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Costamare got yield of 32% buying secondhand ships like Rena, documents show

Thursday 20th October 2011

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Costamare Inc. has told investors it purchased secondhand container ships, including the MV Rena, at a good time and is making a yield of 32 percent on them, company documents show.

Costamare has apologised for the grounding of the Rena on Oct. 5 off Tauranga, causing an environmental disaster in the Bay of Plenty and to the east. The company, which says it is fully insured, has also thanked those involved in the cleanup.

"Costamare will be there to do the right thing, as the situation becomes clearer," the company said yesterday.

The company is a charter owner that charters vessels to liner shipping companies. Its largest time charter customers AP Moller-Maersk, Mediterranean Shipping Company and COSCO provide 75 percent of its revenue.

Rena was one of four secondhand 3,351 TEU container ships built between 1990 and 1992 Costamare contracted to buy on Sept. 23, 2010, for a total US$45 million. The Rena was delivered on Nov. 22, 2010.

The time charter rate for the four ships, including Rena, is US$16,580 per day, according to a presentation to investors in June of this year.

Based on a vessel acquisition price of US$11.25 million per ship and estimate of earnings before interest, tax, depreciation and amortisation of US$3.7 million a year, the company calculated a yield on Rena of 32 percent.

Costamare says in documents filed to the Securities and Exchange Commission that the container shipping industry experienced weakness from the middle of 2008 through the first half of 2010.

Costamare told investors that its management team had "overcome the worst container shipping crisis in history" and the company was now uniquely positioned for growth.

The key to making superior returns was purchasing ships at the right time.

The market for container ship owners improved as global fleet capacity and order books for new ships fell and charter rates rose. Container ship charter rates peaked in 2005 and generally stayed strong until the middle of 2008, when the global financial crisis pushed rates to 10-year lows.

The estimated one-year time charter rate for a 3,500 TEU containership at the end of January 2010 was US$5,500 per day compared to an average of US$26,902 per day in the period 2000-2009. Time charter daily rates improved 99 percent during the first nine months of 2010. By the end of September 2010 rates had recovered to US$19,000 per day.

Following an initial public offering on Nov. 4, 2010, Costamare began trading on the New York Stock Exchange. Its shares last traded at US$12.10, which is near the offer price of $12 a share.

The offer price was below from the US$15 to US$17 a share range in the prospectus, indicating poor demand for the shares. Costamare purchased the 53 ship-owning companies held by the Konstantakopoulos family from Greece, comprising Captain Vasileios Konstantakopoulos and three sons Konstantinos Konstantakopoulos, Achillefs Konstantakopoulos and Christos Konstantakopoulos.

The sons owned 77.1 percent of Costamare after its listing. When it began the company owned and operated drybulk carrier vessels but since 1992 it has focused exclusively on containerships.

Since assuming management of the company in 1998, Konstantinos Konstantakopoulos has founded the management companies CIEL and Shanghai Costamare, and a manning agency C-Man Maritime. CIEL is the technical manager of Rena.

The vessel owners are wholly-owned subsidiaries incorporated in the Republic of Liberia and each vessel is managed by at least one of the three management companies. Rena is owned by Daina Shipping Co.

The company argues that by providing containerships to shipping lines under multi-year time charters it is not subject to seasonal variations in demand.

There are over 200 shipping liner companies, but the top 10 have 56 percent of the market. AP Moller-Maersk’s deployed fleet accounted for approximately 13 percent of the global fleet liner capacity.

The Rena is a relatively small containership as Costamare has new vessels on order capable of carrying 9,000 containers.

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