Loukas Barmparis - President Polys Hajioannou - CEO and Chairman.

Magnus Fyhr - Seaport Global Securities LLC Liam Garrity-Rokous - Citi Max Yaras - Morgan Stanley James Jang - Maxim Group.

Thank you for standing by, ladies and gentlemen and welcome to the Safe Bulkers Conference Call to discuss the Second Quarter 2018 Financial Results. Today, we have with us from Safe Bulkers, Chair and Chief Executive Officer, Polys Hajioannou; President, Dr. Loukas Barmparis; and Chief Compliance Officer, [Indiscernible].

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] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566.

I must advise you that this conference is being recorded today. Before we begin, please note that this presentation contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Concerning future events, the company's growth strategy and measures to implement such strategies, including expected vessels, acquisitions, and entering into further time charters.

Words, such as expects, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are identified to identify forward-looking statements.

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will provide to have been correct.

These statements involve known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to signify uncertainties and contingency, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, changes of the demand for drybulk vessels, competitive factors in the markets in which the company operates, risks associated on operations outside the United States, and other factors listed from time-to-time in the company's filings with the Securities and Exchange Commission.

The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change of the company's expectations with respect thereto or any changes in events, conditions, or circumstances on which any statement is based.

And I now pass the floor over to Dr. Barmparis. Please go ahead sir..

Good morning. I'm Loukas Barmparis, President of Safe Bulkers. Welcome to our conference call and webcast to discuss the financial results for the second quarter of 2018. The second quarter of 2018 was a profitable quarter. We continued our efforts to improve our capital structure.

We will be focusing on the following quarters to deleverage and further reduce our financing costs. Let's now continue with developments in our industry. Turning to slide three, we present the overall improved charter market in 2018 compared to 2017. Panamax charterage have been over-performing 2017 throughout 2018.

Presently, market is at about $12,700, whereas the year-to-date average is $11,100 or 29% higher than 2017. Similarly, Capes are trading close to the last two years high in the region of $26,000 a day. The year-to-date average for Capes is $15,100 or 50% higher around the same period in 2017. A few points about demand in slide four.

Demand remains strong. Brazilian exports of iron ore lifted; a record for the quarter. Port Hedland exports rose to a record for the eight consecutive months of growth. Chinese first half coal imports hit three-year high, rising by 18% in June. India's coal demand rose by 7.5% in the year ending March 2018.

However, trade ware fears remain active; have been a headwind for the market, but a positive catalyst for controlling new orders. In the next slide five, we present the developments in terms of global fleet growth.

On the graph on the top, it is shown that accelerated orders of the fourth quarter of 2017 have slowed down and are almost eliminated during the last couple of months. New regulations in relation to NOx emissions, which means, tier 3 engines, as well as the uncertainty caused by the import tariffs have now put the brakes on new orders.

Looking at the bottom graph, newbuild deliveries are set to remain near decade low. Taking into account scrapping activity, the net fleet growth is expected to be in the region of 2% for 2018 and 2019. Compliance with upcoming regulations for Ballast Water Treatment, NOx and SOx requirements may affect further the net growth of the fleet.

Downtime for installing necessary equipment protect the slowing steaming for vessels using more expensive alternative fuels and eventually scrapping of other vessels may reduce further supply of vessels.

In slide six, we present a technical analysis comparing the Panamax charter market and the Baltic Sales and Purchase Assessment for five year old Panamax vessels. As shown in the graph, there is a constant differential between the asset values and the moving average of the charter market, probably due to risk associated with trade war.

This factor is distorted. Asset values are significantly lagging in comparison to the improved charter market. Restoration of this pattern may push asset values higher. The key takeaways are presented in slide six. Charter market is served by 30% higher for Panamax and 50% higher for Capes year-on-year.

Newbuild ordering activity of previous quarter has now come to an end. Demand remains strong. Trade war fears have been a headwind for the market, but a positive catalyst for controlling new orders. Forecast for net fleet growth is at decade low in the region of 2%. Asset values are lagging and will appreciate as the market improves.

New regulations for Ballast Water Treatment and SOx emissions will be the driver of the market in the years to come. In slide eight, we present some financial data on a quarterly basis. Our quarterly revenues and our adjusted EBITDA have been constantly increasing, thus improving our overall financial strength.

This part is also demonstrated on slide nine, where we present our adjusted EBITDA on a per vessel basis. We present in slide 10 our daily free cash flow waterfall for the second quarter of 2018. During 2018, we continue to be profitable, maintaining one of the most competitive breakeven points in the industry.

We've earned over $13,200 and burned less [Indiscernible] per day per vessel for all our daily outflows, including operating, G&A, interest, preferred dividend, and principal repayments. Our daily free cash flow stood over $3,850 per day per vessel. Increased OpEx this quarter are related to increased number of dry-dockings for older vessels.

In addition, the installation to all vessels of Ballast Water Treatment plants may have reduced the total revenues of this quarter due to downtimes. However, I need to remind you that companies without U.S. Coast Guard-approved Ballast Water Systems may not have the ability to trade in the U.S.

the following years, so this is an investment for the following years. Moving on to slide 11, we will continue to use our cash from operations to further improve our capital structure, deleverage and create increasing value for our common shareholders.

In this direction, we exercise the purchase option under the sale and the leaseback agreement for one Kamsarmax vessel, reducing related charter outflow of $2.4 million on an annual basis. We refinanced $188.5 million debt with balloons after 2021, reducing the principal installments for the next three to four years by $66.5 million.

And we financed newbuild delivery with $16.9 million, 2.95% preferred equity, which was previously announced. Now, our Chief Compliance Officer, [Indiscernible] will present our quarterly financials..

Thank you, Loukas and good morning to all. Let's move in slide 12 with our quarterly financial highlights for the second quarter of 2018 compared to the same period of 2017. Net revenues increased by 34% to $47 million from $35 million, mainly due to increasing charter rates.

Our time charter equivalent rate per vessel increased by 33% to $13,225 per day from $9,978 per day during the same period in 2017. Daily vessel operating expenses increased by 24% to $4,809 compared to $3,893 for the same period in 2017.

Daily general and administrative expenses, which include daily management fees payable to our managers and daily company administration costs increased by 11% to $1,280 for the second quarter of 2018, compared to $1,157 for the same period in 2017.

Our adjusted EBITDA for the second quarter of 2018 was $23.1 million compared to $16.2 million for the same period in 2017.

Our adjusted earnings per share for the second quarter of 2018 was $0.02, calculated on a weighted average number of 101.5 million shares, increased as compared to an adjusted loss per share of $0.07 during the same period in 2017, calculated on a weighted average number of 101.3 million shares.

In slide 13, we present our quarterly fleet data and average daily indicators compared to the same periods last year. Liquidity in a cyclical industry like ours is a key point and I will show you in the next slide what we have achieved. In slide 14, we focus on our expenses, both OpEx and G&A.

The aggregate figure for both OpEx and G&A for the second quarter of 2018 was $6,089 per day from $5,050 per day versus the second quarter of 2017.

This quarter includes the cost of initial suppliers for our last newbuild vessel delivered to us and two dry-dockings for 15 year old vessels, one dry-docking for a 10-year-old vessel, and a partial completion of one dry-docking for five year old vessel, compared to three dry-dockings, two of which were five year old vessels and one for a 10 year old vessel in the second quarter of 2017.

Our OpEx numbers include all items, like dry-docking and initial suppliers. Compared to our peers on average, what seemed about $580 in daily savings during the first half of 2018 from daily OpEx and daily G&A representing about $8.4 million in annualized savings or $0.08 per share in savings.

Moving on to slide 15, we would like to emphasize that we have positive operational cash flows for the first half of 2018 of $43.1 million as a result of the market observed and our performance.

The liquidity we preserve can be used to reduce financial obligations, as we have demonstrated through the exercise of our purchase option regarding one Kamsarmax vessel currently under sale leaseback agreement at an aggregated determined price of $23.7 million.

This transaction is expected to consummate in August 2018 and is expected to be financed with cash on hand. Overall, we believe we are well-positioned to take advantage of improved market conditions. Our press release presents in more detail our financial and operational results. We wish now to take your questions..

The first question comes from Magnus Fyhr. Please ask your question..

Yes. Good morning. Just a question on the increased daily operating expense.

I know you're expensing dry-docking cost, but can you give us some budgeted numbers going forward for 2018 and 2019 as far as dry-docking?.

Look, the cost for dry-dock -- first of all, we had four dry-dockings this period at the same time in one month. And I tend to say that we don't have -- I mean, in July, August, we don't have further dry-dockings. The next one will be in September, October.

You can calculate dry-docking cost of about -- for a five year old vessel, you could assume about $250,000. For a 10 year old vessel, the second special survey, you can assume $350,000, and for the fourth special survey, you could assume $500,000.

Of course, we did all this dry-docking and we had two older vessels, I mean, 15 year old vessels that we dry-dock, bringing them to the best position and upgrade them with Ballast Water Treatment as U.S. Coast Guard-approved.

And sometimes, it would take some longer downtime in order to install a Ballast Water Treatment, which would not be the case for the next quarter, I guess..

All right. And you -- I mean, the only vessels -- I mean you have a few vessels that are, I guess, the 2003 builds, what's your thoughts there? I mean it's a very strong, I mean, improving markets.

So, I mean, I assume you guys are going to continue to operate those?.

Yes, hello, good morning. Polys speaking. We continue to operate these ships because, helping pass this test away, they are fitted to the Ballast Water Treatment. The prices are not responding yet on those -- in general S&P prices are not responding for drybulk vessels. So, we're happy to continue to operate them.

For example, the ships we dry-dock and pass them [Indiscernible] they trade in the spot market on average $13,000 per day to lead both of them the Maria and the Koulitsa; they lifted cranes from Australia on their first cargo after dry-docking.

So, their ships are there in the top condition and they can continue being employed at numbers that they are way above other -- all the ships are achieving in the market. So, until prices catch up, we tend to continue to trade the ships. .

Okay, very good. And your cash position continues to improve.

At what point -- I mean, maybe you can elaborate a little bit what your thoughts are on continuing to upgrade the fleet versus starting maybe returning some of the cash to shareholders?.

Yes, I think that there will be opportunities in the quarters ahead to start renewing the fleet to buying more modern ships, less than five years old. As I said, prices are lagging and there are opportunities there for very modern ships or even resales.

So, at this stage, we will monitor the market, and when the right opportunity arises, we will invest in a ship that could easily be fixed, as you have seen on our newbuilding Kamsarmax, achieved $15,500 a day for one year charter.

I mean if you can buy a ship at an attractive price and fix it up $15,000 plus for a year, it's a good enough investment as far as we are concerned. So, the focus is to keep renewing the fleet as time goes forward. Need focus in fleets, of course, then we will consider in the future for some reward to shareholders, but we're not yet at that point..

Okay. And just one last question.

With the IMO 2020 coming up, what are your thoughts on buying eco-vessels versus installing scrubbers on existing vessels?.

Yes, we're balancing these options. We're not disclosing what will be our policy on the scrubbers yet, but I think that there will be combination of options, both buying eco-ships or considering other solutions to get into a more advantageous position when the new regulations will be in place..

Very good. Well, thank you..

Thank you..

And your next question comes from the line of Chris Wetherbee. Please ask your question..

This is Liam on for Chris. Thank you for taking my question. I just wanted to follow-up a little bit on the vessel operating expenses. I know you kind of addressed the dry-docking aspect of that, but it also seemed like there was, in the quarter, some cost related to initial supplies for the last newbuild.

I was just wondering if you can give us a sense, kind of on a go-forward run rate, like including dry-docking expenses, what do you think the daily OpEx would be for the remainder for 2018 and into 2019..

Look, as Loukas said before, this quarter was exceptionally high because of almost four dry-dockings, including two of older ships and the initial supply on the newbuilding. So, we don't have in each quarter our dry-dockings because it means 16 dry-dockings a year, whilst our average around eight dry-dockings in a year.

So, as you understand, this is a big number, but it's a one-off. Of course, running expenses, we should not hide, have been going up for all of us because oil prices have moved up. Many of the elements of OpEx related to supplies, lubricants, paints, and other costs are going higher because of the oil component.

And I think that if you put together the first and the second quarter, the average was $4,400. And I think, going forward, it should be around -- somewhere in the long course of the overall for the year, but it remains to be seen. It remains to be seen.

Also I must remind you that the older ships, when they go, when at least our company plays them through special way, we play them spare parts and [Indiscernible] are put on board, so for the next five years, the ship will be trading at very low cost and without any surprises. So, this is increasing the cost..

At the same time, however, when we observed the operating expenses that for all these reasons that we mentioned that are going up, I mean, the company does not stay stagnant. We're doing other things to reduce our breakeven point. So, for example, we have done several things, and these are in terms of financing outflows.

So, we did this -- we call this option to buy back the one vessel that will reduce the breakeven point, of course. The second thing is that we'll finance a substantial number of loans far, far away.

I mean they have balloons in 2021 and 2022, and they'll -- we'll push them to 2024, but the thing that you need also to put -- I mean there is a slight note there that we refinanced all this at reduced margins, substantially reduced margins of what we have and we never had the margin above 250..

All right. Thank you very much for that color. Just one additional question on a different topic. So, [Indiscernible] proposed kind of like a thesis that demand for some goods has risen in recent months as companies have placed like higher than typical orders for goods ahead of the potential tariffs.

I'm just wondering how you think -- if you think this is likely, and how, if it is likely, that could impact rates going forward?.

Loukas?.

[Indiscernible] Can you repeat the question? I didn't get it..

It's about tariffs..

The tariffs. The tariffs, look, I mean, of course, it's not positive overall. It's not positive. We should not smile about it. It's a big question mark. I mean the Chinese -- how the Chinese will retaliate on the tariffs imposed, to what extent, how this will affect the grain movement, especially for the goods.

My personal opinion in that matter is that out of tariffs, the U.S. farmers will be the biggest losers of all the participants. So, I think that tariffs at a certain point, they will be pressured by U.S. farmers to reconsider -- for the U.S. administration to reconsider the policy because the exports of U.S. soybeans is primarily heading into China.

Will this is affect this? I don't know who will buy all this soybean from the U.S. Unless, of course, subsidy will -- going into the U.S. farmers to support them. That itself counterbalances the benefits of the tariff.

So, I think there will be a time that all the administrations will sit down and will consider what is reasonable to do so not to affect so heavily the world trade..

All right. Thank you very much for taking my questions..

Thank you..

Thank you. And your next question comes from the line of Fotis Giannakoulis. Please ask your question..

Hi guys. Max Yaras on for Fotis. To kind of follow-up on Liam's question there, you noted that, I guess, trade tensions have already been a headwind.

Can you talk just specifically what you've been moving has been impacted or try to quantify that a bit?.

Look, there are headwinds. As you see, it's more psychology at this point because nobody knows exactly what is the effect of the tariffs, what will be in the long run. The psychology is there.

On the other hand, you see on the prompt quarters, we see quite the opposite, and we see freight trades, especially on Cape-sizes moving to new high levels for the last three or four years. So, I mean at the point, I mean, it's the psychology affecting result, but it's putting pressure maybe on prices.

On the other hand, we get the benefit of no new ordering because people, they don't want to risk and they want to see how it all ends up. Of course, going forward, the full effect will be known once we know what is retaliation and what will follow and if this will be generalized.

Yesterday, we saw some talks between European Union and President Trump and they are also -- there was little bit of more optimism expressed out of these meetings. Everything is so unclear. I think, even the various administrations, they don't know where -- what will be their next move.

So, I mean shipping company like ours is the last one to know exactly what will happen out of this story. But again, I think, overall, in a few months' time, it would be more clear. And maybe by the end of the -- maybe in the fourth quarter, by November, we will be able to assess better what will be the full effect of these tariffs.

That's why we believe that this stage is better for companies to strengthen their balance sheets and be in good position to take advantage of whatever happens, either positive or negative..

Okay. And then switching gears to the refinancing of the $188 million.

Can you tell us the cost of debt on that? And then maybe going forward, you talked about priority of maybe ships versus returning cash, but what would you think about further delevering versus reinstating a dividend?.

Renewal of fleet and deleveraging for us is a priority and what will be opportunity we will be buying at attractive prices, assets. And at the moment, it looks like assets are not appreciating, so there will be opportunity to buy some assets at reasonable cost.

Now, when a company makes a profit of $0.02 or $0.03 per quarter, there's not enough meat in the bone to say that it's a good time to reestablish a dividend. We have to wait for better conditions when they develop to consider this. So, for the time being is deleveraging and on occasional basis, renewal of the fleet..

And the cost of debt, the debt that was refinanced?.

Loukas?.

The cost is -- we don't want to -- we have not disclosed it, but it's below 200..

Okay. All right. Thank you guys. Congrats on a positive quarter..

Thank you..

Thank you. [Operator Instructions] Your next question comes from the line of James Jang, The Maxim Group..

Hey, good afternoon guys.

So, what is the plan for the two other vessels on sale and leaseback? Are you looking to repurchase those this year? Or are you kind of happy with where they are right now?.

Look, we have these two vessels still to go. The one -- each one of these vessels have a window for calling it. We're considering. We'll see how the market reacts. We are quite sure -- I mean our intention is to do one more -- at least one more next year. But we will see how the market conditions are going forward and if they're improving..

Okay. And just on the macro side. So, the dry weather in Europe Black Sea, it's hurting the wheat production. And with the U.S. and the EU kind of with the tariffs [Indiscernible] going on, what do you think those cargoes could be replaced? Do you see Australian cargoes replacing those? Or do you think the U.S.

cargoes will?.

We don't know how the trade will be affected. We expect more trade from East Coast South America grain trading, also from Australia to start replacing U.S. exports. But as I said, I think that it is to no one's advantage if the U.S. farmers cannot sell their soya beans to China. So, for me, this is a key factor.

What sort of solution will be found on the tariffs and I think that the U.S. farmers' interest will not be ignored by the administration. So, at the moment, we're experiencing, as you say, big drops and reducing of river-plates [ph] droughts in -- due to very heavy -- bad drought in Argentina. And everything is ever-changing in the grain trade.

At the moment, the one country that is exporting, frankly, is Brazil and this we have experienced right now. How this will develop in the future? It all depends on what form of retaliation will be imposed by the Chinese to the recently announced tariffs..

So, what about near-term with the wheat? Wheat production has been cut. The dry weather seems -- there's a lot of regions in Europe right now that are suffering.

Do you see the wheat drought currently being a positive for the Panamax sector for the rest of the year? Or do you think that net-net, it will be the same?.

Nothing. When something out of the ordinary happens, it's never positive for the market. So, I don't see it as a positive when you are reducing -- you have reduced quantities from a traditional exporting country of wheat. So, with other sources like Australia coming into play, and they have good crops, this remains to be seen.

What I know is our two older ships recently picked up wheat cargoes from Australia. So, it may be the case. But all this, we analyze in the future quarters when we see the volumes that they're exporting from the terminals.

We see now we have one ship -- one of the ships in Adelaide, the Koulitsa which is they are three weeks waiting to load the wheat cargo. This proves that there is already congestion being built there. So, all these things, we will take a couple of quarters to see how the volumes trade, which country fills the gap..

Got you.

And would it be safe to assume that you've employed same charter coverage strategy for the rest of the year? Or would you look to operate some vessels on spot? You have a few coming off in next -- this quarter, Q3?.

Look, the spot market is volatile. You've seen our average is $13,200 on overall. And whenever we are finding numbers above this average and can lock in one year charters because this is above the maximum, you can really expect charters to fix at this point of the market with all the uncertainties ahead with all the new regulations, et cetera.

When we find numbers above this average, we will lock in one-year charters or six months charters at $14,000, $15,000 a day. When these numbers are below our average, we will keep the ships in the spot market. We'll fix at $12,000 or $13,000 and keep the ship open after 60 days to try and take advantage of the next opportunity.

So, this is a policy that we've been following in the recent quarters. I think it's paying off handsomely. So, some ships when we find numbers that will increase our average of the fleet, we go in and lock in six or 12-month charter..

Okay. And one final one. So, I know you completed the latest newbuild program.

Would you look to -- one, is there -- are there projects available for the Panamax segment in Japan? And if so, would you look to order newbuild vessels or do you still think there's value in the secondhand tonnage?.

I think both secondhand tonnage and resales offers certain value. But if there are some specific deals that we could put together, especially with [Indiscernible] in Japan, given the past history of the company, we may try and explore some possibility in the next few quarters for gradual start of our fleet renewal program.

Our company traditionally, over the years, was operating a fleet of less than five years old. Now, we are at seven point something that -- almost 7.8 or eight years old. So, it's in our philosophy at a certain point to start fleet renewal program.

On this, of course, a lot will depend on what sort of deals at the yards we have strong relation with would be prepared to put on the table. So, we don't exclude anything in the future because as I said, deleverage and fleet renewal is our two main policies..

Okay.

And if you were to order newbuild vessels now and let's say, the delivery is 2021, would you look to install scrubbers on these vessels or you just have a scrubber option ready?.

This generally will be on newbuildings of [Indiscernible] 20 tons, maybe 16, 17 tons. So I don't see the benefit of installing a scrubber when such a ship is that great. So, I mean, if we were ordering a newbuilding Cape, yes, we would consider it.

If we would be ordering a newbuilding Kamsarmax, we're burning 16 or 17 tons a day, the benefit is so small that it doesn't make a huge benefit whether we install or not. It will all depend on what prices the guys will be quoting and things like that..

Got it. Okay. All right. Well, thank you for your time..

Thank you..

Thank you. We have no further questions, if you wish to continue. Sir, there are no further questions. Please continue..

So, we would like to thank all the participants for this conference call and we are looking forward to discuss again with you in our next quarter financial results. Thank you to all and have a nice day..

Thank you. Ladies and gentlemen, that does conclude your conference call for today. Thank you all for participating. And you may now disconnect..