Nov 1, 2016
Executives
Gerry Wang - CEO, Co-Chairman and Co-Founder David Spivak - CFO
Analysts
Michael Webber - Wells Fargo Chris Wetherbee - Citi John Humphries - Bank of America Merrill Lynch Noah Parquette - JPMorgan John Gandolfo - Clarksons Platou Gregory Lewis - Credit Suisse Amit Mehrotra - Deutsche Bank
Operator
Welcome to the Seaspan Corporation conference call to discuss the financial results for the three and nine months ended September 30, 2016. Hosting the call today is Gerry Wang, Chief Executive Officer, Co-Chairman and Co-Founder of Seaspan Corporation; and David Spivak, Chief Financial Officer of Seaspan Corporation.
Mr. Wang and Mr.
Spivak will be making some introductory comments, and then we will open the call for questions. I will now turn the call over to David Spivak.
David Spivak
Good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that our discussion today contains forward-looking statements.
Actual results may differ materially from results projected by these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the third quarter 2016 earnings release and their earnings webcast presentation slides available on our Web site at www.seaspancorp.com, as well as in our Annual Report filed on Form 20-F for the year ended December 31, 2015 and a report filed on Form 6-K for the three months ended June 30, 2016.
During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings and normalized earnings per share diluted. For definitions of such non-GAAP financial measures and for reconciliations of such measures to the most closely comparable U.S.
GAAP measures, please refer to our earnings release or the appendices at the back of the earnings slide. I will now pass the call over to Gerry, who will discuss our third quarter highlights as well as some recent developments.
Gerry Wang
Thank you, David. Good morning to everybody.
Thanks for taking the time to join us for the call. Please turn to Slide 3 of the webcast presentation, a several points I would like to discuss for the quarter.
Firstly, continued access to divest sources of capital. In Q3 we improved our liquidity while continue to expand our sources of capital.
We raised over $300 million of preferred equity into financings. We sought $1 million through sale-leaseback transaction.
We upsized our revolving credit facility to $160 million which is currently undrawn. Second, sustained improvement of operating cost.
During Q3 we continue to benefit from the implementation of our cost controls. We were able to reduce operating cost by 8.9%.
We view this as very positive progress that demonstrates the strength of our operational capabilities. Third, executed on growth strategy.
During Q3, we continue to grow our fleet. We added 10,000 TEU at Maersk Genoa to our operating fleet, which is on a five year time charter with the Maersk.
Last to highlight, during Q3 we also take $0.375 per share common dividend and expect to pay an additional - annual dividend of $1.50 for the 2016 fiscal year subject to our Board approval. Let me switch to Hanjin update.
As many of you know Hanjin Shipping declare bankruptcy on August 31. We have three 10,000 TEU vessels under mountain charters and one 4,600 TEU vessels under [indiscernible] charter with Hanjin shipping.
This is the first time unfortunately in our history that one of our customers recorded on their chart advantage. Even throughout the financial crisis in 2008, we've never had a customer default on charters obligations.
As a result of the bankruptcy, we stopped recognizing revenue on charters with Hanjin beginning of September 1. For the third quarter, we also rolled out the entire $18.9 million accounts receivable due from Hanjin.
All of the rest was being redelivered to us. The 10,000 TEU vessels have been renamed.
We have been discussing with several potential charters for the re-charter those vessels. So far one 10,000 TEU vessel had been re-charter with delivery let at the CA, the 4600 TEU vessel is our route for demolition.
I will now turn the call over to David to discuss our quarterly financial results. David, please.
David Spivak
Please turn to Slide 4 where I will discuss our results for the third quarter of 2016 compared to the third quarter of 2015. Revenue increased in Q3 2016 by $12 million from the same quarter of the prior year.
The increase was primarily due to new building vessels delivered during the second half of 2015 and during 2016 and the addition of two leasing vessels in 2016. These increases were partially offset by lower average charter rates for vessels that were on short-term charters and an increase in unscheduled off-hire.
Three dry dockings were completed during the quarter with 25 days of associate off-hire. We had 318 days of unscheduled off-hire in Q3, including approximately 50 days due to short- term mechanical and maintenance issues on certain vessels all of which have since been remedied in the vessels are back on-hire.
The remaining unscheduled off-hire relates to periods in between charters for vessels that are currently operating in the short-term market. Given the increasing number of Panamax vessels we have operating in the short-term market, we expect off charters days to remain elevated while the market remains challenged and our ideal fleet remains high.
Ship operating expenses were $48.6 million, a decrease of $0.8 million from the same quarter of the prior year. This is despite a 7.9% increase in ownership days.
As a result Q3 2016 ship OpEx for ownership day was 6,234 a reduction of 8.9% compared to 6,841 per day in the same quarter of the prior year. We were able to achieve this reduction through disciplined ship operating cost management.
General and administrative expenses were $8.1 million, a $1.1 million increase from Q3, 2015, the non-cash compensation component of G&A increase from approximately 900,000 in Q3 2015 to $2 million in the third quarter of 2016. Operating lease expense was $23.8 million in Q3 2016, a $12.7 million increase from the same quarter of the prior year.
We ended the quarter with 13 vessels under operating leases versus seven vessels at the end of the third quarter of 2015. Normalized earnings per share diluted was $0.29 compared to $0.30 in Q3 2015.
We have positive contributions during the recent quarter from new build vessels delivers since the same quarter of 2015, ship operating cost efficiencies and lower all-in cost of financing due to debt repayments and swap explorations. These improvements were partially offset by increased offshore charter days and lower re-charter rates, a lack of revenue in September 2016 from the three 10,000 TEU vessels previously chartered to Hanjin and increased operating lease expense.
Adjusted EBITDA for the third quarter of 2016 was approximately $148.4 million, a $35.1 million decrease from the same quarter of the prior year. Cash available for distribution for the third quarter of 2016 was approximately $90.4 million, $27.0 million decrease from the same quarter of the prior year.
The decreases in both metrics were primarily attributable to lower gain on sales from sale-leasebacks partially offset by the contribution of vessel additions since the same period last year. Cash available for distribution to common shareholders also benefited from the lower interest at the hedge rate.
Normalized EPS diluted, adjusted EBITDA and cash available for distribution to common shareholders have been adjusted in Q3 to exclude an [$18.9 million] [ph] of bad debt expense related to Hanjin’s bankruptcy. We previously announced that we expected to recognize a non-cash impairment charge related to certain vessels of less than 5,000 TEU commencing in Q3, 2016 and into Q4, 2016.
During the third quarter, we recognized a non-cash vessel impairment charge for approximately $203 million. The total impairment charges for fiscal 2016 including the $203 million impairment charge from the third quarter is expected to be in the range of $260 million to $290 million which is consistent with previous guidance.
In August we sold a 4,600 TEU vessel to Seaspan Excellence to a ship recycler for net sale proceeds of approximately $5.8 million, resulting in the loss on disposition of approximately $16.5 million. Turning to the balance sheet.
Our cash balance at the end of the third quarter of 2016 including shot-term investments was $540.8 million. Total borrowings decreased by approximately $120 million since the beginning of the year.
Total borrowings includes approximately $209 million related to the three 10,000 TEU vessels previously chartered to Hanjin. Under these facilities we are required to find a suitable replacement charter within a predetermined period of time.
We are currently in advanced discussions with lenders to amend these facilities to enhance flexibility and anticipate that we will enter into formal amendment in future weeks. Please turn to Slide 5 where I'll briefly summarize our capital raising activity in Q3.
During the quarter we issued a new series of perpetual preferred shares the Series H for total gross proceeds of $225 million. In August, we successfully raised gross proceeds of $80 million from institutional investors based in Asia through a reopening of our Series G perpetual preferred shares.
This is the second time this year that we have raised equity capital out of Asia. We also secured $100 million in proceeds from the sale-leaseback of the Maersk Genoa.
Finally we increased our revolving credit facility to $160 million all of which is on undrawn. Please refer to Slide 6 for our forward guidance for the current quarter.
We do not intend to update our quarterly guidance in the ordinary course of communications. Looking forward to Q4, we anticipate that revenue will be between $209 million and $213 million.
This figure includes the full quarter impact of the recent addition of the Maersk Genoa partly offset by vessels re-chartered during the quarter at current market rates. In providing a range of revenue, we have assumed no revenue for the quarter from two of the three 10,000 TEU vessels previously chartered to Hanjin under long term charters while the third 10,000 TEU vessels becomes a charter in the latter half of Q4.
We are in discussion with several parties regarding the chartering of the two other 10,000 TEU vessels and expect to enter into new charters in due course. We expect the ship OpEx to fall within a range of $50 million to $53 million which includes the full quarter impact of the vessels delivered during Q3.
We expect our operating lease expense to range between $25 million to $27 million due to the full quarter’s expense related to Maersk Genoa. We anticipate that G&A will range between $7 million to $9 million in Q4.
The non-cash stock compensation component of G&A is approximately $2 million. Interest expense at the hedge rate is expected to range between $39 million and $41 million.
Note that these amounts are based on current information and estimates and are subject to change. I would now like to pass the call back over to Gerry.
Gerry Wang
Thank you, David. Please turn to Slide 7 where I'll provide some perspectives on the changing industry landscape which is undergoing our paradigm shift.
We have seen an increased emphases on M&A and a greater focus on alliances and joint ventures. Just yesterday MOL, K Line and NYK announced their intention to form a container shipping joint venture to commence in the year of 2018.
We welcome this development as it further enhances the creditworthiness of our customers. This consolidation will lead to increased cooperation and better test capacity planning between the liner operators including ongoing fleet modernization towards large and advanced ships for both cost competitiveness and also regulatory requirements.
There has also been a flight to safety in the industry. The Hanjin situation is the catalyst that has led to this focus due to the widespread disruption it has caused.
There is also a shift underway to partners and services providers with financial strength and scale. Over time we believe those changes should result in a healthier industry.
As the largest independent containership lessor Seaspan is well positioned to capitalize on the opportunities that will come up. Turning to Slide 8, I will discuss containership supply and demand situation.
The market has been hit hard by the perceived tonnage oversupply situation coupled with the demand growth slowdown. This has resulted in weak demand especially for our Panamax vessels therefore softer charger rates.
We expect market conditions to remain sluggish over the near time. Worth mentioning here, out of our total long-term contracted revenue, we only have a small portion of our fleet capacity exposed to short-term spot charters.
However, we believe the current market conditions will help remove weaker players that are simply unable to survive this [tandem] [ph]. Since the beginning of the year the market has shown discipline on the supply side experiencing negative growth.
Year-to-date 129 containerships representing approximately 450,000 TEUs or just over 2% of the world’s containership capacity have been sold for scrap. Scrapping in 2016 is on pace for the highest level on record.
New vessel ordering on the other hand has been very low at approximately 230,00 TEUs year-to-date. The order book currently stands at 16.3% of the current fleet which is at historical low level.
Over time we believe the combination of early ready scrapping and lack of newbuild ordering should help reduce the excess supply and bring supply and demand back to more balanced levels. As a matter of fact the fair rates for the main trade lines have improved steadily from the end of Q1 and the beginning of Q2 of this year.
Now please turn to Slide 9, where I will make a few closing remarks. Seaspan was formed during a period of severe downturn with the Asian financial crisis about two decades ago.
We also weathered the storm of the 2008 financial crisis. Taking advantage of the market crisis and also industry cycles we have grown our franchise to become the world’s largest containership lessor while remaining focused on our core business model and strategy.
We strongly believe that the current market downturn will create attractive opportunities for further growth. We remain committed to our core business model and strategy and we’ll seek to capitalize on our global leadership position, remain the partner of choice to our customers, the leading line operators, building best-in-class ships and providing best-in-class operations, enhance our financial flexibility and financial position, continue to secure long-term fixed rate contracts with strong counterparties and manage an attractive fleet of modern and efficient vessels.
We believe that our customers will continue to upgrade and modernize their fleets and that we stand to benefit from continued outsourcing. We also believe our competitive landscape will become more favorable through this tandem.
As we have done in the past we will be patient and disciplined in evaluating opportunities. Our goal is to use our leadership position to consolidate and grow our business during this down cycle and generate long-term value to our shareholders.
And I would like now to open the call for questions, operator please begin with the Q&A. Hello, Q&A please.
Operator
[Operator Instructions] And our first question comes from the line of Michael Webber from Wells Fargo. Your line is now open.
Michael Webber
Hi, good morning guys, how are you?
Gerry Wang
Good, how are you.
David Spivak
Good morning
Michael Webber
Good. Gerry, first wanted to touch on the assets that released from Hanjin.
I think you got one chartered, a couple of more that you’re looking to redeploy. Can you give some color around what that market looks like in terms of rate and term and how competitive that market is just given the fact that there are others in the same position when you’ve got a kind of a growing consolidation theme within the space?
Gerry Wang
Firstly, there has been quite a bit of interest in our vessels. We actually have been talking with four, five potential charters for those vessels.
Secondly, as I want to say, we want to do short-term charters to get through this challenging period of time, obviously our charters are trying to go for long-term low rate at the end of the year, we see how things go. We believe to secure charters for those vessels for the two vessels remaining so not really a big problem.
It just a matter at the end of day, what rates we get and what period we'll get. And we want to remain patient demand for those vessels, for big vessels remains very strong.
If you notice the 13,000 TEU released from Hanjin they've been taken six by Maersk and three by MSC it's very healthy rates. So we expect some rates consistent with those big vessels to be available to us.
So, we just have to be patient and at the same time, I just want to say it again, we are talking with four, five charters at the same time.
Michael Webber
Right. So the comp we should use would be some more recent stuff that’s been done, I think you mentioned with Maersk and then in terms of the tenure you're looking at shorter term.
How would you - when you say shorter term I mean in the container space that could be a couple of years or even six months to a couple of years. Are you thinking something along those lines are how would you kind of define short term or what kind of bridge do you think you need at the point where you can get better economics on those released ships?
Gerry Wang
We’re looking at six to probably 18 months to two years.
Michael Webber
That’s helpful.
Gerry Wang
And we've delivered - the market is going through changes. As I mentioned during the presentation you look at deferred rates for all the main trade since the end of Q1 in the beginning of Q2 deferred rates have been moving up steadily.
Michael Webber
It makes sense. Just one more here and I’ll just give one to David and turn it over.
Just around the broader theme of consolidation now I think it was yesterday NYK, MOL and Kline talked about merging their container ship fleets and it seems as though Hanjin is kind of served us the kind of the bad example for everyone and everyone is going to basically get their houses in order to make sure something like that doesn’t happen again. When you think about credit risk kind of biggest - the question is two-fold.
When you think about credit risk from here on out do you think we’ve hit a bottom within the container space and we’re unlikely to see another major bankruptcy and everyone basically is trying to right size at this point or do you think that we could actually still have some ways to there? And then I guess secondly around the demand for assets.
As these guys consolidate it is they are going to be releasing excess tonnage and that would be a negative for tonnage providers. So I want to think about how you think about that and the headwind longer term.
Gerry Wang
Mike this is Gerry again. Firstly we welcome the developments regarding the joint venture between the three Japanese operators two of which are our customers so it enhances the credit worthiness of our customers is a good news.
And I think it’s also good news for the industry to have more consolidations, you have more joint services working together and so you improve the service quality and also utilization to reduce the cost as well. So it's a positive development.
I believe other line majors have already expressed their support for the development regard. As far as the Hanjin situation is concerned, as I mentioned this is one off black swan situation in this and if you look at what’s happening in South Korea you won’t be surprised to see how Hanjin [indiscernible] took place.
I don’t have time to get into that kind of discussion. But it is one of those things.
We have never had a situation like this and fortunately we have only three vessels exposed to that and those three vessels are the best design vessels. Very popular in the marketplace and that's the reason why we have four or five operators coming to us and to discuss with us.
At the end of the asset it’s just a matter of what we can get in terms of the charter rates and the periods and our preference is shorter periods to get through the downturn and we're looking at the long-term value for those vessels in a - there we go.
Michael Webber
Got you. Great, I will hop back in the queue and let somebody else get a chance.
Thanks guys.
Operator
Our next question comes from the line of Chris Wetherbee from Citi. Your line is now open.
Chris Wetherbee
Good morning guys. I wanted to touch on - just wanted to touch on sort of asset values in general and sort of further impairment charges I guess, David you mentioned you got probably another slug here in the fourth quarter obviously smaller in magnitude but when you think about sort of the broader fleet and just sort of generally speaking, how do you think about sort of carrying value for outside of some of the smaller tonnage and what could be sort of triggers that we need to watch as we go forward to sort of think about whether or not that carrying values of these are sort of different than maybe what the market is today and if that’s material now.
I guess, I am just trying to get a sense of sort of how contained the impairment numbers are and potentially if it could go a bit wider than what you have outlined so far.
David Spivak
Sure. The company gave guidance really a few quarters ago for kind of the impairments for this quarter and ultimately for next quarter.
And I think in the history of the company I think that’s sort of the first impairments that has been taken. The impairment calculation is driven by a number of influx.
There is a whole accounting methodology to it. And really one of the key drives are charter rates.
And really what you are trying to measure is are the undiscounted cash flows greater or below sort of the carrying amounts of you assets. And so kind of what drivers the impairments are kind of what you initially paid for your assets and the level you've depreciated versus kind of the sort of discounted cash flows.
We impaired 10 vessels in this 203 million charge. I think for next quarter I think to kind of get up to that sort of 260 to 290.
It’s roughly another five or six vessels. Realistically if charter rates were to stay at low levels for another sort of 12, 18 months I think realistically there would be additional impairments.
So I think that’s probably the key driver. The flip side I’d say operating costs also impact that analysis and actually our operating cost we’ve been very good at sort of lowering it.
And so in some ways those are the key drives. But if you kind of look at our portfolio you are really talking about sort of the 10 that was impaired, another six that has been factored in.
You’ll also notice we announced in a press release there are couple of bare boat chartered vessels to MSC that we've sold back to them and there is a couple of more. And so you’re suddenly up to around 20 vessels, we scrapped another 22 vessels.
So as far as the kind of the smaller portion of our fleet we’ve sort of taken a good chunk but realistically down the road if charter rates were low level for periods of time we would expect at some point we would have other impairments.
Chris Wetherbee
Okay. That's helpful bit of contact.
And when you think about sort of potential vessel sales or some of these sale back charters over the course of the next few quarters anything we should be thinking about sort of what’s the strategy or approach to the fleet at it stands right now. Are there any other good candidate that maybe come up for opportunistic sales or is there any other guys that maybe need to go to the scrap yard?
Gerry Wang
We’re looking at in terms of opportunities in front of us really see areas, one is the second hand vessels associated with discharge situations such as deliveries from Hanjin shipping for example. There are some very good second handed vessels at incredibly attractive prices, we’re looking at them.
As a matter of fact, we’re inspecting literally every ship that is available for sale. So that’s one area we’re looking at to see if they are in good second hand vessels that would help us enhance our value.
The second opportunity we were looking at is really ships that have charters attached, also associated with certain small owners going through tough times. So we are looking at them.
We’re discussing with potential sellers about acquiring them and then the third area we are looking at is the sale-leaseback opportunities from the line images. One thing that we need to keep in mind is our customers have not made much money.
So for the modernization program sale-leaseback probably is one avenue for them to put the hands on modernizing their fleet. So those are the few areas we focus on.
And plenty of opportunities as I said in the presentation, we believe this downturn will open up a lot of chances for us to put our hands on. So we’re actually quite excited about those opportunities and also I said our DNA is to deal with unicycles in the crisis that we’re born and raised during the Asia financial crisis and we grew stronger during 2008 financial crisis and we believe this downturn presents us with just as good opportunities as we have experienced in the past.
Chris Wetherbee
Okay. That’s very helpful color guys.
Thank you for the time, appreciate it.
Operator
Our next question comes from the line of John Humphries from Bank of America Merrill Lynch. Your line is now open.
John Humphries
Hi, good morning Gerry. Good morning, David.
How are you?
Gerry Wang
Good, how are you?
John Humphries
Good. I just want to talk about the idle fleet, there has been some articles out with consolidation and return of vessels that the idle fleet has been growing, helping rates.
Gerry, if you could just sort of talk about where you see that idle feet percentage going and if rates do strengthen is that capacity that could come back into the market and sort of some other recovery?
Gerry Wang
Good question. For the idle fleet, there are two components in that, one is the vessels that are there for the idle in duty operational reasons, [indiscernible] measure.
Sometimes they check out the deployment of the ships, they have one or two ships that need to be cut out for three months, six months whatever they are. So this kind of voluntary idling is just for adjustment purpose.
The other category would be those vessels that are really not there to get picked up the charters by the employment. I believe most of those vessels have become obsolete and most likely they will now be able to return to the operating fleet in the near future.
The newer vessels will come on premium in terms of employment priorities. You look at our 10,000 TEUs that are far superior to any other operating vessels in that category because they are fuel efficient and their load ability is very good and also one should remember all vessel comply with all the advanced stringent regulatory requirements such as AMP trading to U.S.
West Coast, part of water treatment system and the latest 0.5% self-shipment. So we are good with all those things.
But for those vessels in the idling situation right now and most of them just don’t have the suitability to comply with all those requirements. So that’s one of the reason I say those vessels probably would be there for some time, eventually they will go to the graveyard.
John Humphries
Great, thank you. And that’s kind of leading into my second is on the new IMO regulations around software, you are saying your newer vessels those wouldn’t require scrubbers, they are already outfitted to comply with this, is it correct?
Gerry Wang
Yes, we have the system on board to comply with the thing.
John Humphries
And how common is that in the fleet of just trying to speak broadly here, I mean how many if it’s five percentage or company is that pretty rare to have current vessels that are already outfitted or most going to have to back to the yard?
Gerry Wang
I would say fairly rare maybe 10% of the vessels in services today. I equipped with the advanced measures to comply with that this requirement.
John Humphries
Great, thank you very much. That’s it for me.
Operator
Our next question comes from the line of Noah Parquette with JPMorgan. Your line is now open.
Noah Parquette
Thanks. I just want to follow-up, those four vessels, the bareboat to MSC.
You said they bought two of them, what’s going on with the other two? Are you going to keep those and deployment them?
Gerry Wang
Yes, I mean they’re obligated to buy each of them for $5 million each, two of them have then repurchased just the timing of the dates and so the other two will get repurchase this quarter just when the initial, it’s five years from the initial date of the charters and so they’re all chart at the different times.
Noah Parquette
Got it, okay. And then just for modeling, how much that exactly is associated with the 300 – 100 ships?
David Spivak
About $209 million.
Noah Parquette
And as this just maybe a little for further out, but following-up the IMO regulation changes. If you guys are kind of on the forefront for vessel designs, have you look at all for LNG fuel designs or is that just too far out as…?
Gerry Wang
I think too far, to be honest the economics was not there, but doesn’t routes properly you can view that. But for us we have to generate value to our shareholders for investments.
I don’t see that liability in the near future for commercial container ships not just how we feel.
Noah Parquette
Okay. Just one review on that.
Thank you.
Operator
Our next question comes from John Gandolfo from Clarksons Platou. Your line is now open.
John Gandolfo
Thank you, and good morning guys. First quick question…
Gerry Wang
Good morning.
John Gandolfo
On the Hanjin exposed vessels, are there any lingering costs whether would be old port fees or bunker expenses are we need to be met by Seaspan and redelivered fleet?
David Spivak
It’s David, nothing that we think is material, it’s something that we have to monitor throughout – you don’t know if you capture everything because time will tell, but somewhat we see we don’t think there is anything material.
John Gandolfo
Okay, got it. Thank you for that.
And lastly just the quick modeling question, noted that you guys start recording revenue from one on the Hanjin operating vessels, wondering how much revenue is recorded during the first two-month period that was included in the topline for the quarter?
David Spivak
Yes, it’s approximately $7.9 million.
John Gandolfo
Okay, got it. Okay.
Thank you very much. That’s all from me.
Operator
Our next question comes from Gregory Lewis with Credit Suisse. Your line is now open.
Gregory Lewis
Yes, thank you and good morning. Gerry just in your prepared remarks and I think in some of the Q&A, you talk a little bit about consolidation and alliances I mean it, it seems as if we’ve been having alliances for years over the last three to four years it seems like the rhetoric around alliances and partnerships and betraying, on the various alliances and the other day it really hasn’t had a positive impact on the economics for line or companies.
Has anything changed where now you believe that these alliances are joint ventures or partnerships are going actually start to make this industry at least for your customers more profitable?
Gerry Wang
I think that this time they are much more serious and also the outlines is much more sophisticated and they are much more sort of tied up each other, you look at the Japanese fleet, they won’t give and used with alliance. They use joint venture.
So they have economy interest, clearly tied up with each other. We like that development.
I think the new channel or consolidation would definitely help improve the market conditions. As a matter of fact, as I mentioned you look at the fair rate movement from Q1 and then the Q2 beginning rates have steadily moved up, and over last week rates jump up almost 20% possibly because of the Hanjin situation and I think it has a lot to do with the airlines being formed and people get more serious.
Because they know if they continued to have this loose, loose alliances and the profitability would not come in then as noted to anybody, the industry we’re not be able to survive.
Gregory Lewis
Okay. And just to that point, post some of these more newer alliances, have we seen any of these groups pulp capacity from certain lines that were maybe less profitable or is it had we not really seeing any core trading patterns for these alliances or joint ventures change or is it still too early to tell?
Gerry Wang
It’s still early to tell depending on – because that actually what the form of the corporation they have within themselves and for example of the OCR joint venture, which in cost of goods CMA evergreen that OCR will resign this week in Shanghai. I know they took a lot of time to go through the forms of the corporation.
I think what I’ve learned from the CEOs that I’m serious about working together this time.
Gregory Lewis
Okay. Thank you very much for the time gentlemen.
Operator
[Operator Instructions] And our next question comes from Amit Mehrotra from Deutsche Bank. Your line is now open.
Amit Mehrotra
Hi, good job operator. I know that’s a hard last name.
Hi Gerry, hi David, I hope you both are doing well. Thanks for taking the question.
So I hopped on a bit late to this call. So I just wanted to apologize in advance if this has been asked or answered, but it’s really just around the dividend, Gerry, obviously it remains a critical and important aspect of the story for the shareholder base and with all the weakness in the market, you guys seem to be managing.
I guess the turmoil extremely well, so congrats for that.
Gerry Wang
Thank you.
Amit Mehrotra
But as it relates to the dividend, Gerry, could you just provide some specifics as it relates to you were in the Board’s commitment on the dividend, given the market? And then just support that, David, maybe with some cash flow, puts and takes to make us a little bit more comfortable that dividends fully funded over the next 12 or so months?
Thank you.
Gerry Wang
So I think what we’ve said is that we’ve sort of reaffirmed the dividend for the fourth quarter. The companies had a very standard policy for numbers of years that we sort of look at things in February for the year and that’s sort of in export and that’s the time where the board will set the dividend for the next year.
I think when we kind of look at sort of the financial situation we’re in, we’re sitting on the lot of cash, there’s other liquidity. We don’t have a lot of CapEx that sort of unfunded ahead of us.
We do have some vessels, which were unencumbered that we would expect to sort of finance and the cash flow they were showing, cash flow to common shareholders for the quarter was around sort of $90 million and obviously we give them guidance, line item guidance for the next quarter. But we understand the importance of dividend, but I think we’re going to follow the same policies that the Company’s follow for many years as far as the protocol with the dividend in the February meeting.
Amit Mehrotra
Okay. Let me just ask one more if I could related to any updates on perspective asset impairments, obviously the impairment in the quarter was well flagged by you guys for a while now and it was certainly in line with expectations and just wanted to see an update of the total impairment number is in the range what you have been expecting for a while and just more to come in Q4 and just what we can expect prospectively on the impairment side.
Thanks.
David Spivak
The guidance that was given which was a while ago, the impairments will be consistent with that guidance. I think the guidance that was given historically was commenced in Q3 $250 million to $290 million and I think the last during this call I had sort of indicated that it may be spread over a couple quarters.
This quarter it was $202 and I think in the press release we sort of indicated that we tied in the range for kind of Q3 and Q4 in aggregate of sort of 260 to 290. Now what I will say is when I sort of stepped into this role I thought it was a little bit unusual actually giving guidance a year in advance knowing as we have all seen that a lot of the inputs into this analysis can fluctuate a fair bit over time and so the company met it’s guidance a year in advance but that wasn't sort of necessary, always sort of - that wouldn’t always necessarily be true.
And so I think as we look forward if rates stay low for long periods of time I think realistically at some point we would have additional impairments. That cash flow calculation that I sort of talked about it also has to factor in whether the vessels are chartered.
Obviously if we have vessels under long term charters, the current rate environment is not going to impact the impairment the same way as if they weren’t chartered. But it’s something that we are monitoring it, it’s not something that we will be prepared to give any sort of specific guidance at this stage just because there is a lot of variables to that kind of equation.
Amit Mehrotra
Right, I really appreciate that David, I totally understand. Let me just ask Gerry one more if I can as it relates to the market, I guess it's world series time, so I am going to kind of ask Gerry to put the current market in the context of maybe what inning we are in, in terms of this supply demand dynamic and the reason I ask is because everyone kind of knows that we are in this low single digit demand growth environment and if we look at sort of perspective shifts in supply, I mean especially on the long haul routes in 2017 and 2018, I mean you are still looking at high single low double digit fleet expansion on those types of long haul routes.
And so is there a good amount more pain to go and just want to get your thoughts in terms of where we are in the cycle from a supply demand standpoint, Gerry. Thanks.
Gerry Wang
We are little more optimistic than sort of the doomsday projection. If you look at the supply side the squabbling, the idling, the consolation of orders and also the Hanjin jack have really put supply under very tight control.
As a matter of fact first time in history we have negative growth in terms of vessels that have been deleted, or gone for scraps versus new building orders. So we have - there's always valuable new building order activity.
Our leaders in the industry like they must have made it very clear. There is no intention for them to order new ships and their focus will be to absorb whatever ships that are available in the market.
From that perspective I think we are moving towards the balance that will fade quickly and the fair rates have reflected that. And as I mentioned if you look at the fair rates for the major routes they have steadily improved not to the level we would like to have but at least much better than Q1, Q4 last year and Q1 this year.
So I think the industry is moving for diluted more healthy situation with the help of more consolidation. I think the industry probably would pick up the pace towards more demand supply equilibrium, I am hopeful and I am more optimistic than lot of negative sales.
Amit Mehrotra
Right, okay, that’s very helpful. Thank you so much, Gerry, thanks, David, appreciate it.
Take care.
Operator
At this time I am showing no further questions. I would like to turn the call back over to Mr.
Wang for any closing remarks.
Gerry Wang
Okay, great. Thank you for joining us again today.
We are going through tough times but we believe - if we’re not at the end of the tunnel, we are getting close towards the end of the tunnel. This franchise has been very resilience.
We are born with the DNA of dealing with crisis and cycles and so on and so forth. And as a matter of fact we have grown surely during bad times and that DNA will stay with us with leadership position, the technical operation and know how we have with the financial strength we have, we believe we will become even stronger.
And as I said our goal is to use our leadership position to capitalize on the opportunities to grow our fleet, to grow our revenue and to become even stronger to generate the long term share holder value to our share holders and we remain optimistic and to be honest next 2 to 6 months we will be very busy in terms of evaluating the opportunities in front of us and busy in terms of making sure our capital structure stay in flexible to afford us to do things we want to do. And we believe in the space and we hope to do very well through this down cycle and we thank you for your patience and your trust in us and look forward to talking to you again for Q1 towards the end of April, early March.
In the meantime have a great Christmas holiday, all the best to you and also good luck to the next Tuesday presidential election. All the best.
Thank you.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program.
You may now disconnect. Everyone have a great day.