Thank you for standing by, and welcome to the Capital Product Partners' Second Quarter 2020 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you, this conference is being recorded today, the 31st of July 2020. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates may be forward-looking statements such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in our views or expectations to confirm to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Thank you, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. As previously announced, we concluded on March 27, 2019, the spin-off of the partnership's tanker fleet and subsequent merger with DSS Holdings, forming Diamond S Shipping. Accordingly, we present our financial results for the comparative periods on a continuing operations basis except where reference is made to discontinued operations. The partnership's net income from continuing operations for the second quarter was $8.7 million compared with net income from continuing operations of $8 million for the second quarter of 2019. Our Board of Directors has declared a cash distribution of $0.10 per common unit for the second quarter of 2020 and has set a new annual distribution guidance of $0.40. The second quarter cash distribution will be paid on August 14 to common unitholders of record on August 9. As previously announced, we successfully concluded the refinancing with ICBC Financial Leasing for the sale and leaseback of three of our vessels, generating $38.8 million of additional liquidity. Also, during the quarter, we extended the time charters for our three 10,000 TEU vessels for two additional years through April 2026. And most recently, we [secured deployment] for either the Akadimos or the Adonis in the partnership's option of up to 2.5 years. As a result, the partnership's charter coverage for the remainder of 2020 and for 2021 stands at 89% and 80%, respectively. Correspondingly, the partnership's remaining charter durations stood at the end of the second quarter at 4.8 years. Turning to Slide 3. Revenues for the quarter were $36.6 million, compared to $27.4 million during the second quarter of 2019. The increase in revenue was primarily attributable to the increase…

Thank you very much, sir. [Operator Instructions] Our first question is from the line of Ben Nolan from Stifel. Please go ahead.

Hi, good morning, good afternoon Jerry. I have a handful, but I'll try to limit that and leave some room for others, but my first is really a fundamental question about the distribution cut, but more importantly, sort of the implicit thinking of the whole structure now. I mean it's still – CPLP is still an MLP, a limited partnership. Although now, retaining the majority of cash flow will grow while – the issue I think here is that they're still the sponsor, and the sponsor is still, I presume, acquiring assets and now is in much more direct competition for potential assets from the partnership because you no longer – the partnership no longer needs the sponsor to warehouse assets and wait until they get good contracts or whatever because there's no call for the cash flow distribution. Why does it even make sense for this to be an MLP anymore at all? How do you work through that potential conflict of interest?

So that's a great question. Firstly, the – as you know, in terms of structure, CPLP is a C-Corp for tax purposes, and our unitholders file their 99s. So as you said, we have reset our distribution to only a fraction of our net income in view of the wider market uncertainty and be able to internally fund growth going forward. So effectively, what differentiates us from the other C-Corps is the [CPLP] structure, which we will review if required, but at least in the short term, does not materially affect the strategy that the Board has determined for the future. Now with regard to competition, I don't think there is really so much direct competition for the following reasons. First of all, Capital Maritime does not have any assets – container assets of the kind that we are looking for. Secondly, I think that Capital Maritime, and I think it's good to recap certain things from time to time, has been – first of all, it holds 18% of the partnership at this point. So, it has fueled growth for CPLP for the last 13 years, but interestingly enough, because we went through the exercise, Capital Maritime has invested since 2007, $130 million in cash or in kind in CPLP common units. That includes around $25 million of units bought over the last decade in the market, but excludes also $36 million of that Capital Maritime has invested in Class B preferred units back in 2011 and 2012. So Capital Maritime has invested a total of $136 million, again, in cash and in kind, over the years. So Capital Maritime, like in the past and today, is very much incentivized being the largest shareholder to see CPLP do well in the medium to long-term. So when it comes to…

Okay. And then, sort of as a [junction] to that last question, obviously, again, with lower distributions, it really sort of changes the mold in how, I think, people would consider or think about the company or the partnership, and you'd mentioned that the shares are trading well below the – which you estimate to be NAV. It's not a large market cap at this point, not an awful lot of trading liquidity. At what point do you just say, okay, well, it makes more sense to roll this up into the sponsor company? Or alternatively, you probably get a very good price, I would imagine, given the high quality of your assets, the good long-term contracts, etcetera from one of these larger containership lessors who might – would want to buy it outright, pay a reasonable premium to where the shares are currently trading?

Firstly, with regard to Capital Maritime that is rolling back, no decision whatsoever has been taken to roll back the company. As I said earlier on, Capital Maritime is the largest shareholder and wants CPLP do well. I think we have, if you want, a unique opportunity over the coming quarters to show that we can execute on our business model. There are opportunities out there, I'm happy to go through examples, who have very attractive equity returns out there. And once we have more visibility with regard to where this market is going, I think there are good transactions to be had, and if we manage to deliver in our business model, that is, fix our ships, be able to provide cash flow visibility and have confidence in our cash flows, start having excess liquidity and then deploying that liquidity into getting transactions done and showing that we can provide that, if you want those equity returns that investors are looking for; and finally, also, from time-to-time, see what is the best use of our liquidity. Maybe [Technical Difficulty] for example, valuation remains very low, maybe balancing growth with stock repurchases at some point in the future might be also on the cards. And then we can see whether – where we are with regard to our equity valuation. But I think that we have done as much as we could within the MLP structure, we have, I think, done – I mean the DSSI transaction was a transaction that gave all the value to unitholders. And also, unitholders were rewarded with very high returns on the back of this transaction, but I don't think anybody could have forecasted the impact of the pandemic which thrust everything to turmoil from our markets, container markets. We saw 2.7 million TEU…

Okay. I would be interested in sort of examples or anecdotal returns that you're seeing in the market. But the last question, I guess, in addition to that for me, is how you're thinking about the Cape Agamemnon, the last remaining dry bulk vessel or really the only dry bulk vessel in the fleet. Is that for sale? Or should we model – keep that?

We will follow – as I said in our prepared remarks, we will follow a more opportunistic approach. And I think that's the right approach in such a volatile market. So depending on where the asset market is, over the coming weeks, months, we might divest of the asset. Or if we see a very good opportunity to fix longer-term, longer-term, of course, in dry bulk market might mean 12 months, we might take that. So like we did – the vessel was supposed to go into dry-dock just after she completed the 10-year charter to Cosco, but instead, we decided we should take advantage of the market because it's a good market. So, I think in markets like the one we have today, you have to solve this flexibility. In order to solve this flexibility, you have to have the right balance sheet and liquidity. And this is exactly the kind of, if you want, approach that traditional private shipping companies have, and we can have more of that.

Okay. I appreciate it, Jerry. I appreciate you taking the questions. And again, if you do have any anecdotal sort of return sort of scenarios, it'd be interesting to hear where the market is at the moment from an acquisition standpoint?

So firstly, I want to make clear that I don't think necessarily that tomorrow is a day to start buying ships. We do think that there's a lot of uncertainty out there, as I think we have stressed enough times. And many things are in flux. Having said that, we follow always very closely what happens in the asset market. Today, the container market, S&P market, is relatively quiet. We have more activity in the Panamax size as well as the smaller-size segments. But our first preference, like we have said in the past, is more the post-Panamax segment. But there is definitely less on offer there, but we follow certain opportunities that are – that tie well with our existing fleet. But in order to just give you an outline of an opportunity without saying too much, for example, a modern, eco post-Panamax container, you would probably require around $25 million of equity, assuming a 70% LTV for that acquisition. Given what we see today, that would probably mean that this asset could generate about $8.5 million to $10.5 million, and potentially, current market environment would imply the upper end of the range. And depending on your charter and loan service costs, that should leave about $4 million to $6 million – your charter assumptions and your loan service costs, that will leave $4 million to $6 million of free cash flow. So, a simple equity – return on equity would be around 18% to 25%. Now, if you think about [do we] have a cash balance of $54 million as of the end of this quarter, given our new distribution guidance and depending on where the charter market goes, we could be generating another $15 million to $20 million of free cash flow before year-end. So if you were to assume that we deploy $50 million at the midrange of the implied equity returns, say, at 20% that would generate an additional $10 million of distributable cash flow on an annualized basis and excess $20 million of incremental EBITDA. So, I think a result like that would be a good result. And if we can replicate such acquisitions going forward, that we could quickly show how we can generate equity value.

Thank you very much, sir. Moving on to the next question, Mr. J. Mintzmyer from Value Investor's Edge. Please go ahead.

Hi good afternoon. Jerry, I'd like to start on a good note and congratulate you on fixing a couple of those ships on a bridge charter. I understand it's a very difficult market.

Thank you, J.

So, Jerry, I think Ben kind of asked really fundamentally strong questions here, looking at the principle of CPLP remaining a limited partnership in the sense that a limited partnership traditionally distributes almost all of its excess cash flow and doesn't necessarily rely on a self-funding model. At the same time, if you look at Slide 10, which you shared, you can see that CPLP trades at a massive discount. So what mechanisms are there to close that discount? We talked about repurchases. Is that something that you're willing to commit to?

J, the – first of all, I think, as you know very well, the discounts to NAV has been there for some time. And that is also why the partnership has not issued equity now for more than five years. If anything, the COVID impact meant that this gap has been further exacerbated, making it extremely difficult to see how things will stack up going forward. In the end, what would happen if you'd look to the medium to long term, and I think most of investors appreciate that, is that, we would just run down our assets and be returning not really profits but just capital to the unitholders until the partnership closes. And I don't think this is what people intended with the MLP model. And that's not what the Board wants for the partnership or the management. The share buybacks or growth are definitely on the table not in the immediate future because I do think that the COVID-19 issue and the geopolitical tensions are very important. I think first, you have to have visibility and then look at what you do next. So, I think over the next few months, we will be amassing liquidity and see what is our next step. By delivering against our business model, I think, over time – and generating value, I think that's something that can help with closing the gap by doing good deals like, I think, we have done in the past. Secondly, and depending on the equity valuation, of course, share buybacks would be on the table as well. For a company that has been returning capital to unitholders, not stopped for 13 years and has done also the DSSI transaction, I think you know that the incentives of management and Board are very well aligned with that of our common unitholders.

Thank you very much, sir. Moving on to our next question, Randy Giveans from Jefferies. Please go ahead.

Hey Randy.

Hi Jerry. How is it going?

Not bad. Yourself?

Doing great. First question, just on the distribution side, just trying to get a sense for why it was cut to $0.10 instead of maybe $0.20 or $0.05, how did you come up with that $0.10 number?

Well, I think, in the end, if we are returning to a self-funded kind of a business model, it's important to do it properly. Secondly, just on the back of the lower re-chartering rates of what we assumed at the beginning of the year compared to what we see today – today in the improved market, right, not in May – this is already $10 million to $12 million less EBITDA than we originally expected. So, I think we are paying out a dividend, which is still very meaningful given where interest rates are. And obviously, it's only a very small fraction of the income that we generate, but at the same time, we thought that this level will generate enough additional liquidity for us to, firstly, feel comfortable that we can effectively face more uncertainty going forward and more volatility but also, once that abates, to be able to start growing in a meaningful way.

Thank you very much, sir. We have time for one more question today. This question comes from Liam Burke from B. Riley. Please go ahead.

Yes, good afternoon Jerry, how are you today?

Hi, Liam, I'm very well. Yourself?

Good thanks. Jerry, what has changed from the first quarter when you were paying out $0.35? The world was in a worst place. Things are – admittedly, they're bad, but incrementally getting better. You've always been very clear about return on assets and how that's a priority, but why now versus the beginning of the year when you could have made this adjustment or after the first quarter when you could have made this adjustment when things were worse?

Firstly, we wanted to give the benefit of a doubt to the container market, as well as the capital markets. What – there was a big fall in our unit price together with everybody else's share prices. I think we saw that capital markets [tanked] at the time, but we – despite the uncertainty at the time, we persevered, not knowing exactly where we would be in terms also the container market. I think since, a few things have happened, we have seen capital markets recover, but not in our case or the wider MLP case, for reasons that have not so much to do with us, but the wider business model, as well as energy prices, but also today, we have better visibility with regard to where the container market went and where it is heading, and as I said, it's [Technical Difficulty] or thereabouts lower than we originally thought at the beginning of the year. And thirdly, we had to look at how we can – what we can do going forward. And there were not many avenues. So, I think we did everything that we could, But at the same time, given what's happening in the world, and again, I cannot stress enough how I do think that we are not done with the adverse impact of COVID and as well as the geopolitical tensions in the world. We thought that we – or the Board thought that the prudent thing would be to cut the distribution. Simply, it was not sustainable in the long-term, and it was not the prudent thing to do.

Right. Okay. And if I can go back to your example of a potential asset purchase, and you mentioned the nice return profile of that particular asset, how are you looking at acquisitions if you're still looking at an uncertain environment? Are you guys just going to step aside until things clear up or are you going to be opportunistic and take a little risk when it comes to what you're seeing in potential acquisitions?

As I said, I think it's important first to take a step back. We need a little more visibility. So, I do think that's the important thing to do. At the same time, we are keeping a tab on what's happening. If we were able to combine, for example, both asset and charter at the same time in a way that de-risks the transaction, maybe we would look at it sooner, but it's not the intention from one day to the next to jump to capital allocation policies and invest in ships. We do think that given the risk profile of what's happening out there, it is worth sticking to our guns and monitor the market.

Okay, thank you Jerry.

Thanks Liam.

Thank you very much. We actually have time for one more question. It's a follow-up from Randy. Please go ahead.

Hi, Jerry, sorry the line got dropped there.

No worries – yes, sure.

Awesome. And I guess for the distribution, you increased it a couple of quarters ago. If markets improve, is there a chance that the distribution gets reinstated – or I don't know if the word is reinstated – back to the 35% level in the near-term? Or is it kind of staying at $0.10 no matter what going forward for at least the next year or so?

Nothing is set in stone. As I said, the Board is committed to revisit the capital allocation strategy going forward. So, I do think that we will need to balance asset growth with returning capital to unitholders going forward. So, we will have, from time-to-time, to revisit distributions or buybacks and see what is the best way of doing this, both in terms of the format, as well as of the timing, but nothing is set in stone at this point.

Got it. And then for the containership, for the 80-day charter, [indiscernible] I think you said that was $17,000 a day. I guess what are the plans for the Uruguay, I guess, Adonis now until September? I know it had some dry-docking. And then if it doesn't get chosen, are you looking for other time charters? If it does, is the Akadimos scheduled for another time charter? How are you playing that for those two vessels?

So yes, it's going to be the one or the other. So, either of the two will need to be re-chartered, as you correctly point out. It is more probable that the Akadimos will go into the new two-year charter. So that would leave the Uruguay for mid-September. That would be – if I had to guess, a one-year charter level today would be similar to what we fixed, so the $30,000 mark. And then we will have the Magdalena left from mid-January onwards to fix. I think it's important to note that it's, right now, a market that's quite balanced. So, a lot of post-Panamax ships were absorbed over the last few weeks from the market. And as such, there is very little on offer. So, there seems to be at least more inquiries than vessels available. So, you would expect that the market will continue to remain at good levels. Having said that, I think what has changed compared to a few years back, and it was very evident in this crisis when COVID hit, is that a number of those vessels are now on [short to seize] or flexible periods, which means that as soon, for example, [charters] see a fall in demand, they can very quickly start redelivering ships, which will suddenly compete with yours and push rates downwards. That was definitely not the case four or five years ago in the Hanjin crisis or in the Lehman crisis because those vessels at the time were long-term project vessels that were on charter, five, 10-year deals. So they were not – liners were not able to quickly redeliver ships. So, what I'm trying to say is that we have a good market balance right now, and we are trying to take advantage of that. But do not underestimate how quickly this balance can change also toward the other direction if you see a drop in demand given that we now have [indiscernible] outbreaks in many parts of the world.

Sure. And then I guess last question on the Cape Agamemnon. So, the current rate there was mid-to-high teens. It will be short-term employment. I guess looking at a possible sale of that, how much debt is on it? And what is your kind of estimate of the fair market value?

The approximate debt is around $8 million to $9 million. It depends on the relative valuation of the rest of the ships that are collateral under that loan facility. So today, a vessel like that would be in the $19 million to $20 million asset valuation range, but there is limited liquidity in the market. They are – as you know very well, the market there has been also very volatile in terms of charter rates. And it is, in fact, more difficult to divest of assets given the issues with repatriation of crews that create a lot of complications. It looked as if this was going to become easier over the last months, but now we have, again, countries closing down with – while others are opening up. So, it's a sliding doors game at this point.

Got it. Okay. [Indiscernible] see good equity value there, historically, $7 million, $8 million, $9 million across the outstanding debt, which is going to go a long way in purchases or further liquidity. So, all right. Well, that's it for me. Thanks so much.

Thank you, Randy. Thank you all for joining us today.

Thank you very much sir. Ladies and gentlemen that does conclude the call for today. Thank you all for joining. You may now disconnect your lines.