Costamare Inc. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a quarterly filing; standalone fourth-quarter results are not clearly provided. Financial statements are prepared under U.S. GAAP and audited by Ernst & Young, which issued an unqualified opinion.
Business context
Costamare owns and charters containerships, principally to liner companies under time charters. At year-end 2019, it reported 60 wholly owned vessels in the water; as of February 25, 2020, its broader fleet comprised 70 vessels in the water and five under construction, including joint-venture vessels. The company seeks long-term, fixed-rate charters, but 34 of its 70 in-water vessels had charters scheduled to expire before the end of 2020.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Voyage revenue | $478.1 million | $380.4 million | Up 25.7% |
| Operating income | $173.1 million | $117.2 million | Up 47.8%; operating margin about 36.2%, versus 30.8% |
| Net income | $99.0 million | $67.2 million | Up 47.2%; net margin about 20.7%, versus 17.7% |
| Net income available to common shareholders | $67.7 million | $36.7 million | EPS was $0.59 versus $0.33 |
| Operating cash flow | $250.4 million | $140.8 million | Up $109.6 million |
| Investing cash flow | $(8.9) million | $(112.6) million | Lower net investment outflow, including vessel-sale proceeds |
| Financing cash flow | $(212.2) million | $(80.5) million | Included net debt repayments and distributions |
| Cash, cash equivalents and restricted cash | $195.9 million | $166.5 million | Unrestricted cash and equivalents were $148.9 million |
| Total assets / stockholders’ equity | $3.012 billion / $1.411 billion | $3.051 billion / $1.357 billion | Assets edged down; equity increased |
Gross indebtedness, including finance leases and other financing arrangements, was approximately $1.56 billion at December 31, 2019; the balance sheet reports $1.426 billion of long-term debt before separately presented finance-lease liabilities. Costamare also guaranteed $239.9 million of joint-venture debt. Working capital was negative $69.3 million, compared with negative $53.9 million a year earlier. Interest and finance costs rose to $89.0 million from $64.0 million, principally reflecting higher average debt. A 100-basis-point interest-rate increase was estimated to reduce 2019 net income and cash flow by about $6.4 million.
Fleet utilization, excluding scheduled dry-docking, was 99.5% versus 99.2%. The five largest liner customers accounted for 97% of 2019 revenue. Common EPS excludes preferred dividends; $31.3 million of earnings was allocated to preferred stock.
Material changes versus 2018
- Revenue increased with a larger average fleet (60.3 vessels versus 55.8), higher charter rates for some ships, and fewer off-hire days; this was partly offset by vessel disposals.
- Operating expenses rose 5.0% to $116.1 million, while depreciation increased 17.9% to $113.5 million, reflecting fleet changes and additions.
- Net income improved despite higher financing costs and substantial vessel-sale losses. The company recorded a $19.6 million loss on five vessel sales, a $2.5 million loss on vessels held for sale, and $3.0 million of impairment losses; the comparable 2018 vessel-sale loss was $3.1 million, with no impairment loss.
- Operating cash flow rebounded from 2018, while financing cash outflow increased, including $149.6 million of net debt repayments and $58.7 million of cash dividends and distributions paid.
- Interest-rate swap notional outstanding declined to $149.7 million from $310.8 million. The 2019 average interest rate on long-term debt was 4.8%, versus 5.3% in 2018.
Outlook, commentary and risks
- Management provided no specific 2020 earnings or revenue guidance. It reported that 2019 container trade demand grew about 1.7%, while containership supply grew about 4%; the year-end order book was 11% of existing fleet capacity, heavily weighted toward vessels above 12,000 TEU.
- As of February 25, 2020, contracted charter revenue was approximately $2.2 billion, including the company’s share of joint-venture revenues and owner extension options. Average remaining charter duration was about 3.5 years on a capacity-weighted basis. These estimates depend on counterparties performing and options being exercised as assumed.
- The filing flags the novel coronavirus outbreak as a material uncertainty: five ships under construction and two ships under repair in China could be delayed; the shipyard and scrubber-equipment manufacturer had issued force-majeure notices. Nine vessel charters were due to expire in the first quarter of 2020, creating re-chartering and rate risk if disruption persisted.
- Other principal risks include market oversupply and volatile charter rates, customer concentration and counterparty credit risk, debt service and covenant compliance, refinancing access, negative working capital, and the potential effect of lower vessel values on impairment and collateral covenants.
- The IMO global 0.5% sulphur fuel cap took effect January 1, 2020. Costamare planned scrubbers for 15 vessels, including all five newbuilds; retrofit timing, compliance costs and relative charter competitiveness remain relevant uncertainties.
- Common dividends were $0.10 per share per quarter during 2019. The board retains discretion to change or discontinue dividends, and debt agreements may restrict distributions. Preferred shares carry cumulative dividend rates of 7.625%–8.875%.
- Significant related-party arrangements include management and services provided by entities controlled by the CEO and charter brokerage by Blue Net, which the CEO indirectly owns 50%. The company disclosed associated fees, share compensation and potential conflicts of interest.
- Management and the auditor concluded that internal control over financial reporting was effective as of year-end; the auditor’s opinion on the financial statements and controls was unqualified. The filing reported no material legal proceedings known to management.
Most important facts for investors to verify
- Near-term charter expirations, renewal rates and whether customer options or extensions are exercised.
- Customer concentration, especially the financial condition and payment performance of the five largest charterers.
- Debt maturities, refinancing terms, covenant headroom, restricted cash and the company’s $239.9 million joint-venture guarantees.
- Delivery and repair schedules for China-based vessels, scrubber installation progress, and any continuing coronavirus-related force majeure or charter renegotiations.
- Cash available for common and preferred dividends after debt service, vessel commitments and operating needs; distinguish cash dividends from shares issued under the reinvestment plan.
- Assumptions behind vessel impairment tests and the recoverability of carrying values, particularly given recorded sale losses and market values below carrying values for some vessels.
- Related-party fees, governance oversight and the implications of the Framework Deed’s May 2020 commitment-period end.