Good day and thank you for standing by. Welcome to the Global Ship Lease Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Ian Webber. Please go ahead..

Thank you very much and apologies for being late by a minute or two. Good morning. Good afternoon, everybody, and welcome to the GSL fourth quarter 2021 earnings conference call. The slides that accompany today's presentation are posted to our website at www.globalshiplease.com.

Slides 2 and 3 remind you that today's call may include forward-looking statements that are based on current expectations and assumptions and are by their nature, inherently uncertain and outside of the Company's control.

Actual results may differ materially from these forward-looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation. We also draw your attention to the risk factors section of our most recent annual report on Form 20-F, which is for 2020 and was filed with the SEC on March 19, 2021.

You can obtain this via our website or via the SEC's. All our statements are qualified by these and other disclosures in our reports filed with the SEC. We do not undertake any duty to update forward-looking statements.

For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented in accordance with GAAP, please refer to the earnings release that we issued this morning, which is also available on our website.

As usual, I am joined today by our Executive Chairman, George Youroukos; our Chief Financial Officer, Tassos Psaropoulos; and our Chief Commercial Officer, Tom Lister. George will begin the call with a high level commentary on GSL and on our industry.

And then Tassos, Tom and I will take you through our recent achievements, our quarterly and yearly results and financials, the current market and after that, we'd be pleased to take your questions. So turning now to Slide 4, I'll pass the call over to George..

Thank you, Ian, and good morning or good afternoon to all of you joining us today. Before I get into the slides, a few words about the desperate situation in Ukraine. It feels very wrong to be discussing the implications for our business of this conflict in the midst of a humanitarian crisis on this scale.

But we recognize that it's important to provide context to the extent that we can. The situation is obviously dynamic, it’s far too early to assess the broader proportions. So I'll keep my comments narrow and industry focused.

Last year, the combined containerized throughput of Russian and Ukrainian Black Sea ports was about 1.8 million TEUs, that's against global containerized volumes of around 201 million TEUs in the same period. It's thought likely that a significant portion of those Black Sea related volumes will be rerouted via North German and Baltic ports.

But there will be clearly localized and regional disruption to trade patterns, routes and volumes. The big question for our industry of course is what will be the impact of sanctions and Russia's reaction to those sanctions on the global macroeconomic environment? Obviously, a critical question, but also one that it is far too soon to answer.

Although, we know that some of airlines have just put a freeze on cargo bookings to and from Russia. In the meantime, we will focus very strongly on safeguarding our people, our ships and the cargo they carry. Now back to the slides.

I'm very pleased to say that the highly supported competitive market conditions that I highlighted on our previous calls have continued. Demand for container shipping services grew by 7.1% in 2021, five in excess of the 1.4% capacity growth and six below 10,000 TEU where GSL is specializing.

And so far this year, we have powered straight through the Chinese New Year period, which is typically a week period of the year in our seasonal as well as cyclical industry. 2022 forecasts are currently for 4.2 demand growth, again, five in excess of 1.7% capacity growth below 10,000 TEU.

As a result, we're experiencing record high strength in charter markets. With the support of these strong fundamentals, we have accomplished a great deal in the last 14 months. We acquired 23 ships on an opportunistic immediately updated basis for a total of just under $0.5 billion and increasing the size of our fleet by more than 50%.

A demonstration of the impact and good timing of our growth is that EBITDA in fourth quarter 2021 with 65 ships was 85.4 million more than double the 38.7 million reported for fourth quarter 2020 before 2021 ships additions. We secured 51 new charters for our fleet, added more than $1.5 billion of contract revenue spread out over several years.

I would highlight that a number of the attractive charters that we have reviewed in 2021 were on a forward stock basis. And thus, we expect to see the full cash effect from those new charters building as 2022 progresses, particularly in the fourth quarter. We refinanced more than $400 million of debt, materially reducing our cost of debt.

And we have also hedged all of our floating interest rate exposure and have earned our biggest credit ratings of BB- and B1. We delivered record earnings with a normalized 2021 earnings per share of $4.86.

As I expand -- as I expect many of you are well aware, we announced initiation of a quarterly dividend just over a year ago, originally contemplating a dividend of $0.12 per share before more than doubling it in very short order to $0.25, driven by a search of accretive growth and long-term charter signing..

We have subsequently announced that starting with our dividends for this current quarter, first quarter 2022, the payout will increase $0.375 per share per quarter, more than triple the original contemplated amount in just over a year.

This sustainable dividend payment is an important component of our dynamic capital allocation policy, which now includes the return of a substantial amount of capital to shareholders through our sustainable dividend and under our newly introduced 14 million share repurchase authorization.

Fleet improvements for the carbonization, balance sheet strengthening and fleet renewal through selective discipline accretive and opportunistic acquisition, all of which Ian will discuss in more detail.

Fundamentally, though, we will continue to execute the long-term shareholder oriented strategy that has served us very well to this point, and we’ll continue to deploy our capital in such a manner as maximizes value for our shareholders in a risk adjusted sustainable, and I have to say the word twice, sustainable, opportunistic manner.

To put this in context, we returned approximately 46.2 million to shareholders in 2021, 36.2 million by dividends and 10 million in stock buybacks, which was a little more than the net unrestricted cash generated in the year after CapEx growth and debt amortization. So essentially, all of our available cash flow.

Looking at the EBITDA calculator on page 22 of the slides, the markets 120 million of cash flow after debt amortization, of which 60 million, 50% is committed to dividends.

This is up 65% on the 2021 dividends, and does not take into account any stock buybacks, nor incremental CapEx in response to decarbonization, selectively renewal or further balance sheet improvement. If you now turn to Slide five, I'll describe the big picture for our industry at this moment.

While there are many factors that play a role in determining the strength or weakness of the containership market, and Tom will cover a number of them later, the broad strokes are very straightforward in this case.

In the face of sustained demand for the transportation of containerized cargos and a limited supply containerships, liner companies have been willing to offer much higher rates and for much longer durations than are available during more normal periods.

They are able to offer us these terms because the liners themselves have been making record profits and transforming their balance sheets. The high level of underlying freight demand, which was thought initially to be a temporary phenomenon, has proven to be highly durable.

Meanwhile, containership supply, particularly in the midsize or smaller segments, where we operate, remains very limited. This has meant that, both charter rates and asset values have sustained their upward trajectory.

Moving forward, the limited vessel supply in the relevant segments and inventory restocking, represents a further incremental layer of demand on top of fundamentals.

As you can see in the lower left, the strong market has quite rationally resulted in a near total absence of any scrapping, even for vessels that would in normal markets almost certainly be scrapped.

By 2024, nearly 8% of the global fleet and the 10,000 TEU will be over 25 years old, including much lower sophistication tonnage that we would expect to be removed from service upon a normalization of demand, thus re-tightening the market.

As clearly supportive as the fundamental situation is, it is also apparent that there is real uncertainty in the overall macro environment, including the ongoing potential for further COVID variants, inflation and of course geopolitical uncertainty specifically, surrounding Russian and Ukraine, which introduces substantial complexity into the regional economy and supply chain, with broader implications, throughout the world, none of which are yet clear.

Further, the need to decarbonize our industry. Driven by an evolution of both regulation customer needs, it's likely to play an increasing role in our business in the quarters and years ahead. In the long-term, this will involve changes to propulsion and design containerships, entering the global fleet.

But many of the new technologies remain unproven and are speculative at this stage. At GSL, we will be focused on enhancing the fuel efficiency of our existing ships in collaboration with our line of partners, using proven technologies and solutions.

Across the global fleet, we expect that compliance with the new regulations coming into effect in January, 2023 will likely result in slower average sailing speeds. While it's hard to assess the degree to which the global fleet may slow down, a reduction in average speed of just one knot equates to reducing effective supply by 5% to 6%.

We will come back to capital allocation later in the presentation, but I will briefly summarize. As the excellent charters that we signed in 2021 increasingly come into effect and build their contribution to earnings, we have greater discretion in allocating capital, returning increasing amounts to shareholders.

We also keep in mind improving our fleet to respond to the decarbonization imperative, and also strengthening our balance sheet. We will maintain a strict discipline of fleet renewal through selective acquisitions that generate accretive growth on a non-speculative basis. We do not chase assets or public options where the highest bidder wins.

And we have passed on five more acquisition opportunities that we have pursued over the last year. If we do not have high conviction that an acquisition will be in the best long-term interests of the company then our shareholders who simply do not take it forward.

Beyond that, we will continue to optimize our balance sheet, while also returning capital to shareholders in the form of our increased dividend and also on an opportunistic basis through the $40 million share repurchase authorization announced today. With that I'll turn the call to Ian..

Thank you, George. Please turn to Slide 6. In 2021, we enhanced our earnings by both expanding our fleet by more than 50% and also securing highly attractive long-term charters across our existing fleet.

On this slide, which shows the 43 vessels we ended the beginning of last year, we indicate in dark blue the 21 charters that we added since the beginning of 2021, totaling nearly 8 -- sorry, totaling nearly $900 million in additional contracted revenue.

You will see that many of these charters extend one out through the middle of turn -- into the middle of the decade or even longer, are in many cases, at rates that are multiples of their prior levels. All else equal an increase in the charter rate goes straight to our bottom line.

Also, as you can see here, the vessels are fully booked through 2023, I think we have three open days this year at the moment, and much of 2023 -- sorry, if I said 2023, I meant 2022, we’re fully booked through 2022 with the open days and much of 2023 is covered, giving strong visibility.

Given the extraordinary tightness of the market, there may be some opportunities to forward fix more of our vessels well in advance of their starts. On the next slide, Slide 7, we show you the 23 vessels that we acquired during the course of last year, which has now all been delivered and are generating revenue for us.

These ships have increased our contracted revenue by $650 million. The dark blue bars on this slide are those legacy charters that were in place from the agreed transactions. To our considerable benefits these below market charter rates translated into below market prices for the vessels themselves when we purchased the ships.

The red bars on this slide, show those charters that were agreed subsequent to the acquisitions by us and thus which reflect the strength of the charter market.

As was the case for the existing fleet, these newly agreed charters are at far higher rates than those they replaced, some in treble or more of the previous rates, and they extend for multiple years.

In total, as George mentioned, our actions during 2021 have increased our adjusted EBITDA for the fourth quarter of 2021 to $85.4 million, which is 2.2 times that's for the same quarter last year, quarter four in 2020.

Now, they have also increased our adjusted EBITDA backlog by $1.2 billion and brought our total contract cover to $1.8 billion on average over the next 2.6 years. On the next slide, Slide 8, I'll provide some illustrative guidance on how our contract cover flows through into our earnings.

To be clear, we are not providing a forecast, but rather providing you with a framework for understanding our revenue and adjusted EBITDA in the three illustrative scenarios, we’ve set out along with the various assumptions spelled out in detail in the EBITDA calculator in the appendix of this presentation. I will highlight just a few things.

As mentioned, we're fully contracted essentially through 2022. So our revenue for the year is not sensitive to any changes in the charter market or charter rates agreed by ourselves. Variability in revenue will be driven by the actual amount of off-hire, compared to our assumptions off-hire for drydocking and unplanned off-hire for breakdowns.

Looking out to 2023 spot exposure remains limited. According to the EBITDA calculator, which I mentioned before, it's on page 22 of the presentation. 86% of our ownership days for 2023 are covered.

Moreover, the vessels that are due to come open in 2023 currently have rates reflecting the previous week markets, meaning that their recharting would increase our cash flow under any of the three illustrious scenarios mentioned here.

For contracts and as I mentioned last quarter, GSL's run rate adjusted EBITDA in 2019 and 2020, the two years since 2018 merger with Poseidon, was approximately $180 million a year. So the expense of the improvements here is dramatic.

In short, we are in a good position with high visibility of cash flows, EBITDA for at least a medium-term with very limited reliance on the charter market. And this is particularly reassuring, given the current geopolitical and economic backdrop. Moving on to Slide 9, I'll discuss our dynamic approach to capital allocation.

We're now generating a great deal of more cash flow than in the past from growth and improved charter rates. And as such, we have an expanded set of opportunities to allocate capital in a way that sustainably maximizes shareholder value and relative returns on a risk adjusted basis.

As you saw in 2021, we do pursue accretive growth and fleet renewal opportunities on a selected and disciplined basis. As George mentioned, we’ve fore-grown far more growth opportunities than we perceived, as we've maintained strict discipline and a set of criteria that are served GSL and our shareholders very well.

Importantly, we also look to return capital to investors on a sustainable value accretive basis. As mentioned, we're increasing our quarterly dividend to $0.375 per share more than treble the level indicated just over a year ago. And we believe that we're well positioned to reliably support this payment on a sustainable basis.

We also intend to pursue share buybacks on an opportunistic basis, as you saw in third quarter of 2021 when we repurchased $10 million of GSL shares and cancelled.

Additionally, we've announced today that our board has put in place a $14 million share repurchase authorization, enabling us to move quickly to opportunistically repurchase shares in the market without the administrative delay of having to seek Board approval.

Please note, as George has already said, the cash effect of our higher rate charters builds as 2022 develops, and further drydocking schedule is weighted towards Q1 and Q3 -- sorry, Q1, Q2, and Q3, and consequently, cash availability is weighted towards the latter parts of the year.

So, over the course of less than one year, we have significantly increased the amount of capital being returned to shareholders, and expect to continue this trend by the higher quarterly dividend, which we have announced and the new $40 million repurchase authorization.

To repeat what George said earlier, because it's important, we returned to shareholders a little more than all of our net unrestricted cash flow last year, after CapEx growth and debt amortization. This return was by way of dividend and stock repurchases.

For 2022, based on the EBITDA calculator on Page 22, 50% of operating cash flow after the same items better amortization, dry docking, et cetera is committed to dividends on both the preferred and the common stock.

This does not take into account any stock buybacks or incremental CapEx, as George also mentioned in response to decarbonization, selective fleet renewal or further balance sheets improvement.

We also continue to look for opportunities to not just refinance and lower our cost of debt, but also to delever in a way that builds equity value and manages balance sheet risk.

Finally and importantly, in addition to the CapEx that is inherent in our ongoing operations for regulatory drydockings, for example, we also expect to deploy capital to meet evolving markets and regulatory demands of decarbonization.

We intend to focus on deploying proven technologies and solutions to enhance the carbon footprint and the fuel efficiency of our fleet, rather than any of the current speculative alternatives.

We expect such CapEx to be of commercial benefits in increasing the attractiveness of our fleet, and thus our ability to continue to charter our ships at premium rates as we've been able to do in the past.

Of course, when weighing these options, we and the Board take into consideration the risks to our cash flows, our expected profitability through the cycle and the regulatory end market variables ahead of us.

Fundamentally though, we focus on generating long-term value for our shareholders, targeting a balanced approach to capital allocation that builds shareholder value on a sustainable basis in what is a cyclical industry. With that, I'll turn the call over to Tassos to talk you through our financials..

Thank you, Ian. On Slide 10 we have summarized our 2021 financial and highlights. Revenue for the year was $448 million, up from $282.8 million in 2020. Similarly, adjusted EBITDA for the year was $252.2 million, up from $163.2 million in 2020.

Our normalized income, which adjust for one-off items increased from $49.6 million in 2021 to $170.7 million in 2021. Moving to the balance sheet items, much of this has been previously covered, but I would highlight the following.

We had $203.5 million of cash at year-end, of which $128.4 million is restricted, and approximately $25 million represent a minimum free liquidity level set from our debt facility.

We also refinanced $383.1 million of debt within 2021 and then additional $26.2 million within 2022 till today, materially reducing our annual debt service and eliminating end maturities before May 2024. We have purchased instruments capping LIBOR on $992 million of our floating rate debt of 0.75%.

The first interest rate cap on $484.1 million of debt was put in place in December 2021 at the cost of $7 million. The second cap of $507.9 million of debt was put in place in February of this year at the cost of $15.4 million.

The other items on this slide such as the share buyback you will be familiar with from our third quarter earnings call but I will be happy to address any questions you might have during Q&A. For the record, our digital financial statements appear in full on Slide 11 to 13.

Now, on Slide 14, you can see in the upper left our scheduled amortization in the coming years.

As is prudent especially in the cyclical industry like ours with assets that have definite life, we amortize an adequate amount into year as agreed with our lenders, utilizing our cash flows to delevers and to limit our exposure to refinance risk along maturity.

On the upper right, you can see the dramatic reduction in our cost of debt from 7.7% at year-end 2018 to 6.3% in early 2021 and all the way to 4.7% now. In the business like ours, this greatly increases our capacities.

On the lower left, you will see that the trading liquidity in our stock has increased substantially over the last year, making it far easier for the vessel to take position in GSL, particularly as our public float increase to 84% by year-end. With that, I will turn it over to Tom..

Thanks Tassos. Slide 15 is intended to highlight the ship sizes on which our business is focused, which will help with the subsequent slides in context. And many of you will have heard this before, but I'll repeat it nevertheless.

GSL is focused on midsize and smaller ships, which is shorthand for ships ranging from about 2000 TEU up to about 10,000 TEU. The top map on the left shows the deployment of our sizes of ship i.e. ships under 10,000 TEU and emphasizes their operational flexibility. As you can see, they're deployed pretty much everywhere.

The bottom map on the other hand shows where the big ships, those larger than 10,000 TEU were deployed, which tends to be on the East-West Mainlane or arterial trades were the cargo volumes and shoreside infrastructure hold them.

And it's important to note that over 70% of global containerized trade volumes, in fact, 72% in 2021, are moved outside these Mainlanes in the North-South, Regional and intermediate trades served by ships like ours.

George covered demand side in his opening remarks, highlighting the rebound in containerized volumes with year-on-year growth of 7.1% in 2021 and for the moment at least, forecast to be 4.2% in 2022 with continued supply chain disruption amplifying the demand for effective supply. So the next slides are mainly supply oriented.

Slide 16 shows the supply side trends that tend to be a barometer of health for the sector. The top chart shows idle capacity, which at year-end was 0.6%. This is pretty much full employment, which remained the case during the traditional slow season and through Chinese New Year, so a very strong baseline.

The bottom chart tells a similar story, ship recycling or scrapping was almost non-existent for containerships in 2021, which has remained the case through the first couple of months of this year. The explanation is straightforward. Why scrap even an ancient ship if you can employ her very lucratively.

To illustrate this point, a 25-year old feeder has just been fixed by one of our competitors for a little over three years at $41,000 a day.

And you will remember that we fixed Kumasi, a 20-year old feeder just a couple of months back at $38,000 a day for similar period, which in turn was up on $32,000 a day for a couple of her sisters fixed two months prior. I'll come back to this later. In the meantime, please turn to Slide 17, which looks at the Order Book.

Here you can see on the left the composition of the Order Book by size segment. As I'm sure you will have read in the industry press and as we acknowledged on our last earnings call, the Order Book has expanded during the course of 2021, reaching an overall Order Book to fleet ratio of 23.4% at year-end.

However, this overlooks the fact that the Order Book is very heavily weighted towards the big issues, over 10,000 TEU. If on the other hand, you look at our focus segments of 2000 to 10,000 TEU, highlighted in the red box. You can see that these sizes, the Order Book fleet ratio is significantly lower, but only 8.7%.

Another point, besides when discussing the order book is the delivery schedule is back loaded. By this I mean the order book deliveries tend to be weighted more heavily towards 2023 and 2024, now slipping into 2025, rather than 2022.

This back-loading are significant as 2023 marks the implementation of the new environmental regulations, which we expect caused a slowing down of the global fleet reducing effective supply. It also ties into the point George underlined earlier in his commentary on Slide 5, that midsize and smaller container ship fleet -- the global fleet is aging.

As you can see from the chart on the right of this slide, if scrapping work continued to be deferred by the end of 2024 between 7.5% and 8% of sub 10,000 TEU capacity currently on the water would be at least 25 years old and candidates for the recycling yards.

Net this out against the total Order Book and sub 10,000 TEU due to be delivered from year-end 2021 through to the end of 2024, and you will get implied net growth in these sizes of just 2.3%. Not 2.3% per year, I hate to add, but 2.3% total over the coming three years.

So in short, we continue to see supportive supply side fundamentals for our focus sized segments, which brings us to slide 18, the charter markets. The chart here provides an index covering charter market rates for a basket of containership sizes and shows the general direction of travel for the market as a whole.

The index is up by almost four times as you can see on where it was at the start of 2021, and by an incredible nine times since the lows of 2020.

It's important to note here that the index is based on short-term fixtures, by which I mean fixtures of under a year and usually just a few months, which explains the current and I emphasize, apparent loss of momentum in the second half of 2021.

What is really happening here is that, the market migrated to longer-term fixtures of the type we as GSL have always been focused upon at the expense of the short-term market.

And as you can see from the rates on the right hand side of this slide, the market for multiyear charters has remained very strong indeed, with rates firming, especially vigorously in the smaller sizes as well in the illustrated by the three year feeder fixtures, including that of the Kumasi I referenced earlier.

So, the supply side fundamental suggests more of the same in 2022 and 2023, but as we all know, the macro and geopolitical environment makes the demand side exceptionally difficult to call at the moment. With that, I'll turn the call back to George to wrap up..

Thank you, Tom. I'll briefly summarize and then we will be happy to take your questions. Assigning a large number of long-term charters at high rates and selectively acquiring ships we entered 2022 with a $1.8 billion of contact cover over 2.6 years, easily providing cash flow to cover all of our debt service, CapEx and dividends for 2022 and 2023.

We thus have no reliance on further renewals throughout the end of 2023, so of course, we intend to pursue additional charters for those ships coming open in 2023. A fleet of higher rate for midsize post Panamax and smaller containerships is in the sweet spot of the market.

While there is essentially zero idle capacity or scraping at the moment, the mid-size and smaller fleet is aging, creating a scrapping backlog. Set against negligible order book and incoming regulations, we might actually see effective capacity shrink from 2023.

In the charter market, all signals are positive, with freight markets continuing to be red hot, liners forecasting another year of exceptional profitability and charter markets currently up almost 9x from the mid 2020 lows.

Finally, as our cash flows expand, we are allocating capital to maximize long-term value through a greatly increased div,idend, and our newly announced repurchase authorization, substantially increasing the return of capital to shareholders, fleet improvement for decarbonization, fleet renewal through selective disciplined accretive and opportunistic acquisitions and further leveraging, which also contributes to creating equity value.

With that, we would be happy to take your questions..

[Operator Instructions] Our first question comes from Randy Giveans from Jefferies. You may begin..

How are you team GSL? How's it going?.

Great. Thank you..

Great, indeed. I guess first question here about the dividend. Good to see the increase. How did you decide on that amount? Should we expect some continued smaller increases in the future as vessels are forward fixed? And then how do you balance that dividend with share repurchases? Clearly, your share prices is pretty undervalued here..

Ian, you want to try this?.

Sure. Thanks, Randy. Yes. I mean, we review that dividends with allocation more generally. But let's focus on shareholder returns. We review the return of capital shareholders regularly as you'd expect. With the refinancing of our expensive high yield notes back in January of last year, we were able to announce the [full set] dividend.

We reviewed that a couple of months later, when we were about to announce a real dividends. And we announced $0.25, because we saw that there was more cash available from the improving market and from some growth.

We reviewed that again at the end of or towards the end of 2021 with further growth and with further forward fixed, and determined that $0.375 to $1.50 in the year was an appropriate allocation of capital to shareholders and crucially was sustainable, given our view of the future. And this is an art not a science as you'll appreciate.

And the forward cover forward contract cover, which has been increasing as we've said, both in absolute terms, dollar numbers and timeline, the length of charter commitments gives us higher visibility and greater degree of confidence.

We've looked again, more recently, part of this earnings call at capital allocation, and determines that we should allocate more to shareholders. This time around, the Board determined that the best way of doing it in the circumstances was to create this $40 million share buyback authorization rather than further increase the dividend.

And we expect, Randy to continue this dynamic approach to capital allocation more widely for competing demand as we talked about decarbonisation and fleet renewal, deleveraging and return of capital to shareholders. We expect to continue to review this on an ongoing basis as the market develops.

And yes, to your crucial question to the extent we get further visibility on 2023 with forward fixings of new charters, the cash flow effective, which will only come through during 2023, of course then that will feed into a determination about increasing the dividend or not.

But obviously, we've responded to improvements in cash flow and crucially improvements in forward cover supporting sustainability that's fed through into increased amounts of capital allocated shareholders..

And then kind of touching on that, you do have a couple of vessels coming off charter in early ‘23. We've seen some peers locking in charters to start at that timeframe already.

So when do you expect the kind of forward fix those in getting kind of inquiries on those now?.

Well, we're working on all of our forward fixtures, and we're trying to get the best out of it. So it's a complicated mix. We've got some ships, some smaller, some bigger ships, and we're trying to make the best mix and the best possible forward fixtures. But this is our priority right now, is forward fixing our ships, is our top priority..

And then just one quick modeling question. You saw $18.4 million or so on the amortization of the charter adjustments and other things in the fourth quarter.

Do you have a run rate for that for kind of quarterlies in '22 and '23?.

I can answer that. Just having a quick look at it. This is this is the inherent value and below market charters on the ships that were acquired in 2021. We can't give precise figures. But the effects in each quarter will reduce as time goes by as those legacy charters, the below market ones expire.

And maybe you can assume that those charters are gone a couple of years ago, 2.5 years ago, at this stage that we bought the ships in the middle of the year. So there'll be a reducing amount of intangible credits coming through overnight to a couple of years. Kind of straight line depreciation..

Our next question comes from line of Liam Burke from B. Riley..

How to -- interested on the '23 vessels you acquired in a very accretive manner. Some of them were -- I mean, about a third of them were over 20 years old. They were purchased and the acquisition implied a scrap value for these vessels, which translated to a healthy return.

Would you anticipate any of these vessels actually staying in the global fleet and recharter? Or do you just anticipate a good deal is a good deal, we'll just scrap them?.

Well, it very much depends on the market. We generally do not think that ships 25 years or older, it's going to be easy to be the chartered unless the market is red hot like today. But we've got plenty of life which we can squeeze out of our existing fleet, and we might surprise ourselves when the end of this charters come to an end.

The thing is that the ships we have which are a bit old like you said, also are quite unique, because they’re Post-Panamax ships. And those ships are not being built enough, and those ships carry a big advantage in the new CII regulations.

And what I mean by that, the CII regulations is a very complicated equation coming into effect from first of January '23. It is -- to make it simple for the people who listen, there is -- therea are five categories, A, B, C, D. The ships – and E. The ships has to trade on A, B or C.

Now, whether a ship is on A, B or C, or D and E, which you shouldn't be, it's a matter of -- it's a combination of how much fuel you're burning, and therefore CO2 emitting. How much cargo you have involved.

So very economic ship that carries half it's cargo, it's penalized because you're polluting without moving a lot of cargo -- and the distance you travel. So it's a combination of the three. But very important is the amount of cargo you carry. So ships that carry a lot of cargo have a better rating than ships that carry less cargo.

And I'm talking about assuming a full capacity. So let's say, a ship is a 100% loaded. You get a 5,000 TEU for example, Panamax ship and a 5,000 TEU Post Panamax. The Post Panamax ship can take 40% more cargo loaded containers than the Panamax, because it's wider, more stable. Therefore that ship is going to have a better rating.

So, most of our old ships, if you see in our fleet, are Post Panamax. So they have this advantage. Of course, we have to modify our ships and we are going to modify our ships, and we have taken into account that CapEx for that. We have to modify our ships for two reasons. One is that, the carbon emission is directly related to the fuel consumption.

So, the more fuel you burn, the more CO2 you emit obviously. But also, so for the carbon emission purposes, we will modify our ships. But equally, today, after this conflict of Russia and Ukraine, fuel price have gone through the roof, they are at $700, $800, which is the highest price since 2013.

And apart from the fact that environmentally, it is important ships to consume a little fuel -- as little fuel as possible, so they don't emit too much CO2. From a commercial perspective, fuel expense is so expensive, so it is also double -- it's a double dip.

It's very important -- it's becoming important in two respects for liner companies, a ship that consumes less fuel. So, any improvement we do to our ships to reduce consumption is giving us a double benefit and ability to forward fix our ships or extend the existing charters or do a commercial again, with the charters going forward..

[Multiple Speakers] Thanks, George. Maybe the same thing -- I'm going to just add a couple of comments, Liam, to circle back to your original question.

You're absolutely right, when we ran the investment analysis on the 23 ships that we acquired last year, we applied pretty conservative criteria assuming that they may be scrapped out at the end of the initial charters or the charters that we have visibility on.

However, we do see scope to extend significantly beyond that time horizon as a result to add upside to the returns. And if you scroll through the presentation to Slide 30, you will see on the right hand side of that slide, the age profile by size segment of the global fleet. And you can see that, yes, it's true.

A number of our ships are aging, but also the peer group for each of those segments is also aging, which again, adds to our view that particularly in light of a comparatively small order book, for midsize and small tonnage, and then aging peer group, there is scope particularly with the enhancements that George has discussed just now to extend the life and enhance the returns of the acquisitions we have made.

Ian, was that the point you were going to make too?.

Yes. It was Tom. We think similarly. So I mean, it just reemphasize the cautious approach we had when we were making decisions to putrchase ships. We don't rely on markets continually.

We look to very skinny residual values, scrap values and we look to ensure that we can earn the required return over a 3 to 5 year timeframes, not running our vessels out to say a 30 year life..

And just on the other front, you are looking at potential acquisitions every day. You mentioned in prepared comments that you have walked away from a lot of deals.

Do you still see opportunity out there, considering the fact that asset values are sky high?.

Well, the obvious answer is we do not. But as our business is, they’re peculiar, we might find transactions where ships have existing charter.

So such as, as it is done with Maersk, where you buying a ship with a specific charter attached to it with a liner company, and then it's in a lease, that kind of thing, which might bring the high returns we require, and to allocate capital for such transactions. We're not out, we're not definitely looking to buy any charter ship.

I mean, we're not looking to buy anything that it does not meet our stringent criteria and therefore that's why you've seen up to this lets say, acquisitions flood it with these many ships, we did nothing. We don't believe that we should grow the company for the sake of growth, absolutely not.

This is not how you make money in shipping, whether it's a public or private company. It's all about timing the acquisition.

Once the market, of course, deflates, because it’s a cyclical business and it will deflate at a point, then a lot more opportunities will come up, which will help us bring newer fleet and to bring down the average age of our fleet.

But right now, I would say that the only deals that would make sense, if at all, would be deals where we have certainty of income and calculated returns. I don't know, Tom, if you want to add something..

Sure. Thanks, George. Yeah, I mean, I’d just echo what we said really in the prepared remarks, which is in broader terms, capital allocation is all about relative returns on a risk adjusted basis.

So, for the last six months or so, in our view, we should be directing capital towards returns to shareholders and delevering rather than directing it towards acquisition simply because although we're seeing plenty of opportunities, as George says, those opportunities don't meet our risk and return criteria.

But this is a cyclical industry and if we are to continue to generate attractive cash flows over the long-term, we of course, have to have an eye to fleet renewal. But it's all about timing those acquisitions or structuring them in such a way that the risk and return profile fits..

If I may add Liam, to this. Now in 2021, we returned all the money that was surplus to the company to the shareholders and more, and all. So that shows you that we have a policy where we have a sustainable dividend. And I have to say, sustainable, this is a CSS policy. We're not having a dividend for 12 months, we're having a sustainable dividend.

And then we see what's happening over and above that money and we allocate it appropriately depending on where we stand on the cycle, what's the cash flow contracts, and how are we doing with forward fixing and so forth. But I think our actions speak for themselves.

It's nice when companies go out and say, I'm going to dividend out X percentage of my cash flow or my net income or whatever, we have done that 100%, actually, last year. And as we speak, we are 50% on current year and we don't intend to stay there, obviously, returning equity to the shareholders is going to be more than 50%.

But actions speak for ourselves. And I'm a shareholder, a major shareholder of the company, and I've been very happy with this return as a shareholder..

Our next question comes from the line of J. Mintzmyer from Value Investor's Edge..

So great discussion so far, I wanted to dive into the cash balance and the discussion, the refinancing a little bit. I apologize if I missed it. I got on the call little later. But I wanted to dig into the restricted cash balances a little bit more, there's a massive restricted cash balance, a lot of its non-current.

Was that related to the recent refinancing, or is that expected to be on the balance sheet long-term in that form?.

Ian, you want to answer that?.

Yes, it is a big number, J. and thank you for pointing it out. Because it's important in understanding the cash that's available. If you look at the balance sheet, you see $300 million you will say, “woah,” but actually $150 million of that's locked up very formally as restricted cash.

And we have a minimum liquidity requirements outside restricted cash at 25 million bucks under our banking facilities.

The vast majority of the 128 million restricted cash related to kind of one generic item, which is charter hire received in advance, this is advanced payments for charters that we renegotiated or negotiated in the second half of last year. It's commercially very sensitive. So we can't talk too much about it.

But we would expect this to continue to build a little in the short-term as the charter pays us above the agreed rate, and then the payment drops down. And we draw on this restricted cash to make up the credit to revenue in our P&L.

So this is mostly advanced payment of hire, it will be a feature of the balance sheet for the next little while, but over time, the amount will reduce..

Thanks for diving into that a little bit. I noticed you have the interesting revenue item, as you accrue those charters down, it's like an additional revenue line item..

Technically, the other side of the entry is deferred revenue. [Multiple Speakers] cash credit deferred revenue..

I wanted to circle back. We talked about this in previous conference calls. But I wanted to circle back on the baby bonds. I know you've issued some more of those last spring and summer to help with the growth and it's been very accretive. But now they're sitting there at 8%, much higher cost than most of your other loans.

We talked about the call option that's available on those, I know, you have to pay a slight premium now.

Is there any interest? Is that on a near-term table for perhaps the next year or is that more of something we’d look towards maturity to take care of?.

Well, it's one of the things that we have in our minds and Tassos can talk to you about it. .

Like, we have said a number of times is that, for us, it's a primary goal to reduce the cost. This is something that we have done since 2018, and would continue to do. It is something that we examine, it couldn't be called before the end of the year.

So, this is something that -- it is in our plan to examining what it's going to be the appropriate timing, the appropriate opportunity order for us to save money..

Yeah. Certainly, makes sense. Depends, what other opportunities you have of course. A ittle niche question here on the ship charters. I noticed you have a few CMA, CGM ships, about 4,000 TEUs. Previous to this, you've listed them as expiring somewhere between third quarter of this year and first quarter of '23. Obviously the market is strong.

So, we expect those to go to at least the latest expiration date. But now on your presentations, you are showing those same ships and you are showing them going out until the middle of '23.

Were there some additional options that weren't listed previously or what's going on with those ships?.

Tom, you want to?.

Yeah. Thanks, George. So I'm sorry, this may have been lost in the footnotes. But if you look at the footnotes to Slide 6 and 7, you'll see that, what is happening here is the following under most charter agreements, a charter has the option to add on accrued off-hire days, that have built up during the lifetime of a given charter.

So for example, the ships been off-hire for 30 days, in dry dock, the charter has the option to add those 30 days onto the end of the charter. Now, this is something we haven't really seen or at least I haven't seen in the industry since about 2005, the last super cycle.

But because capacity is so tight and because the lines are so anxious to hang onto capacity for just as long as they can in their networks, it's something that we are beginning to see again now. Hence, the stretching of the expected delivery dates into the subsequent quarters for a number of these vessels.

So, it's a function really of the tremendous good health of the market, J, but in this case paradoxically, it works against us a little bit..

Yeah. Certainly, noted the slippage in a few of those ships.

I mean, it'll be the current rate is decent, but it means that a lot of the early '23, is now middle '23, right? A final question, what's kind of the next couple ships that you would expect to forward fix and when would be the timeline for those? I know that you’re have the GSL season, as one of the vessel comes up at the end of this year.

I think you have the Nicholas as well, comes up soon.

Is there something we could expect to see by say this summer, or is this more of like a 2023 thing?.

Well, we are trying to fix them sooner rather than later. And I would imagine that, it's something that we should see before the summer. But always this isn't a matter of negotiation. But this is a prime target is to forward fix our ships, and not just those but any 2023 ship.

This is our top priority, as I said before, to try and fix those ships forward..

Yeah. Sounds good. You have a lot of ships with CMA, CGM that look pretty darn attractive. So, hopefully you can get a deal done. Congrats on the excellent results and we'll look forward to the stock price catching up to your valuations here..

Our next question comes from Frode Morkedal with Clarksons Securities. You may begin..

I just wanted to first of all applaud your decision to buyback shares, which is something that a lot of investors have requested I think. And given a big discounted NAV, I think this is clearly good news, should be updating both EBITDA of course but also implied vessel prices. That's good.

Maybe you have already touched upon it, but are there any constraints for this buyback program in terms of timing and pricing?.

I don't know, Frode, there aren't some management's discretion..

However it is obviously subject to availability of cash, sorry and maybe we’ll best stay that --.

Yeah..

As we said in the prepared remarks, we build cash, but it's back loaded really, in 2022. So it's practical considerations and obviously, how the market develops..

On the decarbonisation investments you're targeting, can you give some more color on what type of equipment or investments you're looking into? And in connection with that, what's the CapEx -- expected CapEx and expected fuel savings from that part of investment?.

Well, we have a specific program that we're looking via [Indiscernible] and design lab, as well as the whole fleet for EEXI and abilities to improve. The obvious answer is that, of course, essentially, ships are going to give you a color on the size of it right now.

But the things that you can do on a ship to improve is – and Tom will comment into this more, its changing the Bulbous Bow, changing the propeller. Those are major changes. Applying silicone based paints, those are some even more innovative solutions such as air bubbles, et cetera, which we haven't yet looked in depth.

Putting some special, let's call it, appliances in the back of the propeller to help the flow of water and make the ship more efficient. All of those could give anything between 12% to 17%. improvement in the fuel consumption and hence CO2 emissions. But Tom, I don't know if I covered that. .

one is responding to the changing regulations directly effective on the 1st January of next year; and then two is the more general, what are we doing to improve the efficiency of our vessels and the commercial attractiveness..

Yes. And within that product, as you'll understand and this is where things get commercially a little bit sensitive. And so we have to be a little bit guarded in our discussions.

But clearly, if you enhance the ship and you reduce the fuel consumption and thus emissions of that ship, the economic benefits accrue primarily in the short-term to the charter. In the longer term, obviously, they accrue to the ship and because you have a commercially more attractive ship, but in the short-term they accrue to the charter.

So we would be looking for a collaborative approach with our charters, with the liner operators to improve ships. And I guess it's a bit of a crude analogy, but it's an easy one. In the past, we have installed scrubbers on two of our ships. And we did so, because there was economic justification in doing so.

So yes, this is a commercial as well as an operational as well as a regulatory issue and where we along with the rest of the industry are feeling our way, I would say, at the moment..

So. this would be some type of profit share agreement perhaps in order to --.

Potentially a rate premium, potentially a longer charter, potentially shared CapEx, potentially, potentially, potentially. So there isn't an easy response to you, because it's something that not only we, but the industry and the market as a whole is evolving at the moment..

If I may say further, I think you're thinking of transaction such as in tankers more or bulker, where you have -- the ship has a base rate and then there's a profit share. In container, we don't have that. Because there's no index to benchmark and get the profit share.

In container, what you get is an additional -- an increase in charter rates or longer charter rates, at the same rate, or something -- some sharing. So it's a different way of doing it. The beauty about it is that these different way is more a certain way. In btnkers and bulkers, you have profit sharing, but for a profit to be shared it has to exist.

And as we know, tankers and bulkers, let's say more in the spot market rather than in long-term charter. Therefore, it's an expected hopeful profit, whilst in containers, its more of a solid certain profit, let's put it this way..

Finally, given your investments and -- what's your current assessment of the need for streaming for your fleet perhaps or maybe if you have any assessment on the wider fleet?.

I would say that the general idea is that the world fleet right now is trading around 20-21 knots. I'd say for the EESXI numbers to work, and the CII, et cetera. I would expect the world fleet to be trading around 19 knots. As a general, I mean, the model ships can trade higher, the less modern can trade lower, so average 19.

But let's not forget that more than 21 knots we haven't seen for a decade. So right now we're at the maximum, let's say realistic speed. Now, fuel comes into play right now, which wasn't the case in the last three months ago.

Now fuel is a very important issue, which, right now, CO2 emissions for the rest of the year is not an issue, but it will become an issue in January '23. But before this becomes an issue, fuel has already become an issue.

Now the freight rates are of course too high and probably line companies will not slow down, because of fuel as we speak with this kind of freight rates. But let's keep in mind that, it's a double effect. Fuel consumption and CO2 emissions, they are gonna put the pressure.

One thing I'd like to say, which is very important and you guys understand it in cascading. as you are experts in shipping with your broadcast. The fact the CII calculation takes into kind of effect a big portion of what the carbon ship has, that is going to be, in my opinion, a protection for the future -- for cascading.

We will not have -- we can not have, big ships moving around half empty as the cascade years 2016, 2015, 2000 -- these years, liner companies would put a bigger ship than they needed because they had ordered them and they didn't know what to do with them, into trades that they not needed. And they only had to pay fuel, but fuel was cheap then.

Now the CII calculation is going to kill such a practice, because if you have a ship half empty, it's disastrous for the CIA calculation. So, keep that in mind. It's an interesting angle..

And then, we have a follow from the line of Randy Giveans from Jefferies. You may begin..

Hey, guys. I know a long call, but just quick question.

What is the current outstanding preferred equity amount, just trying to get that calc for the income statement?.

It's around -- its a little bit higher than $100 million, if I remember correct, $110 million..

Perfect. That's it. Thank you all..

Thank you. And this concludes today's conference call. Thank you for -- sorry, this concludes today's Q&A. I'll turn it over to Ian Webber for any closing remarks..

Thank you very much. Thank you all for listening to us. It's been a good call. We appreciate the questions and we look forward to giving you an update in May, most likely the second week of May when we will issue our first quarter 2022 results. Thank you very much..

Thank you very much also..

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day..