Costamare Inc. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and amounts below are U.S. dollars.
Business context
Costamare owns and charters containerships, principally under time charters to liner companies. At December 31, 2020, it reported 61 wholly owned vessels; as of February 19, 2021, its reported fleet comprised 77 vessels, including joint-venture vessels, a vessel under construction and vessels agreed to be acquired. The company aims to secure long-term, fixed-rate charters. Five major customers accounted for 91% of 2020 revenue.
Key financial metrics
| Metric | 2019 | 2020 |
|---|---|---|
| Voyage revenue | $478.1 million | $460.3 million |
| Operating income | $173.1 million | $60.3 million |
| Operating margin, calculated | 36.2% | 13.1% |
| Net income | $99.0 million | $8.9 million |
| Net income/(loss) available to common stockholders | $67.7 million | $(21.6) million |
| Basic and diluted earnings/(loss) per common share | $0.59 | $(0.18) |
| Cash provided by operating activities | $250.4 million | $274.3 million |
| Cash used in investing activities | $(8.9) million | $(36.4) million |
| Cash used in financing activities | $(212.2) million | $(241.9) million |
At year-end, cash and cash equivalents were $143.9 million and restricted cash was $48.0 million, or $191.9 million combined. Working capital was negative $14.9 million. Total assets were $3.01 billion and stockholders’ equity was $1.35 billion. Balance-sheet long-term debt, including its current portion, was $1.47 billion; management reported approximately $1.60 billion of indebtedness including finance leases and other financing arrangements. Costamare also guaranteed $307.9 million of joint-venture debt.
Common and preferred dividends paid in 2020 totaled $65.5 million in cash; an additional $13.8 million of common dividends was reinvested in shares. The common dividend was $0.10 per share per quarter. Preferred shares carry annual dividend rates of 7.625% to 8.875%.
Material changes versus 2019
- Revenue declined 3.7%, while operating income fell to $60.3 million from $173.1 million and net income fell to $8.9 million from $99.0 million. Common stockholders moved from income of $67.7 million to a loss of $21.6 million after preferred earnings allocations.
- Results included a $79.1 million net loss on vessel sales, a $7.7 million loss on a vessel held for sale, and $31.6 million of impairment losses on five vessels. The filing attributes most of the sharp operating-income decline to these items.
- Operating cash flow increased by $23.9 million to $274.3 million, aided by working-capital movements and lower interest payments, partly offset by higher special-survey costs. Cash, cash equivalents and restricted cash decreased by $4.0 million.
- Interest and finance costs fell to $68.7 million from $89.0 million, while income from equity-method investments rose to $16.2 million from $11.4 million.
Outlook, risks and unusual items
- Management reported that the containership time-charter index fell 33% in the first half of 2020, then rebounded sharply; it ended the year at 90.75, up 47% year over year. Management said it believed internally generated cash flow would fund operations and working capital, but gave no assurance that future financing would be available on acceptable terms.
- As of February 19, 2021, fixed-term charters represented approximately $2.4 billion of contracted revenue, including Costamare’s ownership share of joint ventures. The average remaining charter duration was approximately 4.3 years, subject to stated option assumptions.
- COVID-19 effects, charter-market volatility, vessel oversupply, customer concentration and counterparty credit are key risks. Management noted the market recovery could reverse and said the pandemic’s duration and longer-term effects remained difficult to predict.
- Liquidity and distributions are exposed to debt service, covenant limits, balloon repayments, vessel values and refinancing availability. The company reported no default under its credit facilities. A 100-basis-point increase in interest rates was estimated to reduce 2020 net income and cash flow by approximately $6.3 million.
- Environmental rules, including emissions and ship-recycling requirements, may require capital spending or affect vessel competitiveness and residual values. The company had scrubbers installed on 15 vessels, including one under construction.
- Related-party arrangements are significant: the CEO and family control key managers and service providers, and the CEO’s interests in other containerships may create conflicts. The filing also reports five board waivers in 2020 under the CEO’s restrictive covenant.
- Subsequent events included delivery of YM Target and Aries in February 2021, the February delivery of Halifax Express to its buyer, and agreements to acquire two additional vessels.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective at December 31, 2020. No material legal proceedings were reported.
Important facts for investors to verify
- Reconcile reported net income with the common-stockholder loss and assess the effect of vessel-sale losses and impairments on recurring earnings.
- Review charter expirations, renewal rates and customer concentration, particularly the significant 2021 charter maturities described in the filing.
- Confirm unrestricted versus restricted liquidity, near-term debt maturities, balloon payments, covenant headroom and the $307.9 million of joint-venture debt guarantees.
- Assess the basis and sensitivity of vessel impairment estimates, including assumptions for future charter rates, useful lives and residual values.
- Evaluate dividend sustainability against operating cash flow, preferred dividend obligations, capital commitments and debt restrictions.
- Review related-party fees, governance safeguards and the potential competitive conflicts involving management-affiliated entities.