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Why Diana Shipping’s time charters priced below market rates

Xun Yao Chen

Why Diana and other shipping stocks dove after earnings (Part 3 of 6)

(Continued from Part 2)

Time charter strategy

Diana primarily charters its vessels through short-to-long-term time charters—kind of like renting a car and a driver for one to five years. About 54.66% of current time charter revenue will mature by the end of ~2014, averaging about $10,998 in daily time charter equivalent revenue.

Of the 22 vessels that Diana will have to find another customer for in 2014, 14 are Panamax, three are Kamsarmax, three are Post-Panamax, and two are Capesize. The average daily time charter equivalent rates for vessels that will have to find a new customer in 2014 are as follows.

  • Panamax: $8,623
  • Kamsarmax: $11,223
  • Post-Panamax: $7,869
  • Capesize: $11,284

Below current rates

As these rates are currently below recent equivalent rates, investors can expect Diana’s daily time charter equivalent rate to increase in 2014 if rates stay at or above current level. As of November 25, the average time charter equivalent rate for Capesize vessel stood at $16,500 and $11,079 for Panamax. How much Diana can increase its revenue in 2014 will depend on rates, then. This is important for investors who want to model Diana’s future cash flow.

Vessel operating expense

For 3Q of 2013, Diana’s daily vessel operating expense—which includes crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, costs of spares and consumable stores, tonnage taxes, and other miscellaneous expenses—stood at $6,424 per vessel. This is within the historical range.

Lower value added

In the past, Diana’s daily vessel operating expenses have ranged from $5,900 to $7,128 per vessel. Still, Diana’s daily vessel operating expense is the highest against peers like NMM, NM, SB, and DRYS. If everything else—like management expenses and time charter contracts—were identical to its peers, this means the additional value that Diana will earn from buying another ship is less than what its peers can add.

Continue to Part 4

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