Gregory Zikos - Chief Financial Officer.

Ben Nolan - Stifel Nicolas Fotis Giannakoulis - Morgan Stanley Keith Mori - Barclays Capital Mark Suarez - Euro Pacific Capital.

Thank you for standing by ladies and gentlemen and welcome to the Costamare Conference Call on the Second Quarter 2014 Financial Results. We have with us Mr. Gregory Zikos, Chief Financial Officer of the company. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session.

(Operator Instructions) I must advise you that this conference is being recorded today, Thursday, July 24, 2014. We'd like to remind you that this conference call contains forward-looking statements. At this time, please take a moment to read slide number two of the presentation, which contains the forward-looking statements.

And I will now pass the floor to your speaker today Mr. Zikos. Mr. Zikos, the floor is yours sir..

Thank you, and good morning ladies and gentlemen. During the second quarter of the year the company continued to deliver positive results. Recently, we acquired the 2000-built, 2,500-TEU container vessel for a purchase price of $9.5 million. The vessel was bought with equity and after delivery she commenced her charter employment with Cosco.

Regarding our chartering arrangements, we have no ships laid up. Our re-chartering risk is minimized. The charters for the vessels opening in 2014 account for less than 3% of our 2014 contracted revenues. Finally, on July 3, we declared a dividend on our Series B and Series C Preferred Stock.

On July 8, we declared a dividend of $0.28 per share of our common stock, payable on August 6. We continue to execute successfully on our growth strategy. We feel we are well positioned to continue to grow selectively and on healthy grounds, and now let's turn to the presentation slides.

On Slide three we are providing a summary of our recent transactions mentioned earlier. During the last couple of months, we sold two vessels for demolition and expect to book again close to 1 million. In addition to our disposals, we purchased a 2000-built, 2,500 TEU vessel which we employed on a short-term charter.

Finally during the quarter we declared a dividend on our common stock the 15th consecutive dividend since our listing and total dividends on both classes of our preferred shares. Moving on to the next slide. On Slide 4 we are summarizing our chartering arrangements. We have no ships laid up.

During the quarter, the company fixed all of the vessels which were opened for charter. On Slide five, you can see the second quarter of 2014 results versus the same period of 2013. During the second quarter of 2014, the company generated revenues of $123 million, EBITDA of $79 million and net income of $24 million.

For the same period of 2013, the revenues amounted to $100 million, and the EBITDA and net income of $70 million and [$30] million respectively. Consistently with our previous press releases, the EBITDA and net income figures are adjusted for the following non-cash and to one time items.

First, the accrued charter revenues and the resulting discrepancy between revenues received and revenues accounted for based on a straight-line amortization schedule. Secondly, the gains or losses resulting from derivative instruments, including one-time swap breakage cost, relating to the refinancing of the latest newbuild delivered in April.

And thirdly, the accounted gains and losses resulting from other disposals. Adjusting for the above, the first quarter EPS amounts -- the second quarter EPS amounts to $0.48 versus $0.37 for the same period of last year, and the second quarter EBITDA to $91 million versus $67.6 million for the same period of last year.

Overall the company generated strong results during the quarter based on solid fundamentals. On the next slide, we are showing the revenue contribution for our fleet. The revenues come from first class charters. More than 90% of our contracted cost comes from Maersk, MSC, Evergreen and Cosco.

We have $2.6 billion in contracted revenues and the remaining time charter duration of about five years. Slide seven is dealing with the theoretical re-chartering risk that company might face for the remainder of 2014. You can see the EBITDA sensitivity.

Based on our above assumptions, the four ships coming out of charter in 2014 for the remainder of the year are re-charted at a 70% rate, which is equal to a 30% discount on our 2014 re-chartering. The cash effect is minimal, less than 2% of the six month EBITDA, which goes up to 3% for a 60% discount.

We feel that in order to assess the company's real re-chartering risk, someone needs to focus on cash since cash is what is servicing the company's debt obligations, cash available for distribution is what is paying the dividend that allows for further growth.

We do believe that the dividend we offer today is very attractive, based on its quality and sustainability. On Slide eight, we've discussed our balance sheet management. Liquidity as of the end of the quarter stands at $202 million in cash and cash equivalents. We have unencumbered vessels and a moderate fleet leverage.

The loan portfolio is 85% hedged at a weighted average rate of less than 4%, which adds to the visibility of our cash flow. The debt repayment schedule is smooth and evenly spread. The distributable cash flows on a post debt service basis is not artificially enhanced.

We consider the company to be in a competitive position with a comparatively stronger balance sheet, which together with our joint venture with York Capital will allow us to continue making attractive acquisitions in a low market. And to the last slide, we are discussing the market.

Box rates have been volatile and liner companies are dealing with management capacity issues. Charter rates, secondhand asset values and newbuilding prices remain at historically low levels. The idle fleet has been falling over the past months and now stands at a very low level of close to 1.7%.

As mentioned in the past, we think we are well capitalized to act and deliver superior returns in such a volatile and low asset value environment. Thank you very much. This concludes our presentation and we can now take questions.

Operator?.

Thank you, sir. (Operator Instructions) The first question we have comes from Ben Nolan of Stifel. Please go ahead..

Yeah, thanks. Nice quarter guys. My first question has to do with the idle capacity in the market and you mentioned that all of your fleets are currently in operation which is nice. And I think across the broader market, there is very low idle capacity at the moment.

But yeah, we've not really seen a material uplift in the rates for secondhand assets, at least not that I've seen.

Do you think that it is simply a function of idle capacity falling because it's seasonally stronger time of the year or do you think that we could be at a point here where demand is actually increasing sufficiently that idle capacity is going away, and we could be very close to an inflection in rates from a supply and demand perspective?.

Yeah I think that, look idle capacity has been falling consistently since the beginning of the year like, beginning of 2014, we had idle fleet in the region of 4%. It was like in April in the region of 3.4% and now it's half, it's close to 1.7%.

However, there is still structural overcapacity in the market which is something that does not go away so easily. Although, as a policy, we refrain from predicting markets. The charter rates, as you rightly pointed out, they are where they are and they are at historically low levels across the Board.

So the fact that idle fleet has moved down, I don't think that it necessarily means that now we're going to be seeing charter rates uplift in the short term.

Now we may be wrong, and you know this is a very volatile market, but I don’t think there is a direct link resulting in a time lag between a low percent of idle capacity and charter rates moving up substantially right after the fall in the idle vessels..

Okay. That's helpful. And in my next question, final question as it relates to what you’re seeing with respect to the liners and their appetite for the new larger vessels. There was a lot of activity last year. It seems as though that slowed down quite a bit so far this year and furthermore we've not really seen a lot of speculative orders.

Is it in your opinion is it simply a function of liners not being as aggressive with respect to their inquiry for new vessels or is there perhaps maybe a little bit more discipline in the market right now.

What are you feeling with respect to newbuildings from your customers?.

I think, first of all, liner companies are re-examining the situation after we know the latest news regarding alliances and some of them didn't go through. On the other hand, many companies they have been ordering larger ships because of economies of scale.

There are less orders compared to the – orders we saw a year ago but still because we talk about economies of scale because we talk about very competitive industry, I don't feel that we’re not going to be seeing any newbuilding orders in the future.

It's upto liner companies to examine where they are, and where they want to go and how efficiently they can manage the capacity and how much the cost savings and economies of scale, they realize because of larger ships employed. But I don't think that there will be no newbuilding orders going forward.

Now it may not be as much as – we saw the last couple of years but still there could be some appetite. And this is where we as a charter owner will be hopefully playing a role. And because liner companies they want to retain flexibility part of their fleet needs to able to be delivered back to the ship owners.

And if you look at the order book today, both our figures say -- half of it is ordered direct by liner companies and half of it is ships ordered by charter owners like us and then charter to liner companies. So still there will be some need for flexibility and for new [donors] going forward..

Okay.

And I know I said that was my last question but just a follow-on to that, would you guys consider making an order without a contract already in place or has the market changed sufficiently such that the only way you would do something as if, it was on back of a contract?.

Look we have currently in our order book four ships orders Hanjin and Philippines without back to back charter coverage and the reason those ships were ordered it is because the pricing was extremely competitive and because we believe in its size.

However, leaving that particular order aside, all of the rest of the newbuildings that we did was recovered by a charter party which was in place when we signed the shipbuilding contract. So, I cannot commit for the future but most of our business in newbuildings are with the time charter attached to the contract..

Okay. Very helpful. Thanks a lot and again nice quarter guys..

Thank you. Appreciate it..

The next question we have comes from Fotis Giannakoulis of Morgan Stanley..

Yes. Good morning, Greg and congratulations for the good quarter. Can you explain to us what happened and expenses were so much lower compared to your budget? I think that other times they were below what you have budgeted but this time it's seems that you have done an even better work in keeping your expenses.

Is this a one-off or it something that we should think that is going to continue in the future?.

Look, you're right that our expenses – our operating expenses were below budget this quarter. And probably it will be a good idea for us to revise the budget and discussed the new budget, the revised budget with the analyst going forward. So that there will be no discrepancies.

Now on average this quarter, our daily operating expenses for the whole fleet were in the region of $6,000 per day and bearing in mind that the average size of our fleet, our average vessel is like north of 5,500 TEUs, plus the fact that we are flying the green flag in substantial part of the fleet. I think those OpEx figures are quite competitive.

Now I'm not sure whether this is going to be a repeat story but in any case internally we're going to be revising the budget, we're going to be doing this again and we will definitely let you know in due course..

Are there any benefits and any revenue that you have from your JV with V.Ship's that they bring the overall OpEx number down -- has the efficiencies started working?.

I think look, the running expenses of the vessel for the whole fleet are below budget. It is regular for those vessels are being managed by Costamare shipping or by V.Ship's. However I think it’s evident but economies of scale do provide a benefit together with the newbuildings that we have a fleet in the region of 70 vessels.

And this is something that help us be more competitive in managing our cost base..

Thank you, Greg. I want to ask you about your new acquisition, its quite small one but it would be interesting if you can give us a little bit more background. These vessel from what I understand was acquired 100% by Costamare this is not one of the JV vessel.

Why is that, is this outside of the scope of the JV and did you pay this vessel in cash?.

Yes. Look you're right, this ship, today is 100% owned by Costamare Inc. It is not falling under the umbrella of the joint venture with York Capital. I think it's quite small investment of less than $10 million and the ship has relatively short charter of three to five months.

So I don’t think that the size is something that we know made an important asset in JV terms bearing in mind that together with York for the newbuildings and for the rest of the secondhand ships we have commitments or we have invested in total close to $1 billion. However now, V.Ship have been brought 100% with equity with our own funds.

It was a charter to Cosco for a short period at $7,000 per day. It was bought at below $10 million. We feel comfortable with this acquisition. It's not assured CapEx commitment but slightly opposite, but we feel that for the acquisition cost and for the potential of that vessel. We feel quite comfortable and that it was an acquisition that made sense..

Fotis Giannakoulis - Morgan Stanley:.

And also how do you see the chartering of the remaining four newbuildings? How much cash flow shall we expecting for Costamare when all this nine vessels are chartered?.

Okay. Look, first of all for the last four newbuildings those build at Tianjin there is no charter in place yet. This is something that we're looking at. But those ships are going to be delivered from beginning of 2016 onwards.

And bearing in mind the acquisition cost and the cost of those vessels, today we feel quite comfortable with charting potential of those ships. But since there is no fixed charter yet, I'm not sure that we would be able to provide you with a prediction regarding the cash flows.

Now as far as the five for 2,000 TEUs ships are concerned, those have been chartered to [indiscernible] for 10 years. Those ships we are now in the process of closing the debt financing.

So if you bear with us for a quarter or so then hopefully we will have the debt funding in place and we will be in a position to provide you with a leveled cash flow yield for the equity holders.

But leaving that aside, if you look at the EBITDA margin we have the previews, newbuildings we did EBITDA yield, meaning that EBITDA divided by construction cost, I think that the numbers compared quite favorably..

And how shall we think because apparently you're already in talks about the financing of the newbuildings. You finance the previews series of newbuildings which are around 75% debt.

What shall we expect now and we saw some articles on the industry newspapers talking about extremely high levels of potential credit facilities that they have been offered to you.

Can you comment on that? Shall we expect 75% or higher than that?.

Yeah, look, the previous 10 newbuildings, five of them they were initially levered at 70% and five of them at 80%. Then we did a financing for three of those and the 70% went up substantially above 80%. So, today we haven't closed anything yet.

I don't want to be premature but I think that the 75% levels as you mentioned bearing in mind the quality of the charter and the size of the vessels and the whole package, I think that the 75% leverage it is something that is quite achievable..

And one more clarification on your presentation on Slide six, you mentioned that you have contracted revenue approximately $2.6 billion, is that only the own fleet or that includes the five newbuildings that they are owned by the JV and if you can give us an overview of how many of your vessels they have long term charter let's say more than five years?.

Okay. Look, this $2.6 billion it includes our percentage of contracted revenue of the JV vessels. So, to be more specific for instance, in the five, 10,000 TUE ships where we have a 40% stake, we take the 40% of the contracted revenues of those vessels and we add it more together.

So, the $2.6 billion figure it is only Costamare Inc cash, excluding of course the portion of cash that it is allocated to your capital. Now, regarding the time charter coverage on average our fleet has a time charter coverage of five years on average and how many ships are above this sort of five year threshold, it's all the newbuildings.

So, we talked about 10 newbuildings delivered over the last two years. It is a five 14,000 TEU ships already chartered. And then we have a lot of ships that are coming out of charter in the period between 2018, 2019, which are marginally within this five-year period and we talk about five 9,500 TEU ships chartered to Cosco.

We talk about 6,500 TEU ships chartered to Maersk. I think both our figures we talk about 20 ships at last..

Thank you very much, Greg..

Sure..

The next question we have comes from Keith Mori of Barclays..

Good morning, Greg..

Hi Keith. Good morning..

Congratulation on the quarter. Just a quick question on the growth outlook for 2015, we see here a lot of new ships coming on at the JV in 2016, rates are still depressed in the market, you still have pricing and secondhand ships that are quite attractive.

Should we think that the pace of secondhand ships acquisitions by you in the next 12 months to 18 months could accelerate to help drive some growth for next year? Are we looking at next year's really just being a bridge to 2016 growth?.

I think, look, it's acquisition we make whether it is a secondhand ship or whether it is a newbuilding order, it needs to be certified on its own. So it, the numbers need to work covering our downside first and then making the some upside left for our investors. So, we wouldn't be making acquisitions only in order to have accretion in our cash flow.

If that means that we would be assuming a lot of residual value risk at the expiry of the charter party. So the goal is not to grow for the sake of growing and to be -- the goal is first to be safe and secondly profitable.

So if acquisitions that make sense for ships to be delivered between now and 2016 when the newbuildings will be hitting the water, of course we're going to do them, but enter into new transactions just to boost the growth between now and 2016, if we don't feel comfortable with the prospect of those vessels going forward, I'm not sure if this is something we would be doing..

So, should we think the returns between the new ships given where pricing has done over the last 12 months relative to maybe where the secondhand returns are, should we see the liquidity and the balance to customize pretty attractive, you say we'll capitalize, should we think that the capital growth towards new ships or secondhand ships going forward?.

It's going to be both. It's going to be both as long as the numbers make sense, it could be both. With the newbuildings you have in brackets - the negative is that you need to allocate capital and have carry cost for a couple of years until the ship is being delivered.

With the secondhand ships when you have prompt delivery, you're getting -- you’re realizing some of the transfer from day one. But this is something we consider. However both types of transactions have their own merit. The newbuildings are providing long stable cash flow for the next years.

We'd say could be the backbone of the company and make sure that the dividend remains sustainable as it is now. So I think we could be doing both, as you know we have been doing in the past. In January for instance we ordered five 14,000 TEU ships and since then selectively we have both older vessels, with or without charter in terms of equity.

So whatever makes sense that is something we’re going to be looking at. But we don’t have a predetermined target growth as you know we may need to do so, so many secondhand ships, or so many newbuildings..

Okay. And I guess one item on I guess the joint venture. The earnings in the quarter came in roughly $2 million after adjusting for the swap, I mean how should we think about that line going forward, I know you have about three ships there now, should be relatively stable I would have expected.

How should we think about that line over the next 12 months?.

I think, in this joint venture we have, we have entered into a swap agreement, a swap option agreement that it relates to the five 14,000 TEU ships.

The debt is not in place yet but in order to make sure that we're not going to be subject to substantiate the interest rate risk, we have entered into a swap option agreement within investment bank providing us with a ceiling regarding the seven-year swap rate when those ships will be delivered.

What you see there, you see the movement, the mark-to-market of those, of that specific installment. This is not a cash item. So, it shouldn't be considered as cash coming in or if it's negative let’s say, cash going out. This schedule will be in place until beginning of 2016. So, this is the explanation of the number you're looking at..

Okay. And then I guess that's helpful.

And the last one for me is, could you update us on I guess the liquidity position that you feel, how much capital do you feel on the balance sheet you can allocate to maybe secondhand ships are pulling down on a new payment for a newbuild or you have about $220 million on the balance sheet today including restricted cash.

I know you have some commitments to the joint venture.

What's the number that you think is, what's the range that you think you could spend for new acquisition?.

Look, this is also a function of - that we announced you know we have the ability to raise regarding the new transaction. So, if you talk about newbuildings, if you look and raise debt in the region of let's say 70% or 80%, which is five times giving.

With $100 million, you can do substantial number of transactions and the same applies for secondhand ships. So, this is an unknown, this is why I'm not in a position now to give you a fix number so we can do a billion transaction or $1.5 billion or $1.2 billion.

But I can tell you that until now we have never missed a transaction which we wanted to do because we didn't have the equity or because we couldn't raise the debt necessarily in order to fund it.

So, as we look forward I can tell you that a billion transactions, this is something you need to do and let's not forget that we have these class together with you all. And I would be tempted to go to a higher number. However, we don’t like overpromising. So, I think time will tell..

Okay. Thank you, guys. I’ll pass it on..

The next question we have comes from Gregory Lewis of Credit Suisse. Again, that's Gregory Lewis of Credit Suisse, your line might be muted sir? We'll go ahead and proceed to our next question. Mr. Lewis please queue backup sir if you’d like. The next one will come from Mark Suarez of Euro Pacific Capital..

Hi there, good morning guys and thanks for taking my question. Maybe just to go back on, and just ask you a macro question to begin with. Last quarter we had seen some good utilization from some of the vessels in the sub-2000 TEU range, especially among the gear vessels where demand has been relatively strong vis-à-vis Panamax and such.

Do you still see this as being the case and do you think this will be a good opportunity to go out there and buy assets such as these, the 1,500 TEU, 2,500 TEU range, sort of in-line with what you did over the past four or five months with those two recent secondhand purchases?.

No. Look, we've seen charter rates for Panamax vessels going out from $7,500 per day to up to $9,500 per day. I am not sure whether this is any longer the case but we've seen this increase in Panamax rates and at the same time this was a capital we say less demands for gears 2,500 ships.

But still if you look at the Panamax vessels which are build type of assets falling with their main goal to navigate through the Panama Canal. Still the rates for those vessels and their approach tricks, I am not sure they make them the best candidates for acquisition.

Now everything probably is a matter of numbers and what will be acquisition costs but if you consider that Panamax ships they were yielding $20,000 or $25,000 or even $30,000 per day some years ago and now we talk about $9,000 or $9,500 per day. And there's definitely an overcapacity in those type of vessels.

Unless the numbers work extremely well, I think this would be a relatively difficult acquisition to justify but don't get me wrong, if the numbers work then fine however as a type of vessel, if you look across the Board historically, it is that specific asset that has been shipped more than any other containership vessel regarding asset values and charter rates.

Now, regarding the smaller vessels the 2,000 TEUs to 3,000 TEUs, its two things, first of all the order book for those ships is much thinner and someone could argue that it might be liquidate the newbuilding order there for their size. The other liner companies tend to prefer larger sizes for their own reasons and considerations.

So we've seen especially the gear 2,500 TEU ships to be underperforming in last couple of months, mainly because they prefer the larger non-geared vessels and this is why that is up to the Panamax ship and this is why there could be Panamax rates increased a bit.

But generally speaking still those vessels, the 2,500 TEU, they maybe getting $6,000 to $7,000 per day. It's far below historical charter rates and their assets value are much below where we used to see them.

For those vessels, if the numbers makes sense of course we might buy them but the situation today, is that those ships are trading nowhere near they used to trade some years ago..

And in terms of the orders and the interest we're getting off the market, is this sort of the range we're getting close from, in other words how should we think about your two recent secondhand purchases, are this just one-off or just be a new trend that we should look for going forward over the next 12 to 18 months? How we should we think about that?.

Look, these are ships that just came under our radar screen. And we thought them to be a good investment. But I cannot tell you now that there's a five line of those type of assets thus far as we're concerned so that every quarter we maybe acquiring two or three of those.

Having said that, every quarter we make some acquisitions or some disposals as well, especially all the vessels which we discussed. So I wouldn't be surprised if we enter into some additional purchases. But we don't have, as I said early we don't have a pre-determined growth rate.

If something makes sense, we do it, if not, we pass on that and we look for something better. So, we take it as it comes, there's no magic there..

Okay. And just turning on to the balance sheet for quick second, I know given your long term goals of growing the fleet for your balance sheet and the JV, how should we think about the potential to maybe further monetize existing newer vessels or some of the newbuilds into other sales leaseback. I know you did three sales leaseback recently.

Is there maybe the potential to do more over the next 12 to 18 months, maybe redeploy that capital into additional secondhand similar to the ones you did or maybe an addition newbuilds with the help of the JV here?.

Yeah. Look, yes, you're right. We defined that at the beginning of the year three newbuildings which have commercial back date in place and we financed it with more competitive sale and leaseback type of structure from Asian financial institutions, so we have freed up some equity.

This is something we maybe doing in the future or we maybe discussing again sale and leaseback transactions for the newbuildings which we now have on order. This is definitely a tool that makes sense and a more level transaction to be extended that is surely in the cash flows work and that the debt service can be met.

Then it's boosting our equity returns. This is something we did in the past and if the opportunities are there and if the circumstances allow, we will definitely reveal such proposal..

Great. Okay, that's all I have for now. Thanks Greg..

Thank you, Mark. Thanks..

(Operator Instructions) Well, it appears that we have no further questions at this time. We'll go ahead and conclude today's question-and-answer-session. At this time I'd like to turn the conference back over the Mr. Gregory Zikos for any closing remarks.

Sir?.

Yes, thank you very much for being here with us today. We are looking forward to speaking with you again during the next quarterly results call. Thank you. Operator, thank you..

We thank you sir. Thank you for your time today. The conference call has now concluded. At this time you may all disconnect your lines. Thank you. Have a great day everyone..