Costamare Inc. — 2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; the filing text does not provide a clear standalone Q4 income statement or cash-flow value. Financial statements are prepared under U.S. GAAP and amounts below are U.S. dollars.
Business context
Costamare owns and charters containerships, primarily under time charters to liner companies. At December 31, 2017, the company reported 53 vessels on average for the year; its February 23, 2018 fleet disclosure showed 71 vessels, including one newbuild, with approximately 466,000 TEU of capacity. The company also holds minority interests in vessel-owning joint ventures with York.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Voyage revenue | $412.4 million | $468.2 million |
| Operating income | $137.0 million | $166.1 million |
| Net income | $72.9 million | $81.7 million |
| Net income available to common stockholders | $51.8 million | $60.6 million |
| Basic and diluted EPS | $0.52 | $0.79 |
| Operating cash flow | $191.0 million | $226.6 million |
| Investing cash flow | ($42.7 million) | ($34.4 million) |
| Financing cash flow | ($134.2 million) | ($127.4 million) |
- Operating margin was approximately 33.2% in 2017, versus 35.5% in 2016; net margin was approximately 17.7%, versus 17.5%. These calculations use reported operating income and net income divided by voyage revenue.
- At year-end, cash and cash equivalents were $179.0 million; restricted cash was a further $39.9 million. Total current assets were $226.6 million and current liabilities $276.7 million, resulting in negative working capital of $50.1 million.
- Reported debt and lease obligations were approximately $1.23 billion at year-end, including finance leases. The balance sheet showed $851.0 million of long-term debt, net of financing costs, and $372.2 million of capital lease obligations, net. Costamare also guaranteed $208.0 million of joint-venture debt.
- Total assets were $2.49 billion and stockholders’ equity was $1.22 billion. Interest and finance costs were $69.8 million. Management reported no default under its credit facilities.
- Fleet utilization, excluding scheduled dry-dockings, was 99.7%. The five largest customers accounted for 96% of 2017 revenue.
Material changes versus 2016
- Revenue declined 11.9%, primarily due to lower charter rates on certain vessels, vessel sales and fewer revenue days; acquisitions of four secondhand vessels partly offset the decline.
- Operating income fell 17.5% and net income fell 10.8%. Common EPS decreased to $0.52 from $0.79; the weighted-average common share count increased to 100.5 million from 77.2 million.
- Operating cash flow declined 15.7% to $191.0 million. Cash and cash equivalents rose by $14.1 million during the year to $179.0 million.
- Long-term debt including its current portion decreased to $853.6 million from $1.06 billion; equity rose to $1.22 billion from $1.07 billion, supported in part by the May 2017 common-stock offering, which generated $91.7 million net.
- The company recorded an $18.0 million impairment charge on seven vessels, a $4.9 million net loss on vessel sales and a $2.4 million loss on a vessel classified as held for sale. The comparable 2016 held-for-sale loss was $37.2 million; 2016 also included $9.7 million of swap breakage costs.
Outlook, risks and other items
- Management described improving container trade demand in 2017 but said charter rates remained historically low and vessel supply continued to exceed demand. The order book was 13% of existing fleet capacity at year-end 2017, with 71% of ordered capacity in vessels above 12,000 TEU.
- Contracted revenue at December 31, 2017 was $752.0 million for the wholly owned fleet presentation in the filing’s contracted-revenue table, which excludes joint-venture vessels. Separately, management reported approximately $1.25 billion of contracted revenue including the company’s share of joint ventures and owner extension options. These figures use different scopes and assumptions.
- Charter expirations create near-term rechartering exposure: the year-end schedule showed 38 vessels and 211,733 TEU with charters expiring in 2018 in the table that excludes joint-venture vessels. Management also noted that, as of February 23, 2018, charters for 31 of 53 wholly owned vessels and 8 of 18 joint-venture vessels were due to expire before the end of 2018.
- Key risks include weak charter markets, oversupply, concentrated exposure to a small group of liner customers, charterer credit risk, vessel-value declines, refinancing and covenant constraints, and substantial fixed debt service. A 100-basis-point rise in interest rates was estimated to reduce 2017 net income and cash flow by about $2.6 million.
- Common dividends were reduced from $0.29 to $0.10 per share beginning in late 2016; the $0.10 quarterly rate continued through the February 2018 payment. The board retains discretion to change or suspend dividends, subject to cash availability, law and debt restrictions. Preferred dividends are cumulative and impose additional cash obligations.
- In January 2018, the company issued 4.6 million Series E preferred shares at $25 per share, raising $111.2 million net, with an 8.875% annual dividend rate. A 3,800-TEU joint-venture newbuild was scheduled for delivery in Q2 2018, with Costamare’s share of remaining commitments reported at approximately $15.0 million as of February 23, 2018.
- Related-party arrangements are significant: managers and service providers are affiliated with the CEO, and a charter-brokerage agreement with Blue Net, 50% indirectly controlled by the CEO, began January 1, 2018. The filing reports no material pending legal proceedings and unqualified audit opinions; management and the auditor reported effective internal control over financial reporting at year-end.
Important facts for investors to verify
- Confirm the contracted-revenue figures’ different scopes, assumptions and joint-venture treatment, and track charter renewals and rates for vessels expiring in 2018.
- Review accessible liquidity separately from restricted cash, upcoming debt maturities, covenant headroom and the company’s joint-venture debt guarantees.
- Assess the assumptions behind the $18.0 million impairment and the carrying values of vessels whose estimated market values were below book value.
- Verify the sustainability of the common dividend after preferred dividends, debt service, dry-docking costs and capital commitments.
- Evaluate customer concentration and counterparty credit quality, along with the costs and governance of related-party management and brokerage agreements.