Earnings Call Transcript - NMM Q3 2021

Operator, Operator

Thank you for joining us for Navios Maritime Partners Third Quarter 2021 Earnings Conference Call. With us today from the Company are Chairwoman and CEO, Ms. Angeliki Frangou; Chief Operating Officer, Mr. Stratos Desypris; Chief Financial Officer, Ms. Eri Tsironi; and Executive Vice President of Business Development, Mr. George Achniotis. As a reminder, this conference call is being webcast. To access the webcast please go to the Investors section of Navios Maritime Partners website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call should contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners management and are subject to risks and uncertainties, which would cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners segment data. Next, Ms. Tsironi will give an overview of Navios Partners financial results. Then Mr. Achniotis will provide an operational update and an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners, Chairwoman and CEO, Ms. Angeliki Frangou. Angeliki?

Angeliki Frangou, CEO

Thank you, Daniella, and good morning to all of you joining us on today's call. I am pleased with our results for the third quarter of 2021. During Q3, Navios Partners recorded revenue of $228 million, adjusted EBITDA of $145.2 million, and net income of $162.1 million. Please turn to Slide 4. On October 15, 2021 we completed a transformative merger with Navios Acquisition. Today NMM is one of the largest U.S. publicly listed shipping companies with 15 vessel types diversified across three segments and servicing more than 10 end markets. About a third of our fleet operates in each of the drybulk, containerships, and tanker segments. We believe that this combination offers a stronger, more resilient entity mitigating sector-specific cyclicality. NMM has a solid balance sheet and modest leverage, a healthy income statement, and a pipeline of about $2.2 billion in contracted revenue. Overall, our diversified platform should provide flexibility, allowing us to capitalize across segment opportunities. We expect to be able to provide more predictable returns to our unitholders despite uneven sector performance. As shown on Slide 5, 2021 has been a transformational year as we expanded into new segments. Year-to-date in 2021, our fleet increased by 163% in terms of the number of vessels to 88 net vessel additions. Through these S&P activities, we increased our fleet size and reduced the average age for our existing segments. For containerships, we increased fleet size by 330% and reduced average age by 24%. For drybulk, we increased capacity by 36% and reduced average age by 18%. Of course, we also entered into the crude and product tanker segment. As shown on the chart at the bottom of the slide, we have increased available days by 171% to 47,268 available days, thereby accumulating significant scale in a short period of time. Slide 6 details our Company highlights. As I mentioned previously, Navios Partners is one of the largest U.S. publicly listed companies with over 140 vessels. We operate in three segments, have 15 diversified vessel types, and serve over 10 end markets. Our diversification strategy creates resilience in the overall business model and enables us to mitigate individual segment volatility while also allowing us to leverage each independent sector's fundamentals. The addition also provides flexibility in our operational and financial strategies as we charter, sell and purchase vessels and obtain debt financing. The net result is we should have more predictable entity level returns. We also anticipate that diversification and scale should make NMM a more attractive investment platform as we take advantage of global trade patterns. Our three pillars are now working well, both drybulk and containership sectors are performing and the tanker sector has improved materially in the past few months with more improvement expected. Slide 7 reviews our recent developments. During Q3, NMM generated $228 million in revenue, $145.2 million in adjusted EBITDA and $162.1 million in net income. For the nine months of 2021, NMM generated $445 million, $269.8 million in adjusted EBITDA and $398.6 million in net income. In 2021 we've completed two mergers. Our merger with Navios Containers increased our containerships by 29 vessels. The recently completed merger with Navios Acquisition gave us a strong foothold in this tanker sector with 45 tanker vessels. We also continued to renew and expand our fleet. Year-to-date, we expanded our drybulk fleet by 10 vessels increasing drybulk capacity by 36% and reducing its average age by 18%. Our busy acquisition calendar does not distract us from our balance sheet. We remain disciplined. Our cash balance was $141.2 million as of September 30, and we have 28.3% in net loan-to-value. About 91% of our debt is covered by the scrap value of our vessels alone. We have been taking advantage of the robust market. NMM has $2.2 billion of contracted revenue. We will be profitable in Q4 as contracted revenue exceeds total expenses by $57 million. Yet we still have 2,473 open or index-linked days. For 2022, we expect a historically low break-even of $2,469 per open day with about 58% of our 47,268 available days open or index-linked providing us with market exposure. Diversification takes advantage of global trade patterns and Slide 8 illustrates this. Our balanced exposure across the drybulk, containership, and tanker segments allows us to mitigate normal industry cyclicality and leverage fundamentals on offering across all sectors through our chartering and capital allocation and financing strategy. Currently, in our Containership segment, given the continued strength in the market, we have been locking in long-term charters. As a result, we fixed 88.1% of our available containership days for 2022 and have $1.6 billion in total contracted revenue on charters extending through 2030. Moving from strength to strength in our drybulk segment, we continue to benefit from a strong spot market with 87% of our 2022 available days exposed to market rate, and we remain positioned to fix vessels on attractive period charters as availability allows. Lastly, within our Tanker segment, our long-term contracts provide protection and 65% of our 2022 available days remain open to capture the ongoing market recovery. While we are positioned to capture the market upside through our forward available days, our diversified chartering strategy has enabled us to secure a pipeline of over $2.2 billion of contracted revenue. At this point, I would like to turn the call over to Mr. Stratos Desypris, our Chief Operating Officer, who will take you through the segment data. Stratos?

Efstratios Desypris, COO

Thank you, Angeliki, and good morning all. NMM is differentiated by its industry-leading scale and diversified sector exposure. Please move to Slide 9 which provides some selected segment data. Navios Partners controls 142 vessels with balanced exposure to the drybulk, containership, and tanker segments. Additionally, we have strength and stability in our balance sheet. Net loan-to-value is about 28.3% in an asset base estimated at over $4.5 billion. Moreover, Navios optimizes its flexible chartering strategy to leverage on fundamentals across its three sectors and calibrate charters based on segment opportunities. We have a contracted revenue pipeline of about $2.2 billion and about 58% of our 2022 available days are currently exposed to the market. Our market exposure days are calibrated towards drybulk and tanker vessels, while about 88% of our containerships are fixed. Slide 10 details our strong operating free cash flow potential. For Q4 of 2021, our contracted revenue exceeds total expenses by approximately $57 million and we have around 2,500 days with market exposure that will provide additional operating free cash. For 2022, we have fixed approximately 42% of our open days at $29,350 per day and our contracted revenue provides for a break-even of $2,469 per open day. We have 27,437 open and indexed days that can generate significant operating cash. On Slide 11, you can see the strength and stability of our balance sheet. As of September 30, we had a total cash of $141.2 million and borrowings of $1.4 billion. Leverage remains very low and net loan to value is 28.3% in an asset base estimated at over $4.5 billion. Additionally, we have a staggered maturity profile with no significant maturities through 2023. Together with our contracted revenue of $2.2 billion, this provides an enduring platform with significant upside potential. Turning to Slide 12, you can see some fleet and debt updates. We have fixed 10 of our containerships for long durations, creating approximately $690 million in contracted revenue. More specifically, we have contracted our six newbuilding containerships delivering in 2023 and 2024 for five years at an average rate of $37,050 net per day generating about $420 million of contracted revenue. We have also chartered out 4,250 TEU containerships for periods between 3.5 years and 4.5 years, generating revenues of approximately $270 million. The current average contracted net rate of the four vessels is approximately $2,600 per day. On the S&P, we have sold the 2006 Panamax vessel for $14 million. We are also constantly working on refinancing and extending maturities. We have arranged a new facility of $72.7 million for the refinancing of three existing facilities with short and medium term durations. Additionally, we have agreed to a new $52.7 million bareboat financing for two Kamsarmax vessels to be delivered in the second half of 2022 and Q1 of 2023. I now pass the call to Eri Tsironi, our CFO, who will take you through the financial highlights. Eri?

Erifili Tsironi, CFO

Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the third quarter and nine months ended September 30, 2021. The financial information is included in the press release and is summarized in the slide presentation available on the Company's website. On August 25, 2021, Navios Partners acquired 62.4% of the equity interest in Navios Acquisition through the acquisition of 44.1 million Navios Acquisition's common shares for an aggregate investment of $150 million. As a result, the balance sheet of Navios Acquisition, together with the respective purchase price allocation adjustments, are included in Navios Partners’ balance sheet as of the end of the quarter. However, the results of Navios Acquisition included in the Q3 Navios Partners results are only for the period from August 26 through September 30, 2021. As Angeliki mentioned earlier, the merger with Navios Acquisition was completed on October 15, 2021. I would also like to highlight that 2021 results are not comparable to 2020 as in 2021 NMM acquired two companies and is expected to increase its available days by 85% in 2021 and by 171% in 2022 compared to 2020. Moving to the earnings highlight in Slide 13. Total revenue for Q3, 2021 was $228 million compared to $64 million for the same period last year due to the expansion of our fleet and the improved time charter equivalent rate for both containers and bulkers. EBITDA and net income for Q3, 2021 includes a $30.9 million gain related to the sale of three vessels: Navios Dedication, Navios, and Harmony N; a $4 million bargain purchase gain upon obtaining control of Navios Acquisition; and $2.9 million transaction cost in relation to the merger with Navios Acquisition. I note that we were able to sell these vessels for a book gain in this excellent market as we manage our rate profile. Excluding these items, total adjusted EBITDA for Q3 amounted to $145 million compared to $31 million for the same period last year. Total adjusted net income was $130 million compared to $8.8 million for the same period last year. During the quarter ended September 30, 2021, we had 9,027 available days compared to 4,499 days for Q3, 2020. Fleet utilization was approximately 99%. The average combined Q3, 2021 time charter equivalent rate of our vessels increased by 79% to $24,447 per day. The average Q3, 2021 time charter equivalent rate achieved per segment was: Bulkers, $28,926 per day; Containers, $22,418 per day; and Tankers, $15,066 per day. Moving to the first nine-month period of 2021, time charter revenue reached $445 million compared to $158 million in 2020. The result was a combination of the expansion of our fleet and the improved time charter equivalent rate. Our available days increased by 63% to 20,421, while the average nine-month 2021 combined time charter equivalent rate increased by 76% to $20,991. Fleet utilization was approximately 99%. EBITDA and net income for the first nine months of 2021 include an $80.8 million gain from equity in net earnings of affiliated companies, a $48 million bargain purchase gain upon obtaining control of Navios Containers and Navios Acquisition, a $30.3 million gain related to the sale of seven of our vessels, and $2.9 million transaction cost in relation to the merger with Navios Acquisition. Excluding these items, adjusted EBITDA for the nine months of 2021 amounted to about $270 million compared to $64 million for the same period last year. Adjusted net income for the first nine months of 2021 amounted to $242 million compared to a $2.9 million loss for the same period last year. Turning to Slide 14, I will briefly discuss some key balance sheet data as of September 30, 2021. Cash and cash equivalents were $141 million. Long-term borrowings, including the current portion net of deferred fees, amounted to $1.4 billion. Net debt/book capitalization was at a comfortable level of 41.7%. Turning to Slide 15, you can see our ESG initiatives. Maritime shipping is the most environmentally friendly means of transportation as it is the most carbon-efficient mode of transport. We aspire to have zero emissions by 2050. In this process, we have been pioneering and are adopting certain environmental regulations up to two years in advance, aiming to be one of the first fleets to achieve full compliance. Navios is a socially conscious group with core values including diversity, inclusion, and safety. We have very strong corporate governance and a clear code of ethics. Our Board is composed of a majority of Independent Directors and Independent Committees that oversee our management and operations. I now pass the call to George Achniotis, Executive Vice President of Business Development to discuss the industry section. George?

George Achniotis, Executive Vice President of Business Development

Thank you, Eri. Please turn to Slide 17 for the review of the drybulk industry. The IMF projects global GDP growth at 5.9% for 2021 and 4.9% for '22. The rate for 2021 is the highest in almost 50 years, and it is led by a 7.2% expansion in China, India, and developing Asia. Vaccine rollouts, continued fiscal stimulus, and governmental infrastructure projects will continue to support economic growth. 2021 drybulk trade is projected to increase by 4.5% and further increase by 2.9% in '22. Rates in all asset classes rose sharply reflecting surging trade driven by strong demand for both major and minor bulk commodities. The BDI average for Q3 was 3,732, the highest quarterly average since 2008. In fact, the BDI reached 5,650 on October 7, the highest level in 13 years led by increased iron-ore exports out of Brazil, pushing Capesize rates to just under $90,000 per day in early October. More recently, the freight market has corrected on the back of Chinese winter steel production limits and power shortages due to unavailability of gas and coal. However, it should be noted that current rates are still above two times the 10-year averages. Turn to Slide 18. Post-pandemic stimulus measures in the advanced economies and increasing industrial production have fueled demand for the three major bulk cargos, specifically the iron ore. Global trade is expected to grow by 3.4% in 2021 and 2.4% in '22. Additional availability of Atlantic exports to the Far East are expected to increase as steel mills replenish stockpiles. For returning coal, high gas prices have driven power plants to switch back to coal-fired power generation, and the IEA estimates that global coal-fired electricity generation is expected to rise by nearly 5% this year and exceed pre-pandemic levels before increasing a further 3% to an all-time high in 2022. On the grain side, global grain trade continues to be supported by an ever-increasing world population. Food security issues driven by the pandemic, as well as increasing broadening demand worldwide. Global grain trade has been growing by 5% CAGR since 2008, mainly driven by Asian demand. Please turn to Slide 19. The current order book stands at 6.8% of the fleet, one of the lowest on record. Net fleet growth for 2021 is expected at 3.5% and only 1.5% for '22 below the projected increase in drybulk demand for both years. Vessels over 20 years of age are about 8.6% of the total fleet, which compares favorably with the historically low order book. In concluding our drybulk sector review, demand is forecast to outpace net fleet growth in both 2021 and '22, with strong demand for natural resources combined with continuing COVID-related logistical disruptions and a slowing pace of new building deliveries. All support healthy levels of current and future freight rates. Please turn to Slide 21 to focus on the container industry. First, COVID stimulus measures have caused a sharp recovery of demand for goods in Western OECD economies as noted on the two lower charts. This has led to a change in trading patterns for containerships, which has resulted in a historic turnaround in rates. As you can see in the blue box on the lower right, increases in demand for goods, port congestion, and restocking will lead to container demand growth of 6.3% in 2021 and 3.9% in '22. Turning to Slide 22, fleet growth is expected to be 4.2% this year and 3.8% for '22. Even with the increase in new building orders, demand is forecast to outpace net fleet growth in both 2021 and '22. It should be noted that about 73% of the order book is for 13,000 TEU vessels or larger. In addition, 10.4% of the fleet is currently 20 years of age or older. This would lead to a pickup in scrapping in 2022, and high scrapping prices combined with IMO 2023 CO2 reduction rules may induce a portion of the overage fleet to scrap. Conclusion, positive demand fundamentals, mainly due to the restart of economic activity around the world, along with reduced fleet availability to support the container shipping industry. Please turn now to Slide 24 for the review of the tanker industry. Governments have put in place emergency monetary and fiscal plans to support their economies, which has kick-started faster than expected recovery in the world economy. This has led the IEA to project Q4, 2021 oil demand to return close to 2019 levels, which is shown on the graph on the lower left. This increase in demand has led to a decline in OECD crude oil inventories, which had fallen below their five-year average since February, with the largest decline coming in September as shown on the graph on the lower right. Turning to Slide 25, VLCC net fleet growth is projected at 3.6% for 2021 and only 1.6% for '22. This decline can be partially attributed to owners' hesitance towards the long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to upcoming CO2 restrictions. The current order book is 8.3% of the fleet. Vessels over 20 years of age are 11.3% of the total fleet, which compares favorably with a low order book. Finally, turning to Slide 26, product tanker net fleet growth is projected at 2.4% for 2021 and only 1.9% for '22. The current product tanker order book is 6% of the fleet, which compares favorably with the 8.4% of the fleet that is 20 years of age or older. We believe that the overall tanker order book and fleet are well-balanced as the IMO 2023 and ballast water management regulations will lead to some vessel retirements in the coming months. In conclusion, the tanker market continues to remain challenged, following reduced crude and product demand associated with COVID restraints. However, quarters along with global oil demand returning to 2019 levels have brought OECD inventories below their five-year average. These together with a near-record low order book could boost crude and product tanker rates in the near term. This concludes my presentation, and I would now like to turn the call over to Angeliki for her final comments. Angeliki?

Angeliki Frangou, CEO

Thank you, George. This completes the formal presentation and we open the call to questions.

Operator, Operator

We take our first question from Randy Giveans with Jefferies.

Randy Giveans, Analyst

So, starting off with the merger, your fleet is clearly massive, it's diverse. So a few questions around this. You mentioned that you sold the 2006 Panamax, but still have a handful of 2004 and 2005 built vessels. So any plans for further asset sales, especially on those older vessels? And then I guess on the other hand, any plans for further growth in either of the three sectors that you now have exposure to?

Angeliki Frangou, CEO

I think that one issue that I face, no matter what, on a 140-vessel fleet, you will have some replacement. So think about something between five vessels to 10 vessels as a minimum per year; you will have to replace them, either because that is the way, or you see that a vessel may come in to a significant consumption for different technological or commercial reasons or capital expenditure you have to put. So, this is an ongoing process that will be going over and over again. Depending on what we've seen, we have been doing that even in the top and bottom markets. It is a continuous process that we'll pursue. It doesn't indicate, now, on actual investment, we just completed a $1 billion investment in 45 vessels in the tanker segment. And I think it seems to be that Q3 was the low part of the tanker segment, and we are seeing the market slowly recovering. This is a significant investment for Q3. What we are looking at is how this investment will play out. What we have done is that, we have created a fortress balance sheet by chartering in the container sector, which is extremely strong. We have seen that we have $1.6 billion contracted revenue in containers, $2.2 billion overall in the company. This advantage we took on the container vessels gave us a historically low break-even of $2,469 per open day in 2022. So basically, we have a fortress balance sheet. We can be very comfortable watching the drybulk market develop with 86% of our available days in the drybulk open to market exposure because we are bullish on that. And we also have the tanker sector that we are watching as it establishes. So, this is basically what we have been doing and what we are seeing developing.

Randy Giveans, Analyst

No, yes, that makes sense. And then you mentioned the word replacement, right? So you have 140 vessels to 150 vessels, is that the kind of range you want to stay with, or will those kinds of asset sales kind of bring down the fleet levels from these numbers?

Angeliki Frangou, CEO

There's always a need for replacement. One of the things that we said on this, and I think Stratos also mentioned, we have an average age of about two years below the industry average. So, this portfolio needs to be kept on the same age below the industry average to create sustainability. You will always need to do sales and manage the technology. If we find opportunities, we can always expand. That is something that we are not shy of doing. But I'm talking about as a portfolio, you'd like to keep age profile characteristics at a certain level.

Randy Giveans, Analyst

Yes, no, that's fair. I think the sales of the older ones will slowly reduce that or I guess keep it relatively young. All right, second question: looking at Slides 11 and 14, clearly showing the strength of your balance sheet, you mentioned earlier in the call, your fixed charter backlog is giving you pretty substantial cash flow visibility and very low spot day break-evens. So, I guess going forward, is there a specific debt target or leverage ratio you're pursuing before kind of switching to some kind of return of capital, be it either repurchasing units at a massive discount to NAV or increasing the quarterly distribution?

Angeliki Frangou, CEO

I think the number one is that, what we see is a good positioning of the company. You have this low break-even, which is historically the lowest. But don't forget, we are 86% of our available days open on drybulk. And the tanker sector is just coming up from the low point, which was the lowest in Q3. So, basically, what we want to see is, number one, this drybulk market to materialize, which we are bullish about. But we also need to see a recovery in the tanker segment as well. After these two conditions are met, we will consider total returns to our investors as an important part of our strategy.

Randy Giveans, Analyst

And do you have maybe a preference there in terms of repurchases or distribution increase?

Angeliki Frangou, CEO

I think this is something that we are very considering.

Operator, Operator

We'll go next to Omar Nokta, Clarksons Securities.

Omar Nokta, Analyst

Also good afternoon and congratulations on your first call here post-merger. I wanted to maybe follow up on the commentary you just had with Randy, just in terms of deployment of capital. Right now you're generating huge sums of cash. And that's likely to grow here as we look ahead with the time charters you just announced on the containers. You can pay down debt aggressively, you can reward shareholders aggressively, and you can actually acquire assets fairly aggressively. In terms of those three, are you willing to rank at the moment of those three, which is the most appealing or if one outranks the other two or any sort of color you can give on how you are thinking strategically about whether you decide to pay down debt, pay back shareholders, or grow the company?

Angeliki Frangou, CEO

When we did the transaction, we increased our debt to about 35%. The target is always to bring down the debt to about 20%. But overall, today the biggest thing that we have to see is that we have created operationally a unique platform. We have a historically low break-even gives us on 47,000 days. You have a huge fleet, and you have a break-even per open day of 2,460. This is unique. But on the other side, we are very exposed to the market. We are 86%, which I think is a rather big percentage for our drybulk to be open. But we have the luxury of seeing a good market potential. However, we need to wait and see it realized. If these conditions happen, we can allocate funds both on the reduction of our debt and also on actually providing returns to our investors. So this is something that we are focusing on very much. But most importantly, we need to have the right conditions. We see the potential, but we need to see it materialize.

Omar Nokta, Analyst

Thanks, Angeliki. Definitely sounds like you have the flexibility across the board with that. I did want to also just ask about the containership charters, which I thought were, you know, you ordered thus four plus two shifts, if I recall. And it was somewhat opportunistic at the time, they were on a speculative basis I guess or at least orders without charters. Here you fixed them for the $37,000 a day, which, as I run the numbers, looks like a 5-year payback, which sounds pretty substantial given these are new buildings. In that context, and thinking of deploying capital in the future, we've talked about how maybe tankers are an appealing asset class to go after because it’s the bottom of the market to an extent. But on this containership opportunity, how repeatable could you say that deal is? Will you order those ships and then subsequently contract them and now you have basically a five year, maybe 5.5 year payback. Is that a repeatable opportunity you think?

Angeliki Frangou, CEO

It's like if everyone dies, it is not anymore existing. The reality is, just to go back to your question, is the following: the capacity of the shipyards has been filled, and we also see that material costs may be going up. So you always have to be very alert to see what is the best area where the opportunity lies. Sometimes it's in newbuildings, sometimes it's in secondhand vessels across different sectors. There is no one formula for this, and you need to be running different scenarios. We did see one thing where we showed a great opportunity in the container segment; we showed that the smaller vessels and this is a widebody, the 5,500 TEU. What is unique about these vessels is their flexibility at 260 meters—very nice dimensions—you can actually take advantage of the point-to-point transportation that is now developing with the differences in supply chains and the shift from just-in-time to just-in-case. All these unique changes we see in the supply chain happening make these vessels a good match. By ordering these vessels, you step away from the basic Panamax that used to be the vessel designed for passing through the Panama Canal, and we saw that there were opportunities for a good life afterward, to something that is particularly great for the necessities of intra-Asia trade.

Omar Nokta, Analyst

Yes, thank you. Definitely looks well-timed and a good overall return. Maybe just, I know one final one I did want to ask. I noticed in the release, and you mentioned it also in your comments, just about securing drybulk charters in the period market when the time makes sense. Could you just give a flavor of sort of what the liquidity looks like from your perspective in terms of deploying the drybulk fleet away from the spot to time charters? What does the liquidity look like across the one year to three year timeframe?

Angeliki Frangou, CEO

I think when you look at the differences between one year versus three years, you have a discovering hugely ongoing within today's market and you do not see the 3-year market developing. It will take some time, I mean, there is good, I mean, we show volatility; we went from 80,000 down to around 30,000. Now, 30,000 is a very good level, but the volatility that we show creates confusion, and people are still waiting to make assessments on periods. We need to wait and see that market develop. We are not shy of actually fixing it. If you have seen in the container segment what we did—we fixed one year, and today we fix over four years, and you know with 2.5 times the rate. So you are actually creating this cash flow when the market is right. So we have the luxury of capturing the spot market while waiting for the period market to come. This is the strategy going forward.

Omar Nokta, Analyst

Yes, the essence of the diversified fleet. Well, thanks, Angeliki for your comments. I'll turn it over.

Angeliki Frangou, CEO

Thank you.

Operator, Operator

We'll take the next question from James with Citigroup.

Unidentified Analyst, Analyst

Just wanted to actually ask about how you're thinking about the capital structure from here. I mean, you have a much larger asset base. It's more diversified, you're considering moving forward with an even lower level of leverage than you have. Now is there something like unsecured pieces that might make sense, something that basically might be a little bit more permanent piece of the capital structure? Just trying to understand how you're thinking about the work to be done on that side?

Angeliki Frangou, CEO

The big thing is about looking at reducing further. One other thing we have done is we have about $1.5 billion in debt. I mean, Eri will give the exact numbers, but we are creating this with a different two-tier financing: about $600 million with commercial banks, and the rest with Japanese and Chinese leases, which provides us more manageable covenants. We like to have the flexibility of having Asian leases and commercial banks in Europe. Overall, we prefer a low leverage scenario, as this drives our model.

Unidentified Analyst, Analyst

And then separately, can you just share generally how the deteriorating visibility has impacted the container shipping side of your operations? Has that created any headwinds for getting business done on the container shipping side? Just trying to understand if that's impacting your operations beyond just the rate impact.

Angeliki Frangou, CEO

Big picture: you need to understand that all the inefficiency is net positive for our business. Basically, we can fix, and you have seen in the container segment, we fixed multi-year contracts. The announcement we made regarding the six new buildings we did for five years and the four other vessels resulted in a significant contracted revenue, which amounts to about $690 million. This is a net benefit because of the inefficiency, and we often take advantage of this on the long-term period because the market does need to turn.

Unidentified Analyst, Analyst

Yes, totally understand the benefits to the market capacity and rates. But just trying to understand if that lack of visibility has been discouraging for incremental ordering or extending commitments on the customer's part. It doesn't sound like it has, but curious if there's any hold back because of that lack of visibility.

Angeliki Frangou, CEO

I'm not 100% sure on the question; I cannot—it's a little bit hard to hear you. But one thing I can say is that we see visibility on chartering and the demand for charters, and we have seen it grow. This is something that has benefited quite significantly in this market, especially on the container side.

Operator, Operator

I will turn the call back over to Angeliki for any closing remarks.

Angeliki Frangou, CEO

Thank you. This completes our quarterly result for NMM. Thank you.

Operator, Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.