Is There an Upside from Navios Partners’ Container Segment?
In a bid to provide regular distributions to its unitholders, Navios Maritime Partners (NMM) started acquiring container vessels in December 2013. NMM’s management expects the container trade to continue growing.
Containers represent ~45.8% of the company’s expected 2015 EBITDA (earnings before interest, tax, depreciation, and amortization) and 65.6% of the contracted revenues. Container ships correlate import growth in the EU and US (SPY).
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Although the current environment in the container market is also not very positive, this shouldn’t worry NMM’s investors. The company has chartered out container vessels for the long term. Out of its eight container vessels, two are employed until 2018, five are on charter until 2023, and one has its charter expiring in 2027.
This long-term charter provides its earnings with a stable and predictable cash flow, which fits its MLP (or master limited partnership) business model. The importance of container vessels is growing in NMM’s portfolio, as the chart above shows.
Upside in containers market?
The distribution reduction could lead to an annual $50 million surplus cash for Navios Partners. During the company’s 3Q15 earnings call, management maintained that this surplus could be used to acquire container ships. It seems that the company may be conservative in the short term in deploying this cash in the face of the current weak dry bulk market. The recent weakness in container ships is due to the weakness in Europe and Russia. However, going forward, the fundamentals might improve as the net fleet is expected to remain below container demand.
Although Navios Partners is not planning to acquire any new vessels at the moment, Diana Shipping (DSX) is acquiring vessels. On the other hand, DryShips (DRYS) sold off its entire fleet. Ship Finance International (SFL), which is a spinoff of Frontline (FRO), is also acquiring vessels in the container segment.