Costamare Expands Fleet as Market Improves

costamare

Costamare reported unaudited financial results for the fourth quarter and year ended December 31, 2017. 

  • Adjusted Net Income available to common stockholders of $18.4 million or $0.17 per share and $76.9 million or $0.77 per share for the three months and the year ended December 31, 2017, respectively.
  • Accepted delivery on January 23, 2018 of the 3,800 TEU containership Polar Argentina (ex Hull Nr YZJ2015-1206). The vessel, upon its delivery, commenced its seven-year charter with Hamburg Süd.
  • Acquired on November 3, 2017 the 2005-built 2,556 TEU container vessel CMA CGM L’Etoile with cash from operations.
  • No ships laid up. Chartered in total 16 vessels since September 30, 2017.
  • Remaining equity capital expenditure commitments of approximately $1.07 million (amount represents our participation) relating to one contracted newbuild vessel pursuant to our joint venture with York which is expected to be delivered in the second quarter of 2018.
  • Declared dividend of $0.10 per share on our common stock and dividends on all three classes of our Preferred Stock.

New Business Developments

A. Newbuild vessel deliveries

  • On January 23, 2018, we accepted delivery of the 3,800 TEU containership Polar Argentina (ex Hull Nr YZJ2015-1206), which was acquired pursuant to our joint venture with York. The vessel commenced its 7-year charter with Hamburg Süd. Costamare holds a 49% interest in the entity that owns the vessel.

B. New acquisition

In October 2017, the Company agreed to purchase the 2005-built 2,556 TEU container vessel CMA CGM L’Etoile. On November 3, 2017 we accepted delivery of the vessel. The vessel is chartered to CMA CGM for a period, expiring at the charterers’ option, between March 10, 2018 and June 10, 2018, at a daily rate of $10,250. The acquisition was funded with cash from operations.

C. New charter agreements

  • All of our vessels are currently employed.
  • The Company has chartered in total 16 vessels since September 30, 2017. More specifically, the Company:
    • Agreed to extend the charter of the 2017-built, 11,010 TEU containership Cape Artemisio with Hapag Lloyd, for a period of 12 months plus/minus 30 days in charterers’ option, starting from June 12, 2018, at a daily rate of $27,000 (net).
    • Agreed to extend the charter of the 2017-built, 11,010 TEU containership Cape Tainaro with OOCL, for a period of 11 to 14 months, starting from April 1, 2018, at a daily rate of $28,250.
    • Agreed to extend the charter of the 2006-built, 9,469 TEU containership Cosco Guangzhou with Cosco for a period starting from December 24, 2017 until January 17, 2018, at a daily rate of $13,500. Subsequently, agreed to charter the vessel with the same charterers for a period of 4 to 6 months, starting from March 18, 2018 at a daily rate of $16,000.
    • Agreed to extend the charter of the 2006-built, 9,469 TEU containership Cosco Ningbo with Cosco for a period of 6 to 8 months, starting from January 19, 2018, at a daily rate of $16,000.
    • Agreed to extend the charter of the 2006-built, 9,469 TEU containership Cosco Yantian with Cosco for a period of 6 to 8 months, starting from February 27, 2018, at a daily rate of $16,000.
    • Agreed to extend the charter of the 2006-built, 9,469 TEU containership Cosco Beijing with Cosco for a period of 4 to 6 months, starting from April 9, 2018, at a daily rate of $16,000.
    • Agreed to extend the charter of the 2006-built, 9,469 TEU containership Cosco Hellas with Cosco for a period of 4 to 6 months, starting from May 7, 2018, at a daily rate of $16,000.
    • Agreed to charter the 2001-built, 5,576 TEU containership Ensenada with Sea Consortium, until January 18, 2018 at a daily rate of $11,600 and subsequently extended this charter for a further period of 39 to 90 days at the same rate.
    • Agreed to charter the 1997-built, 7,403 TEU containership Niledutch Panther (ex. Kokura) with NileDutch for a period of 9 to 12 months, starting from February 2, 2018, at a daily rate of $12,750.
    • Agreed to extend the charter of the 1996-built, 7,403 TEU containership Maersk Kure with Maersk for a period of 45 to 90 days, starting from December 18, 2017, at a daily rate of $12,500.
    • Agreed to extend the charter of the 1997-built, 7,403 TEU containership Maersk Kawasaki with Maersk for a period of 45 to 90 days, starting from December 12, 2017, at a daily rate of $12,500.
    • Agreed to extend the charter of the 2004-built, 2,586 TEU containership Lakonia with Evergreen for a period of 4 to 8 months, starting from December 4, 2017, at a daily rate of $8,500.
    • Agreed to extend the charter of the 2000-built, 1,645 TEU containership Neapolis with Evergreen, for a period of 3 to 8 months in charterers’ option, starting from February 25, 2018, at a daily rate of $8,300.
    • Agreed to charter the 2002-built, 4,132 TEU containership Ulsan with Maersk for a period starting from February 4, 2018 and expiring at the charterers’ option during the period from April 15, 2018 to August 30, 2018, at a daily rate of $7,600.
    • Agreed to charter the 2001-built, 1,078 TEU containership Luebeck with MSC for a period of 12 to 14 months, starting from January 19, 2018, at a daily rate of $6,500.
    • Agreed to extend the charter of the 1994-built, 1,162 TEU containership Petalidi with CMA-CGM for a period starting from December 20, 2017 and expiring at the charterers’ option during the period from May 20, 2018 to June 30, 2018, at a daily rate of $6,550.

D. Dividend announcements

  • On January 2, 2018, we declared a dividend for the fourth quarter ended December 31, 2017, of $0.10 per share on our common stock, payable on February 6, 2018, to stockholders of record as of January 23, 2018.
  • On January 2, 2018, we declared a dividend of $0.476563 per share on our Series B Preferred Stock, a dividend of $0.531250 per share on our Series C Preferred Stock and a dividend of $0.546875 per share on our Series D Preferred Stock, which were all paid on January 16, 2018 to holders of record as of January 12, 2018.

Mr. Gregory Zikos, Chief Financial Officer of Costamare Inc., commented:

“2018 started with a positive momentum across the board. So far larger vessels have captured most of the upswing and hopefully this will give a further boost to the smaller sizes as well.

During the last quarter of the year the Company delivered profitable results.

On January 23rd we accepted delivery of the c/v Polar Argentina, which is the first of the two 3,800 TEU new buildings ordered together with our partners York Capital. Upon delivery the vessel commenced its seven-year time charter to Hamburg Süd. The acquisition has been financed with cash from operations and debt provided by a leading Asian financial institution.

In November we acquired the 2005 built, 2,500 TEU c/v CMA CGM L’Etoile. The acquisition was 100% financed with cash from operations.

On the chartering side, we chartered in total 16 ships since last quarter and today we have no ships laid up.

Finally, on the dividends, we declared our consecutive 29th dividend since going public. Insiders have decided, as has been the case since June 2016, to reinvest in full their cash dividends in new shares.”

Financial Summary

Year ended December 31,
Three-month period ended
December 31,
(Expressed in thousands of U.S. dollars, except share and per share data): 2016   2017 2016 2017
Voyage revenue $ 468,189 $ 412,433 $110,134 $ 100,618
Accrued charter revenue (1) $  (7,730) $ (11,204) $ (2,836) $ (2,752)
Voyage revenue adjusted on a cash basis (2) $ 460,459 $ 401,229 $ 107,298 $ 97,866
Adjusted Net Income available to common stockholders (3) $ 115,120 $ 76,933 $23,039 $ 18,408
Weighted Average number of shares 77,243,252 100,527,907 81,498,030 107,661,705
Adjusted Earnings per share (3) $ 1.49 $ 0.77 $ 0.28 $ 0.17
Net Income / (Loss) $ 81,702 $ 72,876 $ (11,008) $ 2,670
Net Income / (Loss) available to common stockholders $ 60,639 $ 51,813 $ (16,274) $ (2,596)
Weighted Average number of shares 77,243,252 100,527,907 81,498,030 107,661,705
Earnings / (Losses) per share $0.79 $ 0.52 $ (0.20) $ (0.02)

(1) Accrued charter revenue represents the difference between cash received during the period and revenue recognized on a straight-line basis. In the early years of a charter with escalating charter rates, voyage revenue will exceed cash received during the period and during the last years of such charter cash received will exceed revenue recognized on a straight line basis.
(2) Voyage revenue adjusted on a cash basis represents Voyage revenue after adjusting for non-cash “Accrued charter revenue” recorded under charters with escalating charter rates. However, Voyage revenue adjusted on a cash basis is not a recognized measurement under U.S. generally accepted accounting principles (“GAAP”). We believe that the presentation of Voyage revenue adjusted on a cash basis is useful to investors because it presents the charter revenue for the relevant period based on the then current daily charter rates. The increases or decreases in daily charter rates under our charter party agreements are described in the notes to the “Fleet List” below.
(3) Adjusted Net Income available to common stockholders and Adjusted Earnings per Share are non- GAAP measures. Refer to the reconciliation of Net Income to Adjusted Net Income.

Non-GAAP Measures

The Company reports its financial results in accordance with U.S. GAAP. However, management believes that certain non- GAAP financial measures used in managing the business may provide users of these financial measures additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain items that impact the overall comparability. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions and in evaluating the Company’s performance. The tables below set out supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months and the years ended December 31, 2017 and 2016. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, voyage revenue or net income as determined in accordance with GAAP. Non-GAAP financial measures include (i) Voyage revenue adjusted on a cash basis (reconciled above), (ii) Adjusted Net Income available to common stockholders and (iii) Adjusted Earnings per Share.

Reconciliation of Net Income to Adjusted Net Income available to common stockholders
and Adjusted Earnings per Share

Year ended December 31, Three-month period ended
December 31,
(Expressed in thousands of U.S. dollars, except share and per share data) 2016 2017 2016 2017
Net Income / (Loss) $ 81,702 $ 72,876 $ (11,008) $ 2,670
Earnings allocated to Preferred Stock (21,063) (21,063) (5,266) (5,266)
Net Income / (Loss) available to common stockholders 60,639 51,813 (16,274) (2,596)
Accrued charter revenue (7,730) (11,204) (2,836) (2,752)
Non-cash general and administrative expenses and non-cash other items 8,951 3,866 4,837 864
Amortization of prepaid lease rentals, net 6,779 8,429 2,200 2,054
Realized Gain on Euro/USD forward contracts (1) (898) (765) (83)
Loss on sale / disposals of vessels (1) 4,440 4,856
Loss on asset held for sale 37,161 2,379 37,161 2,379
Vessels’ impairment loss 17,959 17,959
Vessel impairment loss by a jointly owned company with York included in equity (gain)/loss on investments 896 896
Non-recurring, non-cash write-off of loan deferred financing costs 586
Swap breakage cost 9,701 297
Gain on derivative instruments, excluding interest accrued and realized on non-hedging derivative instruments (1) (4,509) (1,296) (2,346) (313)
Adjusted Net Income available to common stockholders $ 115,120 $ 76,933 $ 23,039 $ 18,408
Adjusted Earnings per Share $ 1.49 $ 0.77 $ 0.28 $ 0.17
Weighted average number of shares 77,243,252 100,527,907 81,498,030 107,661,705

Adjusted Net Income available to common stockholders and Adjusted Earnings per Share represent Net Income after earnings allocated to preferred stock, but before non-cash “Accrued charter revenue” recorded under charters with escalating charter rates, realized gain on Euro/USD forward contracts, loss on sale / disposal of vessels, loss on asset held for sale, vessels’ impairment loss, vessel impairment loss by a jointly owned company with York included in equity (gain)/loss on investments, non-recurring, non-cash write-off of loan deferred financing costs, swap breakage cost, non-cash general and administrative expenses and non-cash other items, amortization of prepaid lease rentals, net and non-cash changes in fair value of derivatives. “Accrued charter revenue” is attributed to the timing difference between the revenue recognition and the cash collection. However, Adjusted Net Income available to common stockholders and Adjusted Earnings per Share are not recognized measurements under U.S. GAAP. We believe that the presentation of Adjusted Net Income available to common stockholders and Adjusted Earnings per Share are useful to investors because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also believe that Adjusted Net Income available to common stockholders and Adjusted Earnings per Share are useful in evaluating our ability to service additional debt and make capital expenditures. In addition, we believe that Adjusted Net Income available to common stockholders and Adjusted Earnings per Share are useful in evaluating our operating performance and liquidity position compared to that of other companies in our industry because the calculation of Adjusted Net Income available to common stockholders and Adjusted Earnings per Share generally eliminates the effects of the accounting effects of capital expenditures and acquisitions, certain hedging instruments and other accounting treatments, items which may vary for different companies for reasons unrelated to overall operating performance and liquidity. In evaluating Adjusted Net Income available to common stockholders and Adjusted Earnings per Share, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted Net Income available to common stockholders and Adjusted Earnings per Share should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

(1) Items to consider for comparability include gains and charges. Gains positively impacting Net Income are reflected as deductions to Adjusted Net Income. Charges negatively impacting Net Income are reflected as increases to Adjusted Net Income.

Results of Operations

Three-month period ended December 31, 2017 compared to the three-month period ended December 31, 2016

During the three-month periods ended December 31, 2017 and 2016, we had an average of 52.6 and 53.0 vessels, respectively, in our fleet. In the three-month period ended December 31, 2017, we took delivery of the 2005-built, 2,556 TEU secondhand containership CMA CGM L’Etoile. In the three-month periods ended December 31, 2017 and 2016, our fleet ownership days totaled 4,843 and 4,876 days, respectively. Ownership days are one of the primary drivers of voyage revenue and vessels’ operating expenses and represent the aggregate number of days in a period during which each vessel in our fleet is owned.

 (Expressed in millions of U.S. dollars,
except percentages)
Three-month period
ended December 31,
Percentage
2016 2017 Change Change
Voyage revenue $ 110.1 $ 100.6 $ (9.5) (8.6 %)
Voyage expenses (0.4) (0.6) 0.2 50.0 %
Voyage expenses – related parties (0.8) (0.8)
Vessels’ operating expenses (26.1) (26.9) 0.8 3.1 %
General and administrative expenses (1.5) (1.3) (0.2) (13.3 %)
Management fees – related parties (4.2) (4.3) 0.1 2.4 %
Non-cash general and administrative expenses and non-cash other items (4.8) (0.9) (3.9) (81.3 %)
Amortization of dry-docking and special survey costs (2.0) (1.8) (0.2) (10.0 %)
Depreciation (25.2) (23.8) (1.4) (5.6 %)
Vessels’ Impairment loss (18.0) 18.0 n.m.
Amortization of prepaid lease rentals, net (2.2) (2.1) (0.1) (4.5 %)
Loss on asset held for sale (37.2) (2.4) (34.8) (93.5 %)
Interest income 0.5 0.8 0.3 60.0 %
Interest and finance costs (17.7) (16.5) (1.2) (6.8 %)
Swap breakage cost (0.3) (0.3) (100.0 %)
Equity gain on investments 0.4 0.9 0.5 125.0 %
Gain / (Loss) on derivative instruments 0.4 (0.2) 0.6 n.m.
Net Income / (Loss) $ (11.0) $ 2.7
(Expressed in millions of U.S. dollars,
except percentages)
Three-month period
ended December 31,
Percentage
2016 2017 Change Change
Voyage revenue $ 110.1 $ 100.6 $ (9.5) (8.6 %)
Accrued charter revenue (2.8) (2.8)
Voyage revenue adjusted on a cash basis $ 107.3 $ 97.8 $ (9.5) (8.9 %)
Vessels’ operational data Three-month period
ended December 31,
Percentage
2016 2017 Change Change
Average number of vessels 53.0 52.6 (0.4) (0.8 %)
Ownership days 4,876 4,843 (33) (0.7 %)
Number of vessels under dry-docking 3 3

Voyage Revenue

Voyage revenue decreased by 8.6%, or $9.5 million, to $100.6 million during the three-month period ended December 31, 2017, from $110.1 million during the three-month period ended December 31, 2016. The decrease is mainly attributable to decreased charter rates for certain of our vessels and revenue not earned by four vessels sold for demolition which was partly offset by revenue earned by four secondhand vessels acquired during the second and fourth quarters of 2017.

Voyage revenue adjusted on a cash basis (which eliminates non-cash “Accrued charter revenue”), decreased by 8.9%, or $9.5 million, to $97.8 million during the three-month period ended December 31, 2017, from $107.3 million during the three-month period ended December 31, 2016. Accrued charter revenue for both three-month periods ended December 31, 2017 and 2016, amounted to $2.8 million.

Voyage Expenses

Voyage expenses were $0.6 million and $0.4 million for the three-month periods ended December 31, 2017 and 2016, respectively. Voyage expenses mainly include (i) off-hire expenses of our vessels, mostly related to fuel consumption and (ii) third party commissions.

Voyage Expenses – related parties

Voyage expenses – related parties in the amount of $0.8 million during each of the three-month periods ended December 31, 2017 and 2016, represent fees of 0.75% in the aggregate on voyage revenues charged by Costamare Shipping Company S.A. (“Costamare Shipping”) and by Costamare Shipping Services Ltd. (“Costamare Services”) pursuant to the Framework Agreement between Costamare Shipping and us dated November 2, 2015 (the “Framework Agreement”), the Services Agreement between Costamare Services and our vessel-owning subsidiaries dated November 2, 2015 (the “Services Agreement”) and the individual ship-management agreements pertaining to each vessel.

Vessels’ Operating Expenses

Vessels’ operating expenses, which also include the realized gain / (loss) under derivative contracts entered into in relation to foreign currency exposure, were $26.9 million and $26.1 million during the three-month periods ended December 31, 2017 and 2016, respectively.

General and Administrative Expenses

General and administrative expenses were $1.3 million and $1.5 million during the three-month periods ended December 31, 2017 and 2016, respectively and both include $0.63 million which is part of the annual fee that Costamare Services receives based on the Services Agreement.

Management Fees – related parties

Management fees paid to our managers pursuant to the Framework Agreement were $4.3 million during the three-month period ended December 31, 2017 and $4.2 million during the three-month period ended December 31, 2016.

Non-cash general and administrative expenses and non-cash other items

Non-cash general and administrative expenses and non-cash other items for the three-month period ended December 31, 2017 amounted to $0.9 million, representing the value of the shares issued to Costamare Services on December 29, 2017, pursuant to the Services Agreement. For the three-month period ended December 31, 2016, the respective amount was $4.8 million, including the value of the shares issued to Costamare Services on December 31, 2016, pursuant to the Services Agreement.

Amortization of Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs was $1.8 million and $2.0 million during the three-month periods ended December 31, 2017 and 2016, respectively. During the three-month period ended December 31, 2017, three vessels underwent and completed their special survey. During the three-month period ended December 31, 2016 no vessel underwent any special survey.

Depreciation

Depreciation expense decreased by 5.6% or $1.4 million, to $23.8 million during the three-month period ended December 31, 2017, from $25.2 million during the three-month period ended December 31, 2016. The decrease was mainly attributable to depreciation expense not charged during the three -month period ended December 31, 2017, due to the sale of five vessels during 2016 and the year ended December 31, 2017; partly offset by the depreciation charged during the three-month period ended December 31, 2017, due to the acquisition of four secondhand containerships.

Amortization of Prepaid Lease Rentals, net

Amortization of prepaid lease rentals, net was $2.1 million during the three-month period ended December 31, 2017. Amortization of prepaid lease rentals, net was $2.2 million during the three-month period ended December 31, 2016.

Vessels’ Impairment loss

During the three-month period ended December 31, 2017, we recorded an impairment loss in relation to seven of our vessels in the amount of $18.0 million, in the aggregate.

Loss on asset held for sale

During the three-month period ended December 31, 2017, we recorded a loss on asset held for sale of $2.4 million, representing the expected loss from sale of one of our vessels during the next twelve month period. During the three-month period ended December 31, 2016, we recorded a loss on asset held for sale of $37.2 million, representing the expected loss from sale for demolition of one of our vessels, which was sold in January 2017.

Interest Income

Interest income amounted to $0.8 million and $0.5 million for the three-month periods ended December 31, 2017 and 2016, respectively.

Interest and Finance Costs

Interest and finance costs decreased by 6.8%, or $1.2 million, to $16.5 million during the three-month period ended December 31, 2017, from $17.7 million during the three-month period ended December 31, 2016. The decrease is partly attributable to the decreased average loan balance during the three-month period ended December 31, 2017 compared to the three-month period ended December 31, 2016.

Swaps Breakage Cost

During the three-month period ended December 31, 2016, we terminated one interest rate derivative instrument that did not qualify for hedge accounting and we paid the counterparty breakage costs of $0.3 million.

Equity Gain on Investments

During the three-month period ended December 31, 2017, we recorded an equity gain on investments of $0.9 million representing our share of the net gain of 18 jointly owned companies pursuant to the Framework Deed dated May 15, 2013, as amended and restated on May 18, 2015 (the “Framework Deed”), between the Company and a wholly-owned subsidiary on the one hand, and York Capital Management Global Advisors LLC and an affiliated fund (collectively, together with the funds it manages or advises, “York”) on the other hand. During the three-month period ended December 31, 2016, we recorded an equity gain on investments of $0.4 million.

Gain / (Loss) on Derivative Instruments

The fair value of our 17 interest rate derivative instruments which were outstanding as of December 31, 2017 equates to the amount that would be paid by us or to us should those instruments be terminated. As of December 31, 2017, the fair value of these 17 interest rate derivative instruments in aggregate amounted to a net asset of $1.1 million. The effective portion of the change in the fair value of the interest rate derivative instruments that qualified for hedge accounting is recorded in “Other Comprehensive Income” (“OCI”) while the ineffective portion is recorded in the consolidated statements of income. The change in the fair value of the interest rate derivative instruments that did not qualify for hedge accounting is recorded in the consolidated statement of income. For the three-month period ended December 31, 2017, a net gain of $5.0 million has been included in OCI and a net loss of $0.2 million has been included in Gain/Loss on derivative instruments in the consolidated statement of income, resulting from the fair market value change of the interest rate derivative instruments during the three-month period ended December 31, 2017.

Cash Flows
Three-month periods ended December 31, 2017 and 2016

Condensed cash flows Three-month period ended
December 31,
(Expressed in millions of U.S. dollars) 2016 2017
Net Cash Provided by Operating Activities $ 57.0 $ 43.9
Net Cash Used in  Investing Activities $ (3.2) $ (7.3)
Net Cash Provided by / (Used in) Financing Activities $ 4.4 $ (50.1)

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities for the three-month period ended December 31, 2017, decreased by $13.1 million to $43.9 million, compared to $57.0 million for the three-month period ended December 31, 2016. The decrease is mainly attributable to the decreased cash from operations of $9.4 million, the unfavorable change in working capital position, excluding the current portion of long-term debt and the accrued charter revenue (representing the difference between cash received in that period and revenue recognized on a straight-line basis) of $3.2 million and the increased special survey costs during the three month period ended December 31, 2017 compared to the three-month period ended December 31, 2016; partly off-set by decreased payments for interest (including swap payments) during the period of $1.5 million.

 Net Cash Used in Investing Activities

Net cash used in investing activities was $7.3 million in the three-month period ended December 31, 2017, which consisted of payment for the acquisition of one secondhand vessel and  payments for working capital injected into certain entities pursuant to the Framework Deed (net of dividend distributions we received).

Net cash used in investing activities was $3.2 million in the three-month period ended December 31, 2016, which mainly consisted of $3.5 million in payments for working capital injection in certain entities pursuant to the Framework Deed and $0.3 million we received as dividend distributions in certain entities pursuant to the Framework Deed.

Net Cash Provided by / (Used in) Financing Activities

Net cash used in financing activities was $50.1 million in the three-month period ended December 31, 2017, which mainly consisted of (a) $41.4 million net payments relating to our credit facilities and to our sale and leaseback transactions, (b) $4.6 million we paid for dividends to holders of our common stock for the third quarter of 2017 and (d) $1.0 million we paid for dividends to holders of our 7.625% Series B Cumulative Redeemable Perpetual Preferred Stock (“Series B Preferred Stock”), $2.1 million we paid for dividends to holders of our 8.500% Series C Cumulative Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”) and $2.2 million we paid for dividends to holders of our 8.75% Series D Cumulative Redeemable Perpetual Preferred Stock (“Series D Preferred Stock”), for the period from July 15, 2017 to October 14, 2017.

Net cash provided by financing activities was $4.4 million in the three-month period ended December 31, 2016, which mainly consisted of (a) $45.4 million of indebtedness that we repaid, (b) $7.3 million we repaid relating to our sale and leaseback agreements, (c) $37.5 million we paid for the prepayment of one of our credit facilities, (d) $32.0 million that we drew down from one of our credit facilities, (e) $69.0 million we received from our follow-on offering in December 2016, net of underwriting discounts and expenses incurred in the offering, (f) $2.6 million we paid for dividends to holders of our common stock for the third quarter of 2016 and (g) $1.0 million we paid for dividends to holders of our Series B Preferred Stock, $2.1 million we paid for dividends to holders of our Series C Preferred Stock and $2.2 million we paid for dividends to holders of our Series D Preferred Stock, for the period from July 15, 2016 to October 14, 2016.

Year ended December 31, 2017 compared to the year ended December 31, 2016

During the years ended December 31, 2017 and 2016, we had an average of 52.7 and 53.6 vessels, respectively, in our fleet. In the year ended December 31, 2017, we accepted delivery of the secondhand containerships Leonidio, Kyparissia, Maersk Kowloon and CMA CGM L’Etoile with an aggregate capacity of 19,941 TEU and we sold the container vessels Romanos, Marina, Mandraki and Mykonos with an aggregate capacity of 18,057 TEU. In the year ended December 31, 2016, we sold the 3,351 TEU vessel Karmen. In the years ended December 31, 2017 and 2016, our fleet ownership days totaled 19,221 and 19,616 days, respectively. Ownership days are one of the primary drivers of voyage revenue and vessels’ operating expenses and represent the aggregate number of days in a period during which each vessel in our fleet is owned.

 (Expressed in millions of U.S. dollars,
except percentages)
Year ended December 31, Percentage
2016 2017 Change   Change
Voyage revenue $ 468.2 $ 412.4 $ (55.8) (11.9 %)
Voyage expenses (1.9) (2.6) 0.7 36.8 %
Voyage expenses – related parties (3.5) (3.1) (0.4) (11.4 %)
Vessels’ operating expenses (105.8) (103.8) (2.0) (1.9 %)
General and administrative expenses (5.8) (5.7) (0.1) (1.7 %)
Management fees – related parties (18.6) (18.7) 0.1 0.5 %
Non-cash general and administrative expenses and non-cash other items (9.0) (3.9) (5.1) (56.7 %)
Amortization of dry-docking and special survey costs (7.9) (7.6) (0.3) (3.8 %)
Depreciation (100.9) (96.4) (4.5) (4.5 %)
Amortization of prepaid lease rentals, net (6.8) (8.4) 1.6 23.5 %
Loss on sale / disposal of vessels (4.4) (4.9) 0.5 11.4 %
Vessels’ Impairment loss (18.0) 18.0 n.m.
Loss on asset held for sale (37.2) (2.4) (34.8) (93.5 %)
Foreign exchange losses (0.4) (0.4) (100.0 %)
Interest income 1.7 2.7 1.0 58.8 %
Interest and finance costs (72.8) (69.8) (3.0) (4.1 )%
Swaps breakage cost (9.7) (9.7) (100.0 %)
Equity gain / (loss) on investments (0.1) 3.4 3.5 n.m.
Other 0.6 0.6
Loss on derivative instruments (4.0) (0.9) (3.1) (77.5 %)
Net Income $ 81.7 $ 72.9
(Expressed in millions of U.S. dollars,
except percentages)
Year ended December 31, Percentage
2016 2017 Change   Change
Voyage revenue $ 468.2 $ 412.4 $ (55.8) (11.9 %)
Accrued charter revenue (7.7) (11.2) 3.5 45.5 %
Voyage revenue adjusted on a cash basis $ 460.5 $ 401.2 $ (59.3) (12.9 %)
Vessels’ operational data Year ended December 31, Percentage
2016 2017 Change Change
Average number of vessels 53.6 52.7 (0.9) (1.7 %)
Ownership days 19,616 19,221 (395) (2.0 %)
Number of vessels under dry-docking 6 7 1

Voyage Revenue

Voyage revenue decreased by 11.9%, or $55.8 million, to $412.4 million during the year ended December 31, 2017, from $468.2 million during the year ended December 31, 2016. The decrease is mainly attributable to (i) decreased charter rates for certain of our vessels, (ii) revenue not earned by five vessels sold for demolition (one vessel in August  2016 and four vessels during the year ended December 31, 2017) and (iii) revenue not earned due to decreased calendar days by one day during the year ended December 31, 2017 (365 calendar days) compared to the year ended December 31, 2016 (366 calendar days); partly offset by revenue earned by four secondhand vessels acquired during the second and fourth quarter of 2017.

Voyage revenue adjusted on a cash basis (which eliminates non-cash “Accrued charter revenue”), decreased by 12.9%, or $59.3 million, to $401.2 million during the year ended December 31, 2017, from $460.5 million during the year ended December 31, 2016. Accrued charter revenue for the years ended December 31, 2017 and 2016, amounted to $11.2 million and $7.7 million respectively.

Voyage Expenses

Voyage expenses were $2.6 million and $1.9 million, during the years ended December 31, 2017 and 2016, respectively. Voyage expenses mainly include (i) off-hire expenses of our vessels, mainly related to fuel consumption and (ii) third party commissions.

Voyage Expenses – related parties

Voyage expenses – related parties in the amount of $3.1 million and $3.5 million during the years ended December 31, 2017 and 2016, respectively, represent fees of 0.75% in the aggregate on voyage revenues charged by Costamare Shipping and by Costamare Services pursuant to the Framework Agreement, the Services Agreement and the individual ship-management agreements pertaining to each vessel.

Vessels’ Operating Expenses

Vessels’ operating expenses, which also include the realized gain / (loss) under derivative contracts entered into in relation to foreign currency exposure, decreased by 1.9%, or $2.0 million, to $103.8 million during the year ended December 31, 2017, from $105.8 million during the year ended December 31, 2016.

General and Administrative Expenses

General and administrative expenses were $5.7 million and $5.8 million during the years ended December 31, 2017 and 2016, respectively and both include $2.5 million which is part of the annual fee that Costamare Services receives based on the Services Agreement.

Management Fees – related parties

Management fees paid to our managers pursuant to the Framework Agreement were $18.7 million and $18.6 million during the years ended December 31, 2017 and 2016, respectively.

Non-cash general and administrative expenses and non-cash other items

Non-cash general and administrative expenses and non-cash other items for the year ended December 31, 2017 amounted to $3.9 million, representing the value of the shares issued to Costamare Services on March 30, 2017, June 30, 2017, September 29, 2017 and December 29, 2017, pursuant to the Services Agreement. For the year ended December 31, 2016, the non-cash general and administrative expenses and non-cash other items amounted to $9.0 million, including the value of the shares issued to Costamare Services on March 31, 2016, June 30, 2016, September 30, 2016 and December 31, 2016, pursuant to the Services Agreement.

Amortization of Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs was $7.6 million and $7.9 million during the years ended December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, seven vessels underwent and completed their special survey. During the year ended December 31, 2016 six vessels underwent and completed their special survey.

Depreciation

Depreciation expense decreased by 4.5% or $4.5 million, to $96.4 million during the year ended December 31, 2017, from $100.9 million during the year ended December 31, 2016. The decrease was mainly attributable to depreciation expense not charged during the year ended December 31, 2017, due to the sale of five vessels during the period spanning from the third quarter of 2016 to the year ended December 31, 2017; partly offset by the depreciation charged on the four secondhand containerships acquired during the second and fourth quarter of 2017.

Amortization of Prepaid Lease Rentals, net

Amortization of prepaid lease rentals, net was $8.4 million during the year ended December 31, 2017. Amortization of prepaid lease rentals, net was $6.8 million during the year ended December 31, 2016.

Loss on sale / disposal of vessels

During the year ended December 31, 2017, we recorded an aggregate net loss of $4.3 million from the sale of the vessels Marina, Mandraki and the Mykonos and a loss of $0.6 million from the sale of the vessel Romanos which was classified as Asset held for sale as at December 31, 2016. During the year ended December 31, 2016, we recorded a loss of $4.4 million from the sale of the vessel Karmen.

Vessels’ Impairment loss

During the year ended December 31, 2017, we recorded an impairment loss in relation to seven of our vessels in the amount of $18.0 million, in the aggregate.

Loss on asset held for sale

During the year ended December 31, 2017, we recorded a loss on asset held for sale of $2.4 million, representing the expected loss from sale of one of our vessels during the next twelve months period. During the year ended December 31, 2016, we recorded a loss on asset held for sale of $37.2 million, representing the expected loss from sale for scrap of one of our vessels, which we sold in January 2017.

Foreign Exchange Losses

Foreign exchange losses were nil and $0.4 million during the years ended December 31, 2017 and 2016, respectively.

Interest Income

Interest income amounted to $2.7 million and $1.7 million for the years ended December 31, 2017 and 2016, respectively.

Interest and Finance Costs

Interest and finance costs decreased by 4.1%, or $3.0 million, to $69.8 million during the year ended December 31, 2017, from $72.8 million during the year ended December 31, 2016. The decrease is partly attributable to the decreased average loan balance during the year ended December 31, 2017 compared to the year ended December 31, 2016.

Swaps Breakage Cost

During the year ended December 31, 2016, we terminated two interest rate derivative instruments and we paid the counterparties breakage costs of $9.7 million in aggregate.

Equity Gain / (Loss) on Investments

During the year ended December 31, 2017 we recorded an equity gain on investments of $3.4 million representing our share of the net gain of 18 jointly owned companies pursuant to the Framework Deed. During the year ended December 31, 2016, we recorded an equity loss on investments of $0.1 million. The increase is mainly attributable to the income generated by certain newbuild vessels that were delivered from the shipyard during 2016 and immediately commenced their charters. We hold a range of 25% to 49% of the capital stock of the companies jointly owned pursuant to the Framework Deed.

Loss on Derivative Instruments

The fair value of our 17 interest rate derivative instruments which were outstanding as of December 31, 2017 equates to the amount that would be paid by us or to us should those instruments be terminated. As of December 31, 2017, the fair value of these 17 interest rate derivative instruments in aggregate amounted to a net asset of $1.1 million. The effective portion of the change in the fair value of the interest rate derivative instruments that qualified for hedge accounting is recorded in OCI while the ineffective portion is recorded in the consolidated statements of income. The change in the fair value of the interest rate derivative instruments that did not qualify for hedge accounting is recorded in the consolidated statement of income. For the year ended December 31, 2017, a net gain of $13.5 million has been included in OCI and a net loss of $1.1 million has been included in Loss on derivative instruments in the consolidated statement of income, resulting from the fair market value change of the interest rate derivative instruments during the year ended December 31, 2017.

Cash Flows
Years ended December 31, 2017 and 2016

Condensed cash flows Year ended December 31,
(Expressed in millions of U.S. dollars) 2016 2017
Net Cash Provided by Operating Activities $ 226.6 $ 191.0
Net Cash Used in  Investing Activities $ (34.4) $ (42.7)
Net Cash Used in Financing Activities $ (127.4) $ (134.2)

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities for the year ended December 31, 2017, decreased by $35.6 million to $191.0 million, compared to $226.6 million for the year ended December 31, 2016. The decrease is mainly attributable to the decreased cash from operations of $59.2 million; partly off-set by decreased payments for interest (including swap payments) during the year of $10.0 million, the favorable change in working capital position, excluding the current portion of long-term debt and the accrued charter revenue (representing the difference between cash received in that year and revenue recognized on a straight-line basis) of $1.8 million and the decreased special survey costs of $0.3 million during the year ended December 31, 2017 compared to the year ended December 31, 2016.

Net Cash Used in Investing Activities

Net cash used in investing activities was $42.7 million in the year ended December 31, 2017, which consisted of payments for the acquisition of four secondhand vessels and  payments for working capital injected into certain entities pursuant to the Framework Deed (net of dividend distributions we received); partly off-set by proceeds we received from the sale of four vessels.

Net cash used in investing activities was $34.4 million in the year ended December 31, 2016, which mainly consisted of (i) $38.6 million in advance payments for the construction of eight newbuild vessels, the acquisition of a secondhand vessel and working capital injection in certain entities pursuant to the Framework Deed, (ii) $1.6 million in payments for upgrades to one of our vessels, (iii) $3.6 million proceeds we received from the sale of one vessel, and (iv) $3.4 million we received as dividend distributions pursuant to the Framework Deed.

Net Cash Used in Financing Activities

Net cash used in financing activities was $134.2 million in the year ended December 31, 2017, which mainly consisted of (a) $91.7 million we received from our follow-on offering in May 2017, net of underwriting discounts and expenses incurred in the offering, (b) $192.2 million net payments relating to our credit facilities and to our sale and leaseback transactions, (c) $16.5 million we paid for dividends to holders of our common stock for the fourth quarter of 2016, the first quarter, the second quarter and the third quarter of 2017 and (d) $3.8 million we paid for dividends to holders of our Series B Preferred Stock, $8.5 million we paid for dividends to holders of our Series C Preferred Stock and $8.8 million we paid for dividends to holders of our Series D Preferred Stock, in each case for each of the periods from October 15, 2016 to January 14, 2017, January 15, 2017 to April 14, 2017, April 15, 2017 to July 14, 2017 and July 15, 2017 to October 14, 2017.

Net cash used in financing activities was $127.4 million in the year ended December 31, 2016, which mainly consisted of (a) $187.5 million of indebtedness that we repaid, (b) $21.6 million we repaid relating to our sale and leaseback agreements, (c) $71.0 million in aggregate that we drew down from two of our credit facilities, (d) $148.3 million we paid for the prepayment of three of our credit facilities, (e) $151.8 million we received in connection with the sale and leaseback transaction concluded for two of our vessels, (f) $53.9 million we paid for dividends to holders of our common stock for the fourth quarter of 2015, the first, the second quarter and the third quarter of 2016, (g) $69.0 million we received from our follow-on offering in December 2016, net of underwriting discounts and expenses incurred in the offering and (h) $3.8 million we paid for dividends to holders of our Series B Preferred Stock, $8.5 million we paid for dividends to holders of our Series C Preferred Stock and $8.8 million we paid for dividends to holders of our Series D Preferred Stock, in each case for each of the periods from October 15, 2015 to January 14, 2016, January 15, 2016 to April 14, 2016, April 15, 2016 to July 14, 2016 and July 15, 2016 to October 14, 2016.

Liquidity and Capital Expenditures

Cash and cash equivalents

As of December 31, 2017, we had a total cash liquidity of $218.9 million, consisting of cash, cash equivalents and restricted cash.

Debt-free vessels

As of January 23, 2018, the following vessels were free of debt.

Unencumbered Vessels
 (Refer to fleet list for full details)

Vessel Name Year
Built
TEU
Capacity
CMA CGM L’ETOILE 2005 2,556
ELAFONISSOS (*) 1999 2,526
MONEMVASIA (*) 1998 2,472
ARKADIA (*) 2001 1,550

(*) Vessels acquired pursuant to the Framework Deed with York.

Capital commitments

As of January 23, 2018, we had outstanding equity commitments relating to one contracted newbuild of approximately $1.07 million payable until the vessel is delivered, which is expected to be in the second quarter of 2018. The amount represents our interest in the relevant jointly-owned entity under the Framework Deed.

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