Jul 25, 2013
Executives
Gregory G. Zikos - CFO
Analysts
Benjamin Nolan - Stifel Nicolaus Brandon Oglenski - Barclays Mark Suarez - Euro Pacific Capital Donald McLee - Wells Fargo Christopher Combe - JPMorgan
Operator
Thank you for standing by ladies and gentlemen, and welcome to the Costamare Conference Call on the Second Quarter 2013 Financial Results. We have with us today Mr.
Gregory Zikos, Chief Financial Officer of the Company. At this time, all participants are in a listen-only mode.
There will be a presentation followed by a question-and-answer session. (Operator Instructions).
I must advise you that this conference is being recorded today, Thursday, July 25, 2013. We would like to remind you that this conference call contains forward-looking statements.
Please take a moment to read slide number 2 of the presentation which contains the forward-looking statements. And I will now pass the floor to your speaker today, Mr.
Zikos. Please go ahead sir.
Gregory G. Zikos
Thank you and good morning ladies and gentlemen. During the second quarter of the year, the company delivered positive results.
In accordance with our newbuilding program, we accepted delivery of the third and fourth 9,000 TEU newbuild containership vessels, out of a series of 10. Both vessels commenced their charters with Evergreen.
This addition to the fleet, together with the new buildings already delivered and the remaining six vessels currently on order and subject to charters, will contribute in excess of $1.3 billion of contracted revenues throughout the duration of their charters. Regarding new transactions, the Company and York jointly bought three secondhand ships on a charter free basis.
All three ships were subsequently chartered for periods ranging between 12 to 24 months at rates yielding attractive returns with significant potential upside, because the acquisition cost was either close to scrap value or at historically low levels, which significantly reduces or eliminates residual value risk. Regarding the chartering of existing vessels, the Company has no ships laid up.
We recently entered into agreements to charter the 1991 and 1992-built, 3,300 TEU containership vessels Karmen and Marina to Seacon and Evergreen, respectively, as well as the 2001-built 1,000 TEU containership vessel Stadt Luebeck to CMA. Despite challenging market conditions, we have minimized our re-chartering risk.
The charters for the vessels opening in 2013 and 2014 account for approximately 4% of our 2013 and 2014 contracted revenues. Finally, on July 10, 2013, we declared a dividend for the second quarter of $0.27 per share.
Consistent with our dividend policy, we continue to offer an attractive dividend, which we consider to be sustainable based on the size of our contracted cash flows, the quality of our charterers and the prudent amortization of our debt. And now let's move to the slides presentation.
On slide three, we are providing a summary of our recent transactions. As already mentioned, we have started delivery of another two 9,000 TEU newbuild containership vessels, also this year, (inaudible), we started our long term charters with Evergreen.
We now have six remaining vessels under construction, which we expect to take delivery throughout the rest of the year, while one vessel is scheduled for delivery early next year. The company has no laid up ships at the moment, and as far as I can recall, we never had any laid up vessels.
We have fixed three of our ships, which were coming out of charters for short periods. Moving on to the next slide four, we are providing you some of the transactions we did to our joint venture with York Capital.
We've purchased in total three vessels on a [targeted] basis, which we subsequently chartered. In particular, we processed a 12-year post-panamax vessel at a competitive price, for which we managed to secure a three-year charter, with a reputable charter at an attractive rate.
Furthermore, we purchased two smaller 1,100, 2,500 TEU ships, aged between 15 to 19 years old, at prices close to scrap price. We subsequently arranged charters for one to two years for them, at the rates above breakeven levels.
All these acquisitions yield attractive returns. These acquisitions are the first which was jointly with York Capital, and for goals to pursue opportunities of a larger scale in the near future.
Following the same strategy, we have always been detail oriented. Moving on to the next slide, this slide, you can see the second quarter 2013 results, those to the same period of 2012.
During the second quarter of this year, the company generated revenues of $100 million, EBITDA was $7.5 million and net income of $30.6 million. For the same period of 2012, the revenues amounted to $96 million, and the EBITDA net income to $60.6 million and $21.1 million respectively.
Fortunately with our previous press releases, we feel that the EBITDA net income figures, and it will be as (inaudible). First for the current charter revenues in discrepancy between revenues received on a cost basis, and revenues accounted for -- based on a straight line amortization schedule.
Secondly, the gains on losses resulting from derivatives and thirdly the gains and losses resulting from market disposals. Adjusting for the above, the second quarter EPS amounts to $0.37 versus $0.32 for the same period of last year and the second quarter EBITDA to $67 million versus $61 million for the same period of 2012.
Overall, the quarter generated strong results during the quarter, based on solid fundamentals. On the next slide, we are showing the revenue contribution for our fleets.
More than 90% of the contracted costs comes from Maersk, MSC, Evergreen and COSCO. As you can see on the right hand side, we currently have charters with all of the top six charterers, but have operated in the past with most of the [nine] companies which are in the top 20 list.
Slide 7 provides information on cash flow, charter coverage, and the building growth of the company. Today, we have $2.7 billion in contracted revenues, and the TEU-weighted average remaining time charter duration for the fleet is 4.8 years.
We have eliminated the near term rechartering risk, as you can see in the bottom chart. Our fleet charter coverage exceeds 75% over the next few years.
As the new buildings will start hitting the water, that will generate significant revenues -- at the estimated value of revenues of approximately $150 million, and EBITDA of approximately $120 million upon delivery of all vessels. Moving to the next slide, slide 8 is dealing with the theoretical re-chartering risks the company would face in the remaining of 2013.
The long story short, based on our budgets, the company has a 2013 cash EBITDA of close to $294 million; if, all the four ships coming out of charter during the remainder of the year are three charters at the same rate. You can't give [a cash] sensitivity; for a 70% rate being equal to a 30% discount on our 2013 re-chartering, the cash effect is above $2 million, which goes up to charter $3 million or a 60% discount.
If we go one step further and assume that the ships coming out of employment during the year, and then prior to 1995 are sold for demolition. Cash proceeds of $19 million more than offset the cash shortfall.
In order to assess the company's re-chartering risk, (inaudible) to focus on cash, since this is what is servicing the company's debt obligations. The cash available for distribution is what is paying dividend and provides for further growth.
We do believe that the dividend we offer today is very attractive, based on its quality and sustainability. Moving to the next slide, here we discuss our balance sheet management.
The debt repayment schedule, as we have said in the past, is smooth, evenly spread and is not back loaded, ensuring no refinancing risks for the shareholders. The distributable cash flow on a post debt service basis is not artificially enhanced.
The loan portfolio is 80% hedged at a weighted average rate that's below 4%, which adds to the cash flow visibility. Liquidity as of the end of the quarter stands at $165 million.
At the same time, we have unencumbered vessels and a moderate leverage. We consider the company to be in a competitive position with a comparatively stronger balance sheet, which together with our joint venture agreement with York, will allow us to make attractive acquisitions in a down market.
Moving on to the last slide, on slide 10, we are discussing the market. On the supply side, the idle fleet stands at slightly above 2.5%.
The order book is below the 20% mark. The current order book is very (inaudible) from 2015 onwards.
At the same time, scrapping continues at a rapid rate. Asset values, both newbuildings and second hand vessels remain at a very low levels.
Charter rate, especially for the smaller sizes, up to 5,000 TEUs are at low levels. Although there are some [selected cycles] in vessel types, we started seeing the rate increases over the last weeks.
Rates for post-panamax vessels are generally at better levels. A volatile market as such is what will capitalize (inaudible) as an opportunity to grow.
As already mentioned, we think that we are in a position to act and enable superior returns in such a volatile environment. Thank you very much.
This concludes our presentation, and we can now take questions. Operator?
Operator
(Operator Instructions). And your first question comes from the line of [Matthias Dredgen] of Morgan Stanley.
Unidentified Analyst
Great. Thank you for the update, that was very interesting, and congratulations on the results.
I was just wondering if you could maybe talk a bit more about the economics of the new JV deals and how that sort of works with the profit sharing as well, and that aspect of the new deals?
Gregory G. Zikos
Yeah, look, first of all those three ships we bought under this joint venture, COSTAMARE Inc. has a 49% equity stake and York has a 51% equity stake, and from an accounting perspective, we account for those assets under the equity pickup methods, which means that in our P&L, all the profit and loss of those vessels is going to flown through our income statement, proportionately through our shareholding.
Now, if you want to talk a bit more specifically about the economics of those transactions, I can tell you that the [big ship] we bought, the 2001 built 5,500 TEUs, the Ensenada Express, we bought that, as we announced, for $22 million, and we chartered it for two years, at a charter rate of 19,000 per day. Based on our budget, we think that we are going to have an EBITDA yield for the next two years of 19%.
This is EBITDA divided by the acquisition costs. Now, as I said, we chartered this vessel to 19,000 per day.
If you look at the 10-year weighted average time charter rate for those ships. This can be in the rate of 30%.
So we definitely believe that there is a lot of upside, while at the same time, we enjoyed very healthy returns. Now, for the older vessels, for the Petalidi four (inaudible), this is 1994 built, like 19 years old.
We bought it for $2.7 million, where as the scrap value today is close to $2.5 million. This vessel has like a useful life of 30 years, so it has like 10 or 11 more years to go, and we have started it at $6,300 per day, which is definitely above breakeven levels.
So purchasing something at scrap value, and chartering it initially for a low rate, because the average rate for those vessels is in the rate of 10,000 per day. Still, its yielding a decent return on investment, with a lot of upside.
I mean, again, this is a no brainer. And a third example is pretty similar to the last one.
We wanted slightly above scrap value, and we chartered the vessel at the scrap value, and we chartered a vessel at the X-Press Padma close to 8,000 per day, building an EBITDA close to 90%. So although those deals have a natural value, (inaudible), but as we mentioned, we are returns oriented, so we think that these are transactions that definitely provide upside to our shareholders.
Unidentified Analyst
Okay great. Thank you.
And so, are there any other deals you sort of have in the pipeline, either in the JV or (inaudible) COSTAMARE without the JV alone?
Gregory G. Zikos
The agreement we have with York Capital, with our partners is that whatever ideas we have, we share them with York and we are going to be doing them together. Now if for some reason, at one part it does not want to proceed, if (inaudible) does not want to proceed, then COSTAMARE can go and do the deal on a standalone basis.
But the pipeline, you can assume that this is going to be through our joint venture with York. Now, we look at a lot of things, both our second hand vessels with or with our charter entering new buildings.
I am afraid I cannot tell you much more at this stage, but we are generally active at COSTAMARE, we were active, and I can tell you that having $0.5 billion of equity available to invest over a two year investment period, in a market, which today is at low levels, or close to depressed levels. I think it is a no brainer that we may be active in looking at opportunities in the near future.
Unidentified Analyst
Okay great. So then I just have another question about the smaller segment, the smaller vessel segment.
I mean, Maersk had talked about when they -- their head of chartering had talked about these falling rates, from $1,200 per container to $400, on the Asia to Europe route, that was sort of unexpected and that the containers would be seeing some (inaudible) going forward. So I was wondering if you could may be talk a bit about how -- the container rate decrease will have an effect on chartering rates for the ships in general, and maybe if you could talk a bit about that, that would be interesting?
Gregory G. Zikos
Now this is about the box rates, I mean --
Unidentified Analyst
Yeah, the box rates, oh yes, exactly.
Gregory G. Zikos
The box rate, I mean, you know we have witnessed over the last months box rates going down, especially the Europe rates, and I think it's logical and it is expected, that that line of companies will try to restore those rates, with general rate increases, which is what we see today. Now the higher those rates are, the sheltered our lines are, and the better -- this is what, you know -- it's better for us.
So now -- but there is a correlation between box rate and charter rates, but there is normally a time cap between those two rates, to start in the same direction as we know, it is not always the case. I mean, charter rates -- have to do with the supply -- demand-supply of vessels and the cargo demand.
So I am not sure that I can predict charter rates right now, but I think that going forward and for the next month, we wouldn't expect charter rates to go up dramatically from what we know today. But as a company and container shipping, it's all about long term [amortization].
So as a company, we are patient, we are investing today with a long term horizon, and this is how we have been historically yielding returns. So shorter fluctuations in the box rates or charter rates are not for companies that are long term into container shipping, and in our case, with the charter rates where they are today, and in some cases, in some asset sizes, close to breakeven levels and they cannot go much lower.
We definitely consider this as an opportunity to invest.
Operator
Your next question comes from the line of Ben Nolan of Stifel.
Benjamin Nolan - Stifel Nicolaus
Thank you. I actually had a few questions here.
First, with respect to the acquisitions that you guys did with York, I was just curious how you already have, perhaps funded it, or intend to fund it? In other words, is there any debt that will be associated with this, or is it entirely equity acquisition?
Gregory G. Zikos
Those ships were bought 100% with equity. However, we don't need to raise debt on those vessels now.
We normally, I mean -- and what we have been traditionally doing, is that, when we charter for longer periods, and at a charter rate which can service the debt, then at this point we would go for a leverage and then we will check the highest leverage available in order to boost our returns. Now I cannot say that those vessels may not be funded with debt over the coming months, but this is not something, we, strictly speaking, need.
But at some point, we will definitely consider leveraging those assets, in order to provide our shareholders with better economics.
Benjamin Nolan - Stifel Nicolaus
Okay, that's helpful. Then, somewhat related to acquisitions, and you'd mentioned it a little bit in your previous answer, it sounds like you're probably a bit more focused on second hand acquisitions, given the current level of prices for second hand vessels currently.
But could you may be talk to the appetite among the liner companies for new vessel acquisitions, i.e., long term charters on new buildings? It seems like there maybe a few new entrants into that market, few state-backed institutions in Asia, or the liners have been doing those on their own books.
I mean, is now a better time to be in the second hand market, relative to newbuildings? Are there opportunities on newbuilds?
Gregory G. Zikos
Yeah look, for newbuildings, also prices for newbuildings have become very attractive lately. So it would feel that there are substantial returns there.
We would be definitely looking at newbuildings as well. I mean, there are -- especially in some asset sizes, I mean, construction costs are at historically low levels, at levels we have not witnessed before.
Now it's true that the majority of the orders that you know, were put over the past, like year or year and a half, most of them, they were put by liner companies themselves. But the simple reason is that there were not a lot of shipowners, that's because of the financial strength to support those orders, and let's not forget that the KG market, the German KG system which was supporting newbuildings and this was based on tax rates allowed under the German law, is no longer there.
So there are a couple of reasons, but I can't tell you that there have been deals with newbuildings and owner, where the owner buys the asset and then charges on a back-to-back basis to a line company. And I can tell you that we look at both new buildings and second hand vessels.
It does happen now that those vessels were bought like a month ago, and that we announced and then, let's not forget that it generally takes a bit longer to put together a newbuilding and charter on a back-to-back basis, and planning for those investments with a higher value. It takes much longer for perhaps buying a second hand ship without charter and with equity.
Benjamin Nolan - Stifel Nicolaus
Sure. And so you are seeing a fair number, or a good level of interest from the liners on potential newbuildings or --
Gregory G. Zikos
Yeah there are liner companies, who are looking at the newbuildings market. So this part of the market is definitely there, (inaudible) transitional period.
Quite the opposite (inaudible).
Benjamin Nolan - Stifel Nicolaus
Okay, good. All right last question for me, as it relates to some of the second hand acquisition that you guys are doing.
We have heard from the -- as it relates to some of the second hand acquisition that you guys are doing. We have heard that, especially recently, we have to be pretty careful about the vessels that you acquire, because maintenance has been flipping, in many cases, on some of the older assets, because cash flows are tight for owners.
Have you found that to be true, I mean, is it a little bit more challenging to source quality assets, versus assets that have been run down a bit?
Gregory G. Zikos
I mean, if you have a shipowner who does not have the funds to support the appropriate maintenance of the asset, and there are (inaudible) constraints, then definitely the physical condition of the vessel may not be, at the standard which is acceptable. But we, like I guess all other shipowners in our business, who are doing acquisitions are going through inspections before buying the vessel.
But the poor maintenance of the ship, does not necessarily has to do with its age. I can tell you that there are a lot of like five or 10 year old vessels, that may be much worse maintained than a 20 year old ship, which has been managed by careful owners, who have the liquidity to manage the vessel.
So it is not much always the age of the vessel, but it is 100% correlated to the financial situation of the owner, and we have come across the expenses, we are selling vessels of scrap levels, or even below scrap levels, because they didn't have the liquidity to move the vessel, from its latest position, to the scrap yard in a year. So there have been instances like that.
Benjamin Nolan - Stifel Nicolaus
Okay, that's all very helpful, and that does it for my questions. Thank you so much.
Gregory G. Zikos
Thank you.
Operator
(Operator Instructions). The next question comes from the line of Brandon Oglenski of Barclays.
Brandon Oglenski - Barclays
Good afternoon. Can you just speak to the level of liquidity that you feel comfortable investing right now?
At your disposal right now, and with the JV, where do you feel comfortable deploying equity, at what level?
Gregory G. Zikos
Look, the JV as a total, it can invest up to, now today, after to those acquisitions between $460 million of equity, let's say. This is the (inaudible) of the JV and there is two year investment periods, which started like a couple of months ago.
Now if the question has to do with COSTAMARE, what's the (inaudible) of COSTAMARE, I can tell you that, although I had given predictions, I can tell you that we have unaccounted vessels, with a value of, I would say under $40 million at least. Then, we have ships that then, we have cash on balances of $160 million, and we have reported (inaudible) from the ships in the water, and up to now, we have never lost any investment, because we couldn't find the funds to be employed.
So I don't think that it is a matter of capacity, it's a matter of the (inaudible) returns.
Brandon Oglenski - Barclays
So you feel, with that level of liquidity -- I mean, what's the realistic outcome that you could lever up some of those unencumbered assets in the market today?
Gregory G. Zikos
Those types of levers, depending on the asset, between like 50% or up to 75%.
Brandon Oglenski - Barclays
So you feel that you are in a position to go out there and chase some pretty large deals, and you are not going to be encumbered by a lack of equity contributions then?
Gregory G. Zikos
Wait, I am not saying that today we have equity of $250 million, which is half of sort of $0.5 billion, I mentioned. I will tell you what's our capacity today, and let's not forget that, without raising our costs today, and let's not forget that without raising additional equity, if that's the question, then it's not our intention.
I can tell you that we are in a position to find more funds in order to employ. I mean, it's not only common equity that can be raised, there are a lot of tools available, apart from the [custom] operations and custom balance sheet, and unlevered asset that's going to be used, in order to raise funds.
I cannot be more specific for obvious reasons, but I can tell you that it's not a matter of what capacity, it's a matter of these being available and let's not forget that even someone who has a big order, let's say of newbuildings. Those can't be leveled, so let's say that we have another (inaudible) $400 million, assuming a 60% or 70% leverage, you talk about equity requirements of $120 million, divided by 2, it's like $60 million equity requirement.
So we just talked about $400 million transaction. So transactions like that, it's things that we can very easily do now.
Brandon Oglenski - Barclays
Okay. Got it.
I guess on the vessel OpEx, your number is actually quite impressive. Is there -- what are you guys doing on the OpEx side that keeps the numbers, relatively in line?
Especially with the newbuildings coming on?
Gregory G. Zikos
Yeah I mean, look, we have a budget like every other shipping company, we have a budget, and we like to stick to it, and we'd like to do better than the budget. Now on average, just for the sake of clarity, our vessels aligned at around $6,300 on average, operated expenses, and our average size is close to $5,300 TEUs or so.
So this may be a competitive type of operated expenses. But the company has been in the business for so many years, and this is how [we record] a business.
So we try to make sure that we (inaudible) ships, the way this will be done.
Brandon Oglenski - Barclays
Okay. Well thanks, that's a pretty good result there, Greg.
Gregory G. Zikos
Thank you.
Operator
Your next question comes from Mark Suarez of Euro Pacific Capital.
Mark Suarez - Euro Pacific Capital
Yeah, good morning guys. Just to go back on the three second hand vessels that you acquired, what were the sources of the deal, were they brokers, lenders, or liner companies?
Gregory G. Zikos
No, they were deals that were -- I mean, assets that were bought from other shipowners. There was a Japanese shipowner and two other European shipowners, so they were not like, say they (inaudible) transactions, from liner companies.
What we did, is that we negotiated those transactions, and at the same time, we were negotiating the time charter on a back-to-back basis, so we wanted to make sure that we are going to be getting some costs, right after delivery. So although technically, the acquisitions with chartered parties were not on a back-to-back basis, but we had a pretty good understanding of what the charter rate would be and what the charter duration would be, right upon delivery.
Mark Suarez - Euro Pacific Capital
Got you. And I think you touched upon some of the return benchmarks you are looking for.
Now with this new agreement with York, your return metrics, do you see it change, or they are pretty much in line with the sort of returns you are looking before reaching that agreement? I am just trying to see -- if you guys see eye to eye when it comes to a lot of the return metrics and yields that you look for, when acquiring vessels?
Gregory G. Zikos
If you look at our five year historical ROE, from our financial statements, you will see that this is 30% or above. I can tell you, the good thing with our partners, with York, is that we share the same mindset, regarding returns and the amount of risk we are willing to accept.
So we don't think change our thresholds, or we don't change our targets, and I think we are 100% aligned with York Capital.
Mark Suarez - Euro Pacific Capital
Okay. And just going back to, I think you also talked about [S&P] prices being at historical lows, we have seen a lot of attractive deals, especially in the 10-15 year old range.
I think last quarter, we were talking about scrap prices, prices meeting about $400 per ton. Should we expect further demolitions over the balance of the year?
As I would have imagined, and if you expect further demolitions for the balance of the year, I would imagine an incremental equity outflow is quite manageable at this point? Or with York to [win], and now that you have that additional capacity, that's not really a priority anymore?
Gregory G. Zikos
I mean, demolition, generally speaking, for the whole industry, demolition is something that has been growing through the first six months of the year, and this is something that must continue at the same pace. So there are predictions that the total scrapping for the year could top 400,000 TEUs.
Now, leaving that aside, as for your concern, we normally tend to sell ship for scrap after it has realized it's returns, I mean, after the ship has been paid back and we have realized some good returns and the physical condition, and bearing in mind [what happened] to the expected operating expenses, might not justify any further investments on that asset; also taking into account, the scrap prices to-date, which are north of $400 per ton now. So now on a standalone base, COSTAMARE, we might be selling some assets, if we find a good replacement at attractive values, and this is what we did in the past -- I mean, over the last year or two, numerous times.
So low secondhand prices for six, 10 to 15 years old, combined with high steel prices, I think this provides a good opportunity for someone to renew the fleet, but it [may remove] equity outflows.
Mark Suarez - Euro Pacific Capital
So there will be a possibility to expect several vessel demolitions from your part, in order to take advantage of that --?
Gregory G. Zikos
We don't have -- I will tell you, from our part (inaudible), a lot of ships that are coming out of charter over the next five, six months, and that candidates for scrapping now. If there is one or two vessels from the old fleet, and still this is something that we have not decided yet.
So out of the 46 or 49 ships in the water, if there is a targeted or the modified -- if there is one or two ships to consider, this is going to be the highest number, no more than that.
Mark Suarez - Euro Pacific Capital
Got you. And just turning quickly to dividends.
At what point will you say the board would consider an increase in dividends, do you guys have like a cash flow level in mind, before even considering returning some of that cash to investors?
Gregory G. Zikos
I think the dividend is something which is -- I mean, the way we are today, it's easy to raise the dividend. While we have reported cash flow from operations, we repaid our debt.
There is some distributable cash flow and the dividend can't be raised. But when you are in a market, when you are a buyer, because assets are so low level, historically, I think it would be contradictory to say that we are preserving cash in order to buy more assets, but at the same time, we are increasing the dividend.
The dividend increase would normally come, together with enhanced cash flows, coming from our investments, which we are doing today. I think this is (inaudible) dividend raise.
Mark Suarez - Euro Pacific Capital
Okay great. That's all I have for now.
Thank you again.
Gregory G. Zikos
Thank you.
Operator
Your next question comes from the line of Michael Webber of Wells Fargo.
Donald McLee - Wells Fargo
HI, this is Donald McLee on for Michael. All my questions but, thanks for the time.
Operator
Your next question comes from the line of Chris Combe of JPMorgan.
Christopher Combe - JPMorgan
Hello Greg. I just had a follow-on question, in one of your responses to Ben, you mentioned how much easier it is to perhaps find a chartered economics, the second hand charter free vessels, especially if you are purchasing with equity.
Are there any specific vessel classes you'd avoid regardless of the near term economics, just because of the leanings of the liners, perhaps they are less focused on the small post-panamaxes, and maybe more reliant for smaller vessels that are into trade. Did that come into your thought process?
Gregory G. Zikos
Look, generally speaking for new buildings, let me start from there, and I will conclude the answer. For newbuildings, up to now, we have been ordering bigger vessels, because generally speaking, the liner companies, they are asking for bigger vessels, and (inaudible) economies of scale, and the bigger the better and the more economic it is.
Now for a second kind of vessel acquisition, especially for ships that are like 10, 12, 15, or 17 years old, if you buy something close to scrap value, or exactly the scrap value, and you have the charter and you can arrange a charter for the next year or so, as long as the asset is in a physical condition, that ship is (inaudible), I think it's not a difficult decision to buy that vessel, because you have a lot of upside locked in and you have like 10 more years to realize this upside. So in that instance, if the price is so low, and you can find employment, whether it's like 1,100 TEU or 2,500 TEU, it is something that may not make a huge difference now or in the decision making process.
In the past, people were avoiding the, like a gearless 2,500 TEU ships, because they were not much in demand, compared to the geared ones. The last couple of weeks, or last month, we have seen that given these vessels being in more demand, compared to the geared one.
So the market may be changing, but if you position yourself buying at a very low price, during a charter, then I guess, you don't have a lot to worry about.
Christopher Combe - JPMorgan
Okay, that's clear. As you look forward over the next few years, regardless of how much of this firepower you deploy with the JV with York, where would you see the average sort of vessel size fit, as you deploy that capital?
Would it be a proper mix of the two, or is it really just more of an opportunistic approach?
Gregory G. Zikos
I think it could be everything. It could be ships like you know, we recently did, or it could be newbuildings or assuming that the prices has occupied investment, it could also be five to 10 year for ships with or without the charter.
So I cannot be more specific, but when you are returns oriented and not size constrained. Then on the rate, someone needs to give a very generic answer, because there is no -- without any constraint, as long as the physical condition of the vessel and the returns are there.
Christopher Combe - JPMorgan
Very last one, on the daily OpEx, a pretty impressive performance. Is it fair to say, that's a reasonable run rate, at least for the near term, going through the second half?
Gregory G. Zikos
Look, the fact that we manage to come below budget in this quarter. I don't want you to take asset prices and assume that every quarter the budget is going to be, that the ships are going to be running below budget for every quarter going forward, because this means that we may have to reset the budget.
This quarter, we did relatively well. I gave the number of, what our daily operating expenses; bearing in mind, our average size and the fact that we'd like reflag (inaudible) of our budget, which is an additional expense, which other shipping companies don't have.
But I don't think it's fair to say, that we are going to be performing better than budget for every single quarter going forward. I think the budget -- this is (inaudible) and it has been a very competitive operating expenses.
Christopher Combe - JPMorgan
Okay. That's clear.
Thank you.
Operator
(Operator Instructions). And it appears we have no further questions at this time.
I would like to turn the call back to Gregory, for any closing remarks.
Gregory G. Zikos
Thank you for being here with us today. We appreciate your interest in COSTAMARE and we remain committed to delivering superior shareholder returns.
Thank you very much.
Operator
Thank you. That does conclude our conference call for today.
We thank you for participating. You may now disconnect.