Gregory Zikos - CFO.

Fotis Giannakoulis - Morgan Stanley Chris Wetherbee - Citigroup Ben Nolan - Stifel Gregory Lewis - Credit Suisse Donald McLee - Berenberg Capital Markets.

Thank you for standing by ladies and gentleman and welcome to the Costamare, Inc. Conference Call on the Fourth Quarter 2017 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, Wednesday, January 24, 2017. We would like to remind you that this conference call contains forward-looking statements. Please take a moment to read slide number two of the presentation which contains the forward-looking statements. Thank you.

And I will now pass the floor to your speaker today, Mr. Zikos. Please go ahead, sir..

Thank you and good morning, ladies and gentlemen. 2018 started with a positive momentum across the board. So far, larger vessels have captured most of the upswing and hopefully this will give a further boost to the smaller sizes as well. During the last quarter of the year, the Company delivered profitable results.

On January 23rd, we accepted delivery of the containership vessel Polar Argentina, which is the first of the two 3,800 TEU newbuildings ordered together with our partners York Capital. Upon delivery, the vessel commenced its seven-year time charter to Hamburg Süd.

The acquisition has been financed with cash from operations and debt provided by a leading Asian financial institution. In November, we acquired the 2005 built, 2,500 TEU containership vessel, CMA CGM L’Etoile. The acquisition was 100% financed with cash from operations.

On the chartering side, we chartered in total 16 ships since last quarter and today we have no ships laid up. Finally, on the dividends, we declared our consecutive 29th dividend since going public. Insiders have decided, as has been the case since June 2016, to reinvest in full their cash dividends in new shares. Moving now to the slides presentation.

On slide three, you can see a summary of our recent chartering activity. All ships are employed and you can see the rate at which the 11,000 TEU ships have been chartered. Since the beginning of the year, larger ships have captured most of the upside.

On slide four you can see the details on the delivery of the one 3,800 TEU newbuilding as well as on the acquisition of the second hand ship. Moving on to slide five, during the previous quarter, we declared $0.10 cash dividend per share on our common equity and dividends for all three classes of our preferred stock.

As already mentioned, insiders have decided to invest all their fourth quarter cash dividends in new shares under our dividend reinvestment plan. On slide six, you can see the fourth quarter 2017 results. During the fourth quarter of this year, the Company generated revenues of $101 million and adjusted net income of $18.4 million.

Based on the above, the fourth quarter adjusted EPS amounts to $0.17. Our adjusted figures take into consideration the following non-cash items, the accrued charter revenues, account gains or losses from asset disposals and impairments, prepaid lease rentals and other non-cash charges.

On slide seven, we have shown the revenue contribution for our fleet. 99% of our contracted cash comes from first class charterers like Evergreen, MSC, Maersk, Cosco and Hapag Lloyd. We have $1.2 billion in contracted revenues and the remaining time charter duration of about three years.

Moving on to slide eight, at the end of this quarter, we had cash on balance sheet of $219 million. We are conservatively managing our balance sheet, having brought down net debt from $1.7 billion in 2013 to $1 billion as of today. During the five-year period, we have also raised debt financing of close to $750 million for new business.

Based on the expected compliance certificates to be provided to our lenders, we have a leverage in the region of 50%. And on the last slide we’re discussing the markets. Charter rates have moved up substantially during 2017. The idle fleet currently is at a low level of 1.8%. The order book remains at historically low levels of less than 13%.

As already mentioned, we are actively looking for new transactions in this market environment. This concludes our presentation and we can now take questions. Thank you. Operator, we can take questions now..

Thank you. [Operator Instructions] And the first question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead..

Yes. Hi, Greg. Congratulations on the profitable quarter. You mentioned in your last comment that you’re looking for more opportunities. Can you identify where these opportunities are? We saw that you bought another second hand vessel.

So, I was wondering if the market now, with the improvement that we have seen, is becoming open for newbuilding acquisitions, like the ones that you have done in last year before..

Yes. Look, in the previous calls, we have mentioned that the newbuilding market has not been very active. However, I have to say that over the last month we’ve seen more activity in the newbuilding market. And we feel that, going forward, there will be a lot of opportunities there.

Now, as Company, we’ve done a lot of newbuildings and we have arranged pre and post delivery financing with top class charterers. So, this is definitely a source for new transactions. At the same time, the second hand market is also active.

We bought this second hand ship, the CMA CGM L’Etoile; it’s a 2005-built 2,500 TEUs with equity, it has a charter up until March of 2018. We felt that this is a good acquisition, a good opportunity. And there are definitely deals to be done in the second hand market, either with or without medium or long-term charters.

So, overall, I would say that we are positive for opportunities going forward..

And these newbuilding opportunities that they might present in the near future, how do they compare with your previous deals in terms of length of charters that you -- that they will be offered and you will be willing to accept? And also, how do you view your cost of capital vis-à-vis other participants, other competitors? I’m talking about both, other charter owners or even the Chinese living houses that have been active in our sectors in the shipping space..

Yes. First of all for the newbuildings, I think there is possibility that the deals might be we have back to back charter, which could be five, eight or ten or even for a longer period of charter coverage. This really we have been doing, newbuildings with long-term charter coverage. [Indiscernible] vessels, they have a seven-year time charter.

In the past, 14,000 TEUs ships, then they had 10-year time charter. So, there is nothing concrete today. But generally speaking, I think that there could be opportunities with a medium to long-term time charter attached. Now, regarding cost of capital and taxes, financing.

In the past, we’ve used for newbuildings traditional bank debt and we have also used Chinese leasing for pre and post delivery financing. We feel today, based on our track record, based on the fact that we never had to restructure, financing compliance certificate is with 50% leverage that we do have a quite competitive cost of capital.

And definitely we have access to commercial bank debt at very competitive terms. Now, I cannot -- I’m not allowed to give you specific figures. But, I think the cost base in financing is extremely competitive today especially when some transactions we’re also in a position to provide our corporate guarantee..

Can you comment also about the competition, how this cost of capital compares with other charter owners? And do you succeed that leasing houses can be participant or competitors in any of these potential transactions?.

Yes. I feel that first of all deals -- I mean, I cannot provide you with specific figures. Again, I don’t know the details of what everybody has been doing. But, I can tell you that our view is, by looking at numbers and the market information regarding commercial bank debt or Chinese leasing that we are quite competitive today.

And this is a competitive advantage that we’re willing to pass on to the charterer which is client. Now, regarding Chinese lessors, they have been participating in the market. We have also used the Chinese leasing.

So, I think that this would be considered also as a funding source especially in cases where traditional commercial banks are no longer willing to provide pre and post delivery financing for long tenures, meaning two-year pre delivery financing at 8 or 10 plus years post delivery.

So, this gap, to a big extent, has been carved by Chinese leasing companies which also are selective. But, I think that this is a financing source which adds to our capabilities in raising commercial bank debt..

Thank you, Greg. One last question. We have seen market getting much better this year but we have seen even a more impressive decline in idle capacity. Charter rates seem that they have improved but they have not improved as -- they have not gone as high as this below 2% idle capacity would indicate.

What is your outlook for this year and then the next couple of years? How do you use the supply and demand developing and illustrating at the charter rates?.

Couple of points. First of all, we cannot forecast the market, but I can tell you that -- let’s start from the demand. The demand we see up now and especially the demand we experienced in 2017 has been extremely positive. And we are also seeing very positive demand trends now, since the beginning of 2018.

Now, the number of idle ships has come down at below 2% and this is a very low number and this is very encouraging, taking into account that historically the number of idle ships has been growing prior to Chinese New Year whereas now we see idle capacity going down in January. This is definitely very, very promising.

Now, charter rates have moved up and especially if someone compares to 2017 to 2016, will see a huge difference across the board. But I have to say that year-to-date we’ve seen more upside in the larger vessels, especially in the modern 10,000, 11,000 TEU ships, although the whole market has moved up.

I cannot predict where charter rates will be going but I can tell you that there are positive signs year-to-date..

And our next question today comes from Chris Wetherbee of Citigroup. Please go ahead..

I wanted to ask about sort of chartering activity in the relative near-term. So, you did a lot of work in 4Q and early 1Q to extend a bunch of ships, I guess. As we think out -- well, I guess, maybe two questions. First, you’re in a lot of 45 to 90 day-charters.

How much duration or is there any duration in the market, how much of a discount would you have needed to have taken to put those ships out over the long run? And maybe how do you think about sort of the environment in 45 to 90-days and will you be able to sort of charter these into what you think might be a strengthening environment?.

First of all, we also have ships like the Cosco vessels which are 9,500 TEUs, which we have chartered out for six months. So, I think, there were some charters for 45 to 90 days, but I think that overall the charter length, if someone takes a big picture, the charter length overall has been improving in the market, which is a positive sign.

Now, it depends on the specifics of each vessel or the characteristics of the trade where sort of each vessel is trading which are also factors in the charter length.

And of course, in the charter rate -- that we’re not receiving [ph] but as you can see for the 11,000 TEU ships which have been chartered substantially higher rates compared to the previous fixtures, we have fixed them for a year, at a much higher rate.

So, it depends on the vessel and it depends on the trade and to the physical condition of the asset. So, I don’t have a specific answer because we will have to go ship by ship. But overall, I would say that the market looks stronger and on average charter periods have been -- are now becoming longer compared to shorter in the past..

Okay. Okay, that’s helpful. And then, I want to talk about the impairment for a minute.

I don’t know if you’ve identified the ships or how you think about maybe potential sales as you move through 2018, the sales of vessels and where you might be more interested in potentially monetizing some of these assets as they roll off of charter over the course of this year?.

Yes. Those impairments, they would take -- we took in total 18 million of impairments. And if you look at sort of historically from our financial statements for a ship of 70-plus vessels, the total impairment we’ve taken is like 20 million, 25 million or something like that, which is a very low number for us, so on balance sheet, north of 2 billion.

Now, for those vessels, this is an accounting treatment and I would say on a very conservative basis. The fact that we took an accounting impairment does not mean that those vessels will not continue trading, as long as physical condition allows it, and there’s a market.

So we consider it as an accounting measure which again has been taken based on conservative considerations. And we don’t think that this reflects the value potential of those ships. Now, some of those ships may be scrapped in the future and now scrap prices are sort of relatively high.

But, the fact that we took those improvements does not indicate anything above the potential of those ships..

I mean, are sales still likely in terms of 2018/ I mean, are you looking to potentially monetize into slightly stronger market or how are you thinking about that now?.

Yes. We have been traditionally renewing our fleet. So, we feel that based on the scrap prices which are now high, we can say where we feel that the potential of that asset is not great. And with that equity from the scrap proceeds we can buy a five or seven years younger vessel with good specifics and characteristics there.

Of course, we’re going to be doing this and this is what we may be doing. But, I mean, we will have to look at it on case-by-case basis. In the past, we’ve done it a lot of times. And when you have scrap prices close to $480 or $500 per ton, this is definitely a good opportunity to do it and we are looking into it.

But, it depends on what we will find to replace, if not -- and if we consider replacement values too high and those ships are still operating, we could keep some of those. So, I would say that overall, we are acquired flexible. But of course, we know that it make sense to renew the fleet when the scrap prices are high..

[Operator Instructions] Today’s next question comes from Ben Nolan of Stifel..

So, this relates I think to something that you have mentioned or sort of part of your answer to Chris’s question. When looking through the time charter market, you did renew or have short-term renewals on some of these Cosco vessels which are almost 10,000 TEU vessels.

Although at the same time, we’ve seen including some of your own -- 11,000 vessels, numbers that are almost twice as high in terms of the charter rate.

Is that a function of the age or is there a substantial premium in today’s market for much more modern, fuel efficient assets, is that how we should think of it?.

Those 11,000 TEUs that were delivered last year, they are newbuildings. And the rates they are at around -- and of course it depends on the charterer and also on the tenure. But the $28,000 per day shows a much stronger market for those ships.

The cost of vessels, there were ships which were older in 2003, delivered in 2006 and they came off a 12-year charter in 2018. And I still believe that the $16,000 per day for those vessels bearing in mind where the market is, it’s a rate that makes sense. So, of course, there is some difference because you have 2017 vessels and 2006 vessels built.

But, it doesn’t mean that in a healthy market that the older vessels will not be commanding higher charter rates as well. So, we felt that for the time being, having a direct continuation on those ships for six months and not for a longer period at the 16,000, it is something that made sense, and then we will see..

Okay.

And then, and along those same lines, is it -- would you characterize the appetite for longer term charters, maybe almost exclusively or at least very, very heavily weighted for the more modern ships relative to older equipment?.

Yes. But, the main -- you can always come up with a longer time charter, which are fixture [ph] for a sort of older vessel. But as a rule of thumb today, I would say yes. And I have to remind you that some 2014 [indiscernible], we bought beginning of 2017; they were chartered for seven years or sort of 2015 vessel it was chartered for five years.

So, I don’t think that is a specific rule. So, we’ve seen five or seven-year charters for ship that could be three or five years old..

And then, just sort of looking forward strategically, obviously with the sulphur emission regulations coming into play and less than two years from now, as you pointed out, there is really very big delta between what a more modern and more efficient ship can earn versus what an older ship can earn, ideally that would grow even wider should fuel prices inflate as a function of low-sulphur regulations.

How do you see that all playing out? And is that assumption correct, first of all, in your view? And what are you doing sort of strategically in preparation for that?.

Look, this is something we know that will be happening from 2020. We’re looking into it. But, there are also a lot of considerations. It is required [ph] per vessel which could be a substantial amount of money. And we need to know how those upgrades will be paid back.

So, I’m not sure what’s going to be the casual prices or the low sort of prices in 2020 and what’s going to be the difference to the fuel expenses, for the fuel used today. So, this is something we’re considering. I don’t have an answer on that yet, but this is something we’re currently looking on.

But, we need to make sure that if someone makes that investment, this investment will make sense and that these will be paid back because these are money coming from our shareholders. So, I mean, this is something we defiantly have to look -- into it quite carefully.

Now, in a good market, all the ships are being employed, total ships are receiving here today. So I’m not sure that I would say that after 2020 if ships are not a good with scrubbers, they will not be commanding charter rate that will make sense, I’m not sure about it at all. So, I will have to be a bit more careful.

And we’re evaluating the situation and we will be reverting from that but we don’t want to take any decisions, which will make us enter into capital expenditures without making sure that those assets would be paid back..

Right. And I agree that, especially as it relates to scrubbers. I guess I was thinking more little along the lines of how you think through sort of your balance of older equipment versus newer equipment..

Look, most of the ships that are above the age, they -- and I’ll repeat, most of them have been brought in a low asset value environment. So, the breakeven levels there are relatively low. The problem would be, it would have the large fleet of Panamax ships. 15, 20 Panamaxes delivered in 2007 or 2008, this would be the problem.

Now, ships bought a couple of years ago, 2,500 TEUs or 1,800 TEUs at very low prices. I do consider them more of an upside rather than asset problem..

And our next question today is from Gregory Lewis of Credit Suisse. Please go ahead. .

As we track -- as we look at the idle container fleet capacity, it’s less than 2%; we’re in typically a seasonally softer part of the year.

I guess, I’m curious, as we look back previous times, are you surprised, given how low the idle container fleet is that rates haven’t moved higher?.

I think that based on that assumption that you’re correct. We have a low number of idle ships in January, which is the seasonal weak month of like container shipping and the charters have moved up but not that high much up.

However, in theory, someone would expect that charter rates will continue going up, probably at a faster pace right after Chinese New Year, which is what historical has been showing us up to now. And this is what normally someone should expect. Now, I cannot say that this is what will be happening.

But, there is definitely a lot of potential there especially because charter rates have not moved up to the extent we all expected based on idle fleet that’s 2 or below 2%..

Okay.

And just knowing that you are much more plugged into the market and what is going on in vessel availability, as we move into the spring, are there a lot of vessels in the current fleet that are under contract that are rolling off or is that -- I mean, is there any way to estimate that to see if, yes, we’re going to see an acceleration in demand for ships, but we’re also going to see a lot of roll off vessels, do you have any feel for that?.

There are some indicators and some of them are as it has been published by brokers, availability, over the next three to six months as you rightly said, ships coming off. And I would say that generally speaking availability now is not at high numbers, it’s quite low regarding ships coming off charter over the next three to six months.

So, based on that indicator, I think that this reinforces the sort of argument that generally speaking someone would expect the market to move up after Chinese New Year. But again, that’s a market, this is what signs now are terming us but of course you can never predict..

And our next question comes from Donald McLee of Berenberg Capital Markets. Please go ahead..

Hey, guys. There were a lot of questions around contract structure and charter negotiations earlier, and I was just wondering at a high level, how have those negotiations changed with liners, relative to the past couple of years as that group is consolidated..

I think you’re right that the liner companies have consolidated. And what we have been telling in the past and you know we still believe it, is that for the whole market, this is a healthy sign because the stronger liner companies are, the better it is for the whole sector including ourselves.

Now, still liner companies need to have parts of their fleet charters in and part of their fleet old.

So, there are discussions with liner companies as we have been doing in the past, when the ships come off charter, whether there is going to be continuation with the current charterer or whether we’re going to be marketing this asset in the open market.

There are still discussions and there is still need for dollars [ph] and we have a market which is again moving based on supply and demand. And you see where the charter market is in 2017 versus it was in 2016. So, you can argue that the more consolidation, the more bargaining power liner companies have.

At the same time, it’s good to have healthy and strong lines. And the bottom line is that it is still a market based on supply and demand fundamentals..

Got it. And then, one more question, just looking at the order book, there were a large number of outstanding 2017 deliveries that were undelivered as of December.

Could you comment on what you’ve seen in terms of slippage in the overall order book and how that might impact the pace of fleet growth in 2018 and 2019?.

Yes. There were some ships, especially larger vessels, I think, those are the ones you’re referring to, that they were pushed back in 2018 versus an originally schedule 2017 delivery. This also had to do with the formation of our lines and some M&A activity. Now, brokers again factor in a minimum slippage for 2018.

I don’t want to sort of give out numbers but I think that it’s always and it is a matter of reality that some newbuildings will be delivered but could be delivered in 2019 versus 2018. Now, the first quarter of 2018, we have a very heavy order book to be delivered, especially larger vessels, ships also that were pushed back from 2017 in this year.

So, I think it is logical to assume a minimum slippage rate close -- for 2018 close to the one we saw in 2017..

Ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Zikos for any closing remarks..

Thank you very much for dialing in today and for your interest in Costamare. We are looking forward to speaking with you again in the next quarterly results call. Thank you..

Thank you, sir. That does conclude our conference for today. Thank you all for participating. You may now disconnect your lines..