Are Navios Maritime Partners’ Distributions Sustainable?
Less exposed to the spot market
Navios Maritime Partners LP (NMM) is less sensitive to shipping cycles due to its long-term charters and staged expirations. This is in contrast its peers Safe Bulkers (SB), Scorpio Bulkers (SALT), and DryShips (DRYS), which operate on short-term charters or spot rates.
Interested in DIA? Don't miss the next report.
Receive e-mail alerts for new research on DIA
Recently, dry bulk freight rates hit an all-time low, putting pressure on the forward time charter rates as well. Eighteen contracts are expiring for Navios Maritime Partners between now and end of 2016. As the current dry time 12-month charter rates are lower than rates at which the current charter expires, it could present a downside for NMM’s cash flows.
Downside to cash flows?
After factoring in the downside from this rechartering, we’ll determine whether NMM would be able to sustain its current distributions.
NMM’s four Capesize, ten Panamax, and three Ultra-Handymax vessels are coming off charter until December 2016. The average current contracted daily charter rate comes out to be $19,165 for Capesize, $10,911 for Panamax, and $10,383 for Ultra-Handymax.
To assess the downside, we used the current 12-month time charter rates from Alibra. According to its estimates, the current 12-month time charter rates are $8,500 for Capesize, $6,200 for Panamax, and $5,400 for Ultra-Handymax. This represents a downside of $38 million to its revenues one year from now. We estimated EBITDA by simply annualizing its latest 3Q15 EBITDA numbers and adjusting for the downside. This gives us an EBITDA of ~$126 million for the year ended 2016.
Distribution coverage 1 year forward
After keeping the rest of the expenses constant (interest paid, received, maintenance, and replacement capital) at 3Q15 annualized levels, we arrived at the distributable cash flow (or DCF) of $84.1 million.
This represents a cash flow per unit of $1.01 and the distribution coverage ratio of 1.2x at the current $0.85 per share annually. This means that even after factoring for all the downside present in the market right now, NMM should still be in a position to provide distributions with a coverage ratio greater than 1.0x. For the sake of simplicity, we haven’t taken into consideration the profit-sharing agreement in its contracts.