Costamare posts profit in fourth quarter; $900m worth of acquisition deals in 2018

COSTAMARE

Costamare reported unaudited financial results for the fourth quarter and year ended December 31, 2018. 

  • Adjusted Net Income available to common stockholders(1) of $ 13.3 million or $ 0.12 per share and $ 46.9 million or $ 0.42 per share for the three-months and the year ended December 31, 2018, respectively.
  • During 2018, ordered new buildings and acquired secondhand vessels for a total value of approximately $ 900.0 million. The TEU-weighted average employment period of the vessels involved in these transactions is 8 years.
  • Successfully concluded the acquisition of the 60% equity interest of York Capital Management in five 2016–built, 14,000 TEU containerships bringing the Company’s ownership in these five vessels to 100% (included in the above mentioned $ 900.0 million transactions).
  • Chartered in total 12 vessels over the quarter.
  • Declared dividend of $0.10 per share on its common stock and dividends on all four classes of its preferred stock.

(1) Adjusted Net Income available to common stockholders is a non-GAAP measure and should not be used in isolation or as a substitute for Costamare’s financial results presented in accordance with U.S. generally accepted accounting principles (“GAAP”). For the definition and reconciliation of this measure to the most directly comparable financial measure calculated and presented in accordance with GAAP, please refer to Exhibit I.

New Business Developments

A.        New acquisitions

  • In November 2018, we acquired the 60% equity interest of York Capital Management in five 2016–built, 14,000 TEU containerships. The acquisition brought the Company’s ownership in these five vessels, which currently operate under long term charters to Evergreen expiring in 2026, to 100%.

B.        New financing transactions

  • In October 2018, we entered into a financing agreement with a European financial institution for the two 1996-built, 8,044 TEU containerships, the Maersk Kleven and Maersk Kotka. The loan facility will be repayable over 2.5 years.
  • In December 2018, we concluded the refinancing of the outstanding loan amount of $ 44.4 million under two credit facilities with a leading European financial institution. The new facility matures in November 2023 and has a balloon payment at expiry of $ 27.0 million.

C.        Vessel disposals

  • In November 2018, we sold for demolition the 1994-built, 1,162 TEU container vessel Petalidi.

D.        New charter agreements

  • The Company has chartered in total 12 vessels over the quarter. More specifically, the Company:
    – Agreed to extend the charter of the 2017-built, 11,010 TEU containership Cape Sounio with ZIM for a period of 12 to 14 months at charterers’ option, starting from March 15, 2019, at a daily rate of $33,500.
    – Agreed to extend the charter of the 2017-built, 11,010 TEU containership Cape Artemisio with Hapag Lloyd for a period of 10 to 12 months at charterers’ option, starting from May 12, 2019, at a daily rate of $32,500.
    – Agreed to extend the charter of the 2000-built, 4,890 TEU containership Oakland Express with Hapag Lloyd for a period starting from February 1, 2019 and expiring at charterers’ option during the period from November 30, 2019 to January 31, 2020, at a daily rate of $10,000.
    – Agreed to extend the charter of the 2000-built, 4,890 TEU containership Halifax Express with Hapag Lloyd for a period starting from February 1, 2019 and expiring at charterers’ option during the period from October 30, 2020 to December 30, 2020, at a daily rate of $10,000.
    – Agreed to extend the charter of the 2000-built, 4,890 TEU containership Singapore Express with Hapag Lloyd for a period starting from February 1, 2019 and expiring at charterers’ option during the period from July 31, 2020 to September 30, 2020, at a daily rate of $10,000.
    – Agreed to charter the 1997-built, 7,403 TEU containership Kokura (ex. Niledutch Panther) with CMA CGM for a period of 42 to 84 days at charterers’ option, starting from November 25, 2018, at a daily rate of $11,000.
    – Agreed to extend the charter of the 2003-built, 5,928 TEU containership Venetiko with Hapag Lloyd for a period starting from November 19, 2018 and expiring at charterers’ option during the period from June 1, 2019 to November 1, 2019, at a daily rate of $9,750.
    – Agreed to extend the charter of the 2001-built, 5,576 TEU containership Ensenada with ONE for a period of 50 to 70 days at charterers’ option, starting from February 21, 2019, at a daily rate of $9,150.
    – Agreed to extend the charter of the 2004-built, 4,992 TEU containership Piraeus for a period of 42 to 168 days at charterers’ option, starting from November 16, 2018. Subsequently agreed to extend the charter for a period of 42 to 126 days at charterers’ option, starting from December 28, 2018.
    – Agreed to extend the charter of the 2000-built, 1,645 TEU containership Neapolis with Evergreen for a period of 4 to 7 months at charterers’ option, starting from February 14, 2019, at a daily rate of $7,100.
    – Agreed to extend the charter of the 1996-built, 1,504 TEU containership Prosper with Evergreen for a period of 4 to 7 months at charterers’ option, starting from January 28, 2019, at a daily rate of $6,975.
    – Agreed to extend the charter of the 2001-built, 1,078 TEU containership Luebeck with MSC for a period of 11 to 13 months at charterers’ option, starting from February 19, 2019, at a daily rate of $6,200.

E.        Dividend announcements

  • On January 3, 2019, we declared a dividend for the quarter ended December 31, 2018, of $0.10 per share on our common stock, payable on February 7, 2019, to stockholders of record of common stock as of January 22, 2019.
  • On January 3, 2019, 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, a dividend of $0.546875 per share on our Series D Preferred Stock and a dividend of $0.554688 per share on our Series E Preferred Stock which were all paid on January 15, 2019 to holders of record as of January 14, 2019.

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

“During the fourth quarter and the year the Company delivered profitable results.

The year 2018 closed on a mixed note; while charter rates rallied in the first half of the year, average rates fell in the second half finishing the year slightly below their starting point, except for the larger ships. During the last weeks however, we have witnessed a tighter market with regards to large modern vessels, where supply has been limited driving up charter rates.

We have been active during the year, entering into new transactions with a total value of close to $ 900 million. These include both new buildings and second hand ships with an average time charter duration of 8 years.

Finally, on the financing side, we financed with a leading financial institution the two recently acquired 1996-built, 8,000 TEU sister containerships, as well as a $ 25 million balloon due in December of last year secured by older vessels. We have no meaningful balloon repayments over the next 12 months.”

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): 2017 2018 2017 2018
Voyage revenue $ 412,433 $ 380,397 $ 100,618 $ 106,153
Accrued charter revenue (1) $ (11,204 ) $ (7,294 ) $ (2,752 ) $ (2,263 )
Amortization of time-charter assumed $ 26 $ 26
Voyage revenue adjusted on a cash basis (2) $ 401,229 $ 373,129 $ 97,866 $ 103,916
Adjusted Net Income available to common stockholders (3) $ 76,933 $ 46,857 $ 18,408 $ 13,259
Weighted Average number of shares 100,527,907 110,395,134 107,661,705 111,951,107
Adjusted Earnings per share (3) $ 0.77 $ 0.42 $ 0.17 $ 0.12
Net Income $ 72,876 $ 67,239 $ 2,670 $ 19,732
Net Income /(Loss) available to common stockholders $ 51,813 $ 36,736 $ (2,596 ) $ 11,915
Weighted Average number of shares 100,527,907 110,395,134 107,661,705 111,951,107
Earnings / (Losses) per share $ 0.52 $ 0.33 $ (0.02 ) $ 0.11

(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, 2018 and 2017. 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.

Exhibit I
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) 2017 2018 2017 2018
Net Income $ 72,876 $ 67,239 $ 2,670 $ 19,732
Earnings allocated to Preferred Stock (21,063 ) (30,503 ) (5,266 ) (7,817 )
Net Income / (Loss) available to common stockholders 51,813 36,736 (2,596 ) 11,915
Accrued charter revenue (11,204 ) (7,294 ) (2,752 ) (2,263 )
General and administrative expenses – non-cash component 3,866 3,755 864 657
Amortization of prepaid lease rentals, net 8,429 8,150 2,054 2,055
Amortization of Time charter assumed 26 26
Realized (Gain) / loss on Euro/USD forward contracts (1) (765 ) 97 (83 )
Loss on sale / disposals of vessels 4,856 3,071 291
Swaps’ breakage costs 1,234
Loss on vessel held for sale 2,379 101 2,379 101
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
Loss on sale / disposal of vessel by a jointly owned company with York included in equity (gain) / loss on investments 707 43
Loss on asset held for sale by a jointly owned company with York included in equity gain on investments 112 112
(Gain) / loss on derivative instruments, excluding interest accrued and realized on non-hedging derivative instruments (1) (1,296 ) 162 (313 ) 322
Adjusted Net Income available to common stockholders $ 76,933 $ 46,857 $ 18,408 $ 13,259
Adjusted Earnings per Share $ 0.77 $ 0.42 $ 0.17 $ 0.12
Weighted average number of shares 100,527,907 110,395,134 107,661,705 111,951,107

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) / loss on Euro/USD forward contracts, loss on sale / disposal of vessels, loss on vessel held for sale, loss on sale / disposal of vessel by a jointly owned company with York included in equity gain on investments, loss on asset held for sale by a jointly owned company with York included in equity gain on investments, swaps’ breakage costs, non-cash general and administrative expenses and non-cash other items, amortization of prepaid lease rentals, amortization of time charter assumed, 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 available to common stockholders are reflected as deductions to Adjusted Net Income available to common stockholders. Charges negatively impacting Net Income available to common stockholders are reflected as increases to Adjusted Net Income available to common stockholders.

Results of Operations

Three-month period ended December 31, 2018 compared to the three-month period ended December 31, 2017

During the three-month periods ended December 31, 2018 and 2017, we had an average of 59.8 and 52.6 vessels, respectively, in our fleet. In the three-month period ended December 31, 2018, we acquired the 60% equity interest of York Capital Management in each of the 14,000 TEU container vessels Triton, Titan, Talos, Taurus and Theseus and as a result we obtained 100% of the equity interest in each of these five vessels. In the three-month period ended December 31, 2018, we sold the 3,842 TEU container vessel MSC Koroni. 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, 2018 and 2017, our fleet ownership days totaled 5,505 and 4,843 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,
Change Percentage
Change
2017 2018
Voyage revenue $ 100.6 $ 106.2 $ 5.6 5.6 %
Voyage expenses (0.6 ) (1.0 ) 0.4 66.7 %
Voyage expenses – related parties (0.8 ) (0.9 ) 0.1 12.5 %
Vessels’ operating expenses (26.9 ) (30.3 ) 3.4 12.6 %
General and administrative expenses (1.3 ) (1.3 )
Management fees – related parties (4.3 ) (5.0 ) 0.7 16.3 %
General and administrative expenses – non-cash component (0.9 ) (0.7 ) (0.2 ) (22.2 %)
Amortization of dry-docking and special survey costs (1.8 ) (2.1 ) 0.3 16.7 %
Depreciation (23.8 ) (26.5 ) 2.7 11.3 %
Vessels’ impairment loss (18.0 ) (18.0 ) n.m.
Amortization of prepaid lease rentals, net (2.1 ) (2.1 )
Loss on sale / disposal of vessels (0.3 ) 0.3 n.m.
Loss on vessel held for sale (2.4 ) (0.1 ) (2.3 ) (95.8 %)
Interest income 0.8 0.8
Interest and finance costs (16.5 ) (19.7 ) 3.2 19.4 %
Equity gain on investments 0.9 2.9 2.0 222.2 %
Other 0.1 0.1 n.m.
Loss on derivative instruments (0.2 ) (0.3 ) 0.1 50.0 %
Net Income $ 2.7 $ 19.7
(Expressed in millions of U.S. dollars,
except percentages)
Three-month period
ended December 31,
Change Percentage
Change
2017 2018
Voyage revenue $ 100.6 $ 106.2 $ 5.6 5.6 %
Accrued charter revenue (2.8 ) (2.3 ) (0.5 ) (17.9 %)
Voyage revenue adjusted on a cash basis $ 97.8 $ 103.9 $ 6.1 6.2 %
Vessels’ operational data Three-month period
ended December 31,
Percentage
Change
2017 2018 Change
Average number of vessels 52.6 59.8 7.2 13.7 %
Ownership days 4,843 5,505 662 13.7 %
Number of vessels under dry-docking 3 2 (1 )

Voyage Revenue

Voyage revenue increased by 5.6%, or $ 5.6 million, to $106.2 million during the three-month period ended December 31, 2018, from $100.6 million during the three-month period ended December 31, 2017. The increase is mainly attributable to revenue earned by (i) five vessels acquired during the fourth quarter of 2018 and (ii) seven secondhand vessels acquired during the fourth quarter of 2017 and the nine-month period ended September 30, 2018; partly off-set by decreased charter rates and increased off-hire days for certain of our vessels and revenue not earned by two vessels sold for demolition in the second and fourth quarter of 2018.

Voyage revenue adjusted on a cash basis (which eliminates non-cash “Accrued charter revenue”), increased by 6.2%, or $6.1 million, to $103.9 million during the three-month period ended December 31, 2018, from $97.8 million during the three-month period ended December 31, 2017. Accrued charter revenue for the three-month periods ended December 31, 2018 and 2017, amounted to $2.3 million and $2.8 million, respectively.

Voyage Expenses

Voyage expenses were $1.0 million and $0.6 million for the three-month periods ended December 31, 2018 and 2017, respectively. Voyage expenses mainly include (i) off-hire expenses of our vessels, primarily related to fuel consumption and (ii) third party commissions.

Voyage Expenses – related parties

Voyage expenses – related parties were $0.9 million and $0.8 million for the three-month periods ended December 31, 2018 and 2017, respectively. Voyage expenses – related parties represent (i) 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 and (ii) charter brokerage fees payable to Blue Net Chartering GmbH & Co. KG (“Blue Net”) pursuant to the Agreement Regarding Charter Brokerage dated January 1, 2018 between Costamare Shipping and Blue Net, as amended from time to time.

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 $ 30.3 million and $26.9 million during the three-month periods ended December 31, 2018 and 2017, respectively.

General and Administrative Expenses

General and administrative expenses were $1.3 million for each of the three-month periods ended December 31, 2018 and 2017 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 $ 5.0 million and $4.3 million during the three-month periods ended December 31, 2018 and 2017, respectively.

General and administrative expenses – non-cash component

General and administrative expenses – non-cash component were $0.7 million for the three-month period ended December 31, 2018, representing the value of the shares issued to Costamare Services on December 31, 2018, pursuant to the Services Agreement. For the three-month period ended December 31, 2017, the respective amount was $0.9 million, representing the fair value of the shares issued to Costamare Services on December 29, 2017, pursuant to the Services Agreement.

Amortization of Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs was $2.1 million and $1.8 million during the three-month periods ended December 31, 2018 and 2017, respectively. During the three-month period ended December 31, 2018, two vessels underwent and completed their special survey. During the three-month period ended December 31, 2017, three vessels underwent and completed their special survey.

Depreciation

Depreciation expense increased by 11.3%, or $2.7 million, to $26.5 million during the three-month period ended December 31, 2018, from $23.8 million during the three-month period ended December 31, 2017. The increase was mainly attributable to the increased average number of vessels during the three-month period ended December 31, 2018 compared to the three-month period ended December 31, 2017.

Vessels’ impairment loss

During the three-month period ended December 31, 2018, no impairment loss was recorded. 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.

Amortization of Prepaid Lease Rentals, net

Amortization of prepaid lease rentals, net was $2.1 million for each of the three-month periods ended December 31, 2018 and 2017.

Loss on sale / disposal of vessels

During the three-month period ended December 31, 2018, we sold the 3,842 TEU container vessel MSC Koroni and we recorded a loss of $0.3 million. During the three-month period ended December 31, 2017, no vessel was sold.

Loss on vessel held for sale

During the three-month period ended December 31, 2018, we recorded a loss on vessel held for sale of $0.1 million, representing the expected loss from the sale of one of our vessels during the next twelve-month period.  During the three-month period ended December 31, 2017, we recorded a loss on vessel held for sale of $2.4 million, representing the expected loss from the sale of one of our vessels, which we sold in June 2018.

Interest Income

Interest income was $0.8 million for each of the three-month periods ended December 31, 2018 and 2017.

Interest and Finance Costs

Interest and finance costs were $19.7 million and $16.5 million during the three-month periods ended December 31, 2018 and 2017, respectively. The increase is mainly attributable to the increased average loan balance during the three-month period ended December 31, 2018 compared to the three-month period ended December 31, 2017.

Equity Gain on Investments

During the three-month period ended December 31, 2018, we recorded an equity gain on investments of $2.9 million representing our share of the net gain in jointly owned companies pursuant to the Framework Deed dated May 15, 2013, as amended and restated on May 18, 2015 and as further amended on June 12, 2018 (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. Since November 12, 2018, we have held the 100% of the equity interest in five previously jointly owned companies with York, and as of that date these five companies are consolidated in our consolidated financial statements. As of December 31, 2018, 13 companies are jointly -owned with York. During the three-month period ended December 31, 2017, we recorded an equity gain on investments of $0.9 million also relating to investments under the Framework Deed.

Loss on Derivative Instruments

The fair value of our 13 interest rate derivative instruments which were outstanding as of December 31, 2018 equates to the amount that would be paid by us or to us should those instruments be terminated. As of December 31, 2018, the fair value of these 13 interest rate derivative instruments in aggregate amounted to a net asset of $7.2 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, 2018, a net loss of $2.7 million has been included in OCI and a net loss of $0.3 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 three-month period ended December 31, 2018.

Cash Flows

Three-month periods ended December 31, 2018 and 2017

Condensed cash flows Three-month period
ended December 31,
(Expressed in millions of U.S. dollars) 2017 2018
Net Cash Provided by Operating Activities $ 46.5 $ 35.0
Net Cash Provided by / (Used in) Investing Activities $ (9.9 ) $ 0.9
Net Cash Used in Financing Activities $ (51.4 ) $ (24.2 )

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities for the three-month period ended December 31, 2018, decreased by $11.5 million to $35.0 million, from $46.5 million for the three-month period ended December 31, 2017. The decrease is mainly attributable to 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 $6.6 million, the increased special survey costs of $1.1 million and increased payments for interest (including swap net receipts) during the period of $2.6 million during the three-month period ended December 31, 2018 compared to the three-month period ended December 31, 2017; partly off-set by the increased cash from operations of $6.0 million.

Net Cash Provided by / (Used in) Investing Activities

Net cash provided by investing activities was $0.9 million in the three-month period ended December 31, 2018, which mainly consisted of proceeds we received from the sale of one vessel, net payments for the acquisition of the 60% equity interest in five companies previously jointly owned with York pursuant to the Framework Deed and payments for capitalized expenses for certain of our vessels.

Net cash used in investing activities was $9.9 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 Financing Activities

Net cash used in financing activities was $24.2 million in the three-month period ended December 31, 2018, which mainly consisted of (a) $9.0 million net payments relating to our debt financing agreements, (b) $6.6 million we paid for dividends to holders of our common stock for the third quarter of 2018 and (c) $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, $2.2 million we paid for dividends to holders of our Series D Preferred Stock and $2.6 million we paid for dividends to holders of our Series E Preferred Stock for the period from July 15, 2018 to October 14, 2018.

Net cash used in financing activities was $51.4 million in the three-month period ended December 31, 2017, which mainly consisted of (a) $41.4 million net payments relating to our debt financing agreements, (b) $4.6 million we paid for dividends to holders of our common stock for the third quarter of 2017 and (c) $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.

Year ended December 31, 2018 compared to the year ended December 31, 2017

During the years ended December 31, 2018 and 2017, we had an average of 55.8 and 52.7 vessels, respectively, in our fleet. In the year ended December 31, 2018, (i) we acquired the 60% equity interest of York Capital Management in each of the 14,000 TEU container vessels Triton, Titan, Talos, Taurus and Theseus and, as a result, we obtained 100% of the equity interest in each of these five vessels, (ii) we accepted delivery of the secondhand containerships Michigan, Trader, Megalopolis, Marathopolis, Maersk Kleven and Maersk Kotka with an aggregate capacity of 28,602 TEU and (iii) we sold the container vessels Itea and MSC Koroni with an aggregate capacity of 7,684 TEU. 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 years ended December 31, 2018 and 2017, our fleet ownership days totaled 20,359 and 19,221 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, Change Percentage
Change
2017 2018
Voyage revenue $ 412.4 $ 380.4 $ (32.0 ) (7.8 %)
Voyage expenses (2.6 ) (5.8 ) 3.2 123.1 %
Voyage expenses – related parties (3.1 ) (3.2 ) 0.1 3.2 %
Vessels’ operating expenses (103.8 ) (110.6 ) 6.8 6.6 %
General and administrative expenses (5.7 ) (5.4 ) (0.3 ) (5.3 %)
Management fees – related parties (18.7 ) (19.5 ) 0.8 4.3 %
General and administrative expenses – non-cash component (3.9 ) (3.8 ) (0.1 ) (2.6 %)
Amortization of dry-docking and special survey costs (7.6 ) (7.3 ) (0.3 ) (3.9 %)
Depreciation (96.4 ) (96.3 ) (0.1 ) (0.1 %)
Amortization of prepaid lease rentals, net (8.4 ) (8.2 ) (0.2 ) (2.4 %)
Loss on sale / disposal of vessels (4.9 ) (3.1 ) (1.8 ) (36.7 %)
Vessels’ impairment loss (18.0 ) (18.0 ) n.m.
Loss on vessel held for sale (2.4 ) (0.1 ) (2.3 ) (95.8 %)
Foreign exchange losses (0.1 ) 0.1 n.m.
Interest income 2.7 3.5 0.8 29.6 %
Interest and finance costs (69.8 ) (64.0 ) (5.8 ) (8.3 %)
Swaps’ breakage costs (1.2 ) 1.2 n.m.
Equity gain on investments 3.4 12.1 8.7 255.9 %
Other 0.6 0.4 (0.2 ) (33.3 %)
Loss on derivative instruments (0.9 ) (0.6 ) (0.3 ) (33.3 %)
Net Income $ 72.9 $ 67.2
(Expressed in millions of U.S. dollars,
except percentages)
Year ended December 31, Change Percentage
Change
2017 2018
Voyage revenue $ 412.4 $ 380.4 $ (32.0 ) (7.8 %)
Accrued charter revenue (11.2 ) (7.3 ) (3.9 ) (34.8 %)
Voyage revenue adjusted on a cash basis $ 401.2 $ 373.1   $ (28.1 ) (7.0 %)

 

Vessels’ operational data Year ended December
31,
Change Percentage
Change
2017 2018
Average number of vessels 52.7 55.8 3.1 5.9 %
Ownership days 19,221 20,359 1,138 5.9 %
Number of vessels under dry-docking 7 17 10

 
Voyage Revenue

Voyage revenue decreased by 7.8%, or $32.0 million, to $380.4 million during the year ended December 31, 2018, from $412.4 million during the year ended December 31, 2017. The decrease is mainly attributable to (i) decreased charter rates and increased off-hire days for certain of our vessels, (ii) revenue not earned by six vessels sold for demolition in the first and third quarter of 2017 and the second and fourth quarter of 2018; partly off-set by revenue earned by four secondhand vessels acquired during the second and fourth quarter of 2017 and eleven vessels acquired during the year ended December 31, 2018.

Voyage revenue adjusted on a cash basis (which eliminates non-cash “Accrued charter revenue”), decreased by 7.0%, or $28.1 million, to $373.1 million during the year ended December 31, 2018, from $401.2 million during the year ended December 31, 2017. Accrued charter revenue for the year ended December 31, 2018 and 2017, amounted to $7.3 million and $11.2 million, respectively.

Voyage Expenses

Voyage expenses were $5.8 million and $2.6 million for the years ended December 31, 2018 and 2017, respectively. Voyage expenses mainly include (i) off-hire expenses of our vessels, primarily related to fuel consumption and (ii) third party commissions.

Voyage Expenses – related parties

Voyage expenses – related parties were $3.2 million and $3.1 million for the years ended December 31, 2018 and 2017, respectively. Voyage expenses – related parties represent (i) 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 and (ii) charter brokerage fees payable to Blue Net pursuant to the Agreement Regarding Charter Brokerage dated January 1, 2018 between Costamare Shipping and Blue Net, as amended from time to time.

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 $110.6 million and $103.8 million during the years ended December 31, 2018 and 2017, respectively.

General and Administrative Expenses

General and administrative expenses were $5.4 million and $5.7 million during the years ended December 31, 2018 and 2017, 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 $19.5 million and $18.7 million for the years ended December 31, 2018 and 2017, respectively.

General and administrative expenses – non-cash component

General and administrative expenses – non-cash component for the year ended December 31, 2018 amounted to $3.8 million representing the value of the shares issued to Costamare Services on March 30, June 29, September 28 and December 31, 2018, pursuant to the Services Agreement. For the year ended December 31, 2017, the respective amount was $3.9 million, representing the fair value of the shares issued to Costamare Services on March 30, June 30, September 29 and December 29, 2017, pursuant to the Services Agreement.

Amortization of Dry-docking and Special Survey Costs

Amortization of deferred dry-docking and special survey costs was $7.3 million and $7.6 million during the years ended December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, 17 vessels underwent and completed their special survey. During the year ended December 31, 2017, seven vessels underwent and completed their special survey.

Depreciation

Depreciation expense decreased by 0.1%, or $0.1 million, to $96.3 million during the year ended December 31, 2018, from $96.4 million during the year ended December 31, 2017.

Amortization of Prepaid Lease Rentals, net

Amortization of prepaid lease rentals, net was $8.2 million during the year ended December 31, 2018. Amortization of prepaid lease rentals, net was $8.4 million during the year ended December 31, 2017.

Loss on sale / disposal of vessels

During the year ended December 31, 2018, we recorded a loss of $2.2 million from the sale of the vessel MSC Koroni and $0.9 million from the sale of the vessel Itea which was classified as Asset held for sale as at December 31, 2017. 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.

Vessels’ impairment loss

During the year ended December 31, 2018, no impairment loss was recorded. 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 vessel held for sale

During the year ended December 31, 2018, we recorded a loss on vessel held for sale of $0.1 million, representing the expected loss from the sale of one of our vessels during the next twelve-month period. During the year ended December 31, 2017, we recorded a loss on vessel held for sale of $2.4 million, representing the expected loss from the sale of one of our vessels, which we sold in June 2018.

Interest Income

Interest income amounted to $3.5 million and $2.7 million for the years ended December 31, 2018 and 2017, respectively.

Interest and Finance Costs

Interest and finance costs were $64.0 million and $69.8 million during the years ended December 31, 2018 and 2017, respectively. The decrease is mainly attributable to the net interest charged on our interest rate swap agreements that qualify for hedge accounting; partly offset by increased interest expense charged due to the increased loan balance during the year ended December 31, 2018 compared to the year ended December 31, 2017.

Swaps Breakage Costs

During the year ended December 31, 2018, we terminated three interest rate derivative instruments that qualify for hedge accounting and we paid the counterparties breakage costs of $1.2 million.

Equity Gain on Investments

During the year ended December 31, 2018, we recorded an equity gain on investments of $12.1 million representing our share of the net gain in jointly owned companies pursuant to the Framework Deed. Since November 12, 2018, we hold the 100% equity interest in five previously jointly owned companies with York and as of that date, these five companies are consolidated in our consolidated financial statements. As of December 31, 2018, 13 companies are jointly -owned with York.

During the year ended December 31, 2017, we recorded an equity gain on investments of $3.4 million also relating to investments under the Framework Deed.

Loss on Derivative Instruments

The fair value of our 13 interest rate derivative instruments which were outstanding as of December 31, 2018 equates to the amount that would be paid by us or to us should those instruments be terminated. As of December 31, 2018, the fair value of these 13 interest rate derivative instruments in aggregate amounted to a net asset of $7.2 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 year ended December 31, 2018, a net gain of $5.5 million has been included in OCI and a net loss of $0.4 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, 2018.

Cash Flows
Years ended December 31, 2018 and 2017

Condensed cash flows Years ended December 31,
(Expressed in millions of U.S. dollars) 2017 2018
Net Cash Provided by Operating Activities $ 191.8 $ 140.8
Net Cash Used in Investing Activities $ (43.4 ) $ (112.6 )
Net Cash Used in Financing Activities $ (140.0 ) $ (80.5 )

Net Cash Provided by Operating Activities

Net cash flows provided by operating activities for the year ended December 31, 2018, decreased by $51.0 million to $140.8 million, from $191.8 million for the year ended December 31, 2017. The decrease is mainly attributable to the decreased cash from operations of $28.1 million, the increased special survey costs of $13.0 million and 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 $11.7 million during the year ended December 31, 2018 compared to the year ended December 31, 2017; partly off-set by  decreased payments for interest (including swap net payments) during the year of $9.9 million.

Net Cash Used in Investing Activities

Net cash used in investing activities was $112.6 million in the year ended December 31, 2018, which mainly consisted of net payments relating to the acquisition of six secondhand vessels and five newbuild vessels, net payments for the acquisition of the 60% equity interest in five companies previously jointly owned with York pursuant to the Framework Deed, payments for capital injection into certain entities pursuant to the Framework Deed (net of dividend distributions we received) and proceeds we received from the sale of two vessels.

Net cash used in investing activities was $43.4 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 Financing Activities

Net cash used in financing activities was $80.5 million in the year ended December 31, 2018, which mainly consisted of (a) $139.2 million net payments relating to our debt financing agreements, (b) $111.2 million net proceeds we received from our January 2018 public offering, of 4.6 million shares of our Series E Preferred Stock, net of underwriting discounts and expenses incurred in the offering, (c) $20.9 million we paid for dividends to holders of our common stock for the fourth quarter of 2017, the first quarter of 2018, the second quarter of 2018 and the third quarter of 2018 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, $8.8 million we paid for dividends to holders of our Series D Preferred Stock, for the periods from October 15, 2017 to January 14, 2018, January 15, 2018 to April 14, 2018, April 15, 2018 to July 14, 2018 and July 15, 2018 to October 14, 2018 and $7.2 million we paid for dividends to holders of our Series E Preferred Stock, for the period from January 30, 2018 to April 14, 2018, April 15, 2018 to July 14, 2018 and July 15, 2018 to October 14, 2018.

Net cash used in financing activities was $140.0 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 debt financing agreements, (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.

Change in the manner of presentation of certain items

Effective January 1, 2018, we adopted ASU No. 2016-15—Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments and ASU No. 2016-18—Statement of Cash Flows (Topic 230)—Restricted Cash. In order to conform to the current period presentation, we present comparatives in the condensed statement of cash flows as the new ASUs require.

Liquidity and Unencumbered Vessels

Cash and cash equivalents

As of December 31, 2018, we had a total cash liquidity of $166.5 million, consisting of cash, cash equivalents and restricted cash.

Debt-free vessels

As of January 23, 2019, 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
MICHIGAN 2008 1,300
ENSENADA (*) 2001 5,576
ELAFONISOS (*) 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, 2019, we had outstanding equity commitments relating to five contracted newbuilds aggregating approximately $31.4 million payable until the vessels are delivered in 2021.

 

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