Navios Acquisition’s chartering strategy captures tanker upside
Mainly revolving around capturing market opportunity, Navios Maritime Acquisition Corp. (NNA) also strategizes to develop a dependable cash flow from a diverse group of first-class charters.
Most of NNA’s existing fleet is chartered out with expiration post-2015 and minimum 35% profit shares on all contracts. The company is in a strong position to garner the positive market impact of 2014 and 2015. NNA has a total of nine vessels with 2.6 million DWT (deadweight tonnage) chartered out until June 2026 with an average $38,000 per day.
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Revenues from time chartering vessels are accounted for as operating leases, so they’re recognized on a straight-line basis as the average revenue over the rental periods of these charter agreements as service is performed.
Unlike its peers, like Tsakos Energy Navigation Ltd. (TNP), Danaos (DAC), and Frontline Ltd. (FRO), NNA has profit sharing agreements while chartering vessels. With 76% of the NNA contracted fleet profit sharing, every $1,000 is equivalent to $10.6 million in free cash flow. For the first quarter, profit sharing stood at $1.5 million.
Fleet employment profile
NNA is one of the top five largest publicly listed tanker owners among its U.S. and European peers, with one of the youngest on-the-water fleets. To date 2014, the company’s fleet has already grown by four vessels, and an additional six vessels are forecasted to be delivered in 2014. Managing to protect its balance sheet and stakeholders, NNA has a responsible growth strategy and is also expanding its fleet.
Time charter coverage
As of May 14, 2014, Navios Acquisition had contracted 89.0%, 45.1%, and 21.6% of its available days on a charter-out basis for 2014, 2015, and 2016, respectively. This is equivalent to $221.9 million, $157.5 million, and $108.1 million of expected revenue, respectively. The average contractual daily charter-out rates for the fleet are $19,075, $22,297, and $31,100 for 2014, 2015, and 2016, respectively. Meanwhile, the total available days for 2014 and 2015 are 13,682 and 15,879, respectively.
Out of the seven VLCCs that are on fixed-rate contracts for an average duration of 5.3 years at an average net charter rate of $37,934, six are profit sharing. Meanwhile, the remaining four VLCCs are on floating rates for one year. These one-year charters provide protection from any immediate market downside and also allow NNA to reposition vessels in the longer-term.
NNA believes in securing quality counterparties for period charters, which are efficient in capturing the market upside and provide vessel employment with a strong, diversified customer base. Strong credit quality is one of the main attributes that NNA looks for in its counterparties.
The Guggenheim Shipping ETF (SEA) is the composite of all shipping companies.
Let’s move on to see how Navios management supports the company for ease of access to capital in the next part of this series.