capital GP LLC & Director [25]

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Thank you very much all for joining us today.

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Operator [26]

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Thank you very much, sir. Ladies and gentlemen, that does conclude our call for today. Thank you all for your participation. You may now disconnect.