Nov 20, 2014
Executives
Angeliki Frangou - Chairman and Chief Executive Officer Ted Petrone - President Leonidas Korres - Chief Financial Officer
Analysts
Prashant Rao - Citi Steven Tittsworth - Stifel Amit Mehrotra - Deutsche Bank Herman Hildan - RS Platou Markets Spiro Dounis - UBS
Operator
Thank you for joining us for this morning’s Third Quarter 2014 Earnings Conference Call. With us today from Navios Maritime Acquisition are Chairman and CEO, Angeliki Frangou; President, Ted Petrone and Chief Financial Officer, Leonidas Korres.
As a reminder, today’s conference call is also being webcast. To listen to the webcast, please visit the Investor Relations page of Navios Acquisition’s website at www.navios-acquisition.com.
Before I review the structure of this morning’s call, I’d like to read the Safe Harbor statement. This conference call could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition.
Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition’s management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements.
Such risks are more fully discussed in Navios Acquisition’s filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks.
Navios Acquisition does not assume any obligation to update the information contained in this conference call. Now, we will begin this morning’s call with formal remarks from the team and after we will open the call to take your questions.
I’d now like to turn the call over to Navios Acquisition’s Chairman and CEO, Ms. Angeliki Frangou.
Angeliki?
Angeliki Frangou - Chairman and Chief Executive Officer
Thank you, Laura. Good morning to all of you joining us on today’s call.
I am pleased with our results. We grew adjusted EBITDA by 36% and declared a quarterly dividend of $0.05 per share.
We have consistently paid a dividend and today’s stockholders are receiving a yield of almost 7.3% on the NNA common stock. Turning to Slide 2, we have been active since acquiring a major fleet about 4 years ago.
In 2013, we reentered the VLCC market and acquired vessels at good prices. Given the continued attractiveness of yield to U.S.
investors, we formed an MLP we have always received an IPO of Navios Midstream Partners under the ticker, NAP. This NAP is a new platform in the wet sector for dividend seeking investors bringing flexibility and liquidity to NNA.
From our perspective, Navios Midstream Partners is a natural home for certain of our assets that we developed to the point of providing attractive long-term returns. As you can see on Slide 3, after the acquisition of Navios Midstream Partners, Navios Acquisition remains a substantial company.
Navios Acquisition has 41 vessels in the fleet, of which 36 are on the water. Facility is almost 100% employed for 2014 and about 60% covered for 2015.
About 70% of our fleet has [indiscernible] and the market is improving. Slide 4 highlights the key development.
Navios Midstream Partners went public in November and raised $121.5 million of gross proceeds. Post-IPO Navios Acquisition owns 57.5% of Navios Midstream Partners.
However, Navios Acquisition will not consolidate Navios Midstream Partners’ improved financial statement. Through their IPO process, Navios Acquisition sold four VLCCs to Navios Midstream Partners for a consideration totaling $379.4 million.
Their vessels were sold at about 22% premium to the current fair market value and above their historical book values. The cash received from NAP IPO is impact to strengthen Navios Acquisition balance sheet.
Navios Acquisition repaid $132.3 million in bank debt from the cash proceeds thereby de-leveraging about 11%. In addition from the cash received from the IPO, Navios Acquisition also acquired a 2010 Japanese VLCC vessel for a purchase price of $75.5 million.
When the vessel delivers into our fleet, we will add it to the collateral package of our senior secured notes, which will then release the cash collateral. The collateral package of the senior secured notes is also improved by $2 million with the addition of two VLCCs and six product tankers.
Slide 5 bridges Navios Acquisition free cash flow post the IPO. As you can see after the Navios Midstream Partners transaction, we will be increasing cash flow by $1 million annually.
The bottom left hand side of the shows that before the IPO we had four VLCCs generating $47.5 million of free cash flow. If you look on the right side of the chart, you will see that NNA free cash flow is expected to increase to $48.5 million after Navios Midstream Partners transaction, while $47.5 million cash flows were gone from the sale of the four VLCCs.
We will expect an $18.1 million expected dividend from Navios Midstream Partners on a 9-year base and save $19.1 million on capital NAP given the retiring of debt. We also expect to generate about $11.3 million of cash flow from the VLCCs being purchased from the sale across the VLCC from Navios Midstream Partners.
In addition, after repaying $132.3 million of bank debt and $75.5 million for the acquisition of the new VLCCs, Navios Acquisition will add about $7 million in cash to its balance sheet from the sales process of the VLCCs after the IPO. Slide 6 details the collateral substitution of the senior secured notes.
The four vessels of the Navios Midstream Partners were collateral to the $670 million senior secured notes. New vessels were instead placed as collateral, including one VLCC, 3 L1, 3 MR2s.
Our cash collateral will be released and exchanged with Nave Synergy VLCC following her delivery in December of 2014. The collateral project is now replaced with younger vessels that have an average age of 5.8 years.
Slide 7 details our chartering strategy designed to provide the company downside protection from market volatility through our peer charter coverage. 99.4% and almost 60% of our fleet is contracted out for 2014 and ‘15 respectively.
Profit sharing is standard to our chartering strategy and any market improvement is captured through our profit-sharing provision on 70% of our contracted fleet. As current charter rate show signs of improvement and movement over the 10-year average our chartering strategy also allows better re-chartering opportunities.
Side 8 showcase Navios Acquisition’s material growth. Our available days are expected to grow by 38% by the end of 2014 compared to 2013.
As you can see, our available days in fleet should continue to grow in double-digits in 2014 and 2015, so we will anticipate that in the current trade environment to also post a material increase in EBITDA during those years. Slide 9 represents our CapEx requirements and delivery schedule for our fleet as of today.
CapEx is fully funded. For the five vessels to be delivered, we expect to pay a total of $102.4 million.
Of this amount, almost $82 million is due in 2014 and $20.5 million is due in 2015 where we take delivery of the remaining four vessels. Slide 10 demonstrates our strong liquidity position.
We have total pro forma liquidity of $194.8 million at the end of the quarter, including $154.8 million in cash. We have more than sufficient cash on hand to fully fund the remaining balance of our new building commitment.
Also because of our bond refinancing late last year, we have no significant debt maturities until the fourth quarter of 2021. We expect our leverage ratios to continue to reduce naturally as we enjoy the cash flow benefits of our vessels on the water.
Slide 11 shows the cash flow from a low breakeven. 99.4% of our fleet is contracted for 2014 and we expect to have a contracted daily charter-out rate of $18,549 per day.
For 2015, 56.9% of our fleet is contracted out and we expect to earn an average contracted daily charter-out rate of $16,435 per day. Our average fully loaded cost is $16,471 per day in 2014, which reduces to $15,306 per day in 2015.
For 2014, the fixed portion of our revenue not only fully covers all – our rolling cost but generates about $16.2 million in surplus revenue. Moreover, for our spot exposure and days contracted on floating rate, we will earn about $600,000 in additional revenue per $1,000 of day rate.
As we know our daily operating cost includes dry docking, general and administrative expense, interest expense and capital repayment so it’s a fully loaded cost. And at this point, I would like to turn the call over to Mr.
Ted Petrone. Ted?
Ted Petrone - President
Thank you, Angeliki. Please turn to Slide 13, year-to-date we have taken delivery of 9 tankers, 6 VLCCs and 3 MR2s.
With these recent acquisitions our fleet in the water stands at 36 vessels. Navios Acquisition continues the Navios Group policy of locking in secured cash flow with credit worthy counterparties.
Since the beginning of 2014, we have chartered out 5 VLCCs for a total of 4.5 years of coverage, 7 product tankers for 6.1 years and 2 chemical tankers for a total of 2 years coverage. Please turn to Slide 14.
The sale of four VLCCs to Navios Maritime Midstream Partners, and the acquisition of a 2010 VLCC, Navios Acquisition diversified fleet consists of 41 vessels totaling 4.2 million deadweight. The fleet consists of 4 chemical tankers, 21 MR2 product tankers, 8 LR1 product tankers and 8 VLCCs.
All the fleet statistics exclude the vessels in the HSH agreement. Navios Acquisition currently has vessels on the water with an average age of 4.4 years.
Since January 1, 2013 our product tanker fleet in the water has grown by 155% to 27 and the total fleet on the water grew 100% at 36 vessels. 15 product tankers have delivered since the beginning of 2013, 4 MR2s are scheduled to deliver in 2015.
Turning to Slide 15, we have fixed about 99.4% of the capacity for this year and what is expected to be improved conditions we have fixed only 57% in 2015 and about 15% of revenue days for 2016. 70% of our contracted fleet has profit sharing.
The average daily charter-out rate for our fleet is $18,540 for 2014. The rates for 2015 and 2016 are $16,435 and $21,913 respectively.
Available fleet days will grow from 13,355 in 2014 to 14,493 in 2015 representing a 38% growth in available revenue days in 2014 and the 9% growth in 2015. Please turn to Slide 16, our chartering strategy revolves around capturing [Technical Difficulty] market opportunity, while also developing dependable cash flow from a diverse group of first class charterers.
As a result the average duration of our charters is about one year. We earned $2.3 million of profit sharing in the first 9 months of 2014.
This chartering strategy is intended to allow us to capture increased profits during strong market conditions, while developing relatively stable cash flows from longer term time charters. Please turn to Slide 17.
Slide 17 recaps our strong relationship with key participants in our industry. We continue to build a portfolio of quality counterparties, which provide vessels employment with a strong diversified consumer base.
One of the attributes we seek in our counterparties is a strong credit quality. Turning to Slide 18, Navios Acquisition enjoys vessel operating expenses significantly below the industry average.
Currently, Navios Acquisition’s daily OpEx is about 17% below the industry average. We achieved these operational savings through a management agreement with Navios Holdings.
The operating costs under this management agreement have been extended until May of 2016 at current levels, except for a 5% decrease in VLCC rates. Please note that the operating costs shown here include all dry docking costs.
Turning to Slide 20, according to the IEA, refinery capacity is expected to increase by 7.7 million barrels per day for the period of 2014 through 2019. About 80% of that capacity will be added in Asia and the Middle East with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 2.4 million barrels per day and 1.3 million barrels per day respectively.
New low cost capacity in Asia is forcing rationalization of high cost capacity in the OECD. Recent refinery closures in Europe and the Caribbean as well as closures due in Australia and Japan can be partly attributed to the age and the inefficiencies of these facilities.
Additionally, U.S. refinery capacity will increasingly serve export markets.
The cost of the structural shift in growth of ton miles of refined products is expected to continue to outpace the general demand for refined products in the long run. Turning to Slide 21, U.S.
crude production has increased by about 73% since the end of 2008 reaching 8.6 million barrels per day in July. Since U.S.
crude oil exports are prohibited by law and the U.S. has increased its total product exports by 330% to about 4.1 million barrels per day since 2004.
U.S. exports have exceeded imports consistently since 2011.
U.S. Gulf refineries which benefit from inexpensive domestic crude and natural gas supplies are finding a natural export market to neighboring Mexico and Latin America as well as Africa.
The U.S. product imports have declined over the past couple of years, but continue to come from further away adding to product tanker ton miles.
The fundamentals of product tanker trading patterns continue to adjust in relation to these changes. Turning to Slide 22, oil refineries vary greatly in the quantity, variety and specification of products that they produce.
As depicted in this slide, regional surpluses and deficits combined with relative low cost transportation drive arbitrage trade and increased product ton miles. As an example, requirements for gasoil in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle or eastward from the U.S.
Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East. Increasing worldwide products imbalances point to increased ton mile development.
This global, multi-directional trade pattern enables product tankers to triangulate, thereby minimizing balance time and maximizing revenue. Please turn to Slide 23.
In the product sector, demand for transportation expected to – expressed in terms of ton miles increased by about 77% in the period 2004 to 2013, equivalent to a CAGR of 6.5%. Projections indicate similar growth in 2014.
The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades. The bottom of the slide depicts existing product trade routes, as well as prospective trade routes versus the anticipated eastward shift to global refinery capacity.
Note that the product exports from the U.S., India and Saudi Arabia on the lower left are up significantly from 2009 levels driving ton mile increases. Please turn to Slide 24.
For Q3 2014 tanker non-deliveries equaled 28%, as 4.9 million deadweight deliveries out of a projected 6.8 deadweight. About 5.4% of the product tanker fleet is 20 years of age or older.
The order book totals 25.8 million deadweight tons or about 19% of the fleet, a level usually considered adequate for regular replacement of an existing fleet with little or no demand growth. High scrap prices should encourage further scrapping of older or single haul units.
Demolition prices appear to depend on overall steel prices and not the supply of vessels. Turning to Slide 26, the IMF projected global GDP growth for 2014 and 2015 at 3.3% and 3.8% led by emerging and developing markets growth of 4.4% in ‘14 and 5% in 2015.
The IEA projects global oil demand growth to rise by 0.7 million metrics tons to 92.4 million barrels per day in 2014 and 1.1 million barrels per day to 93.5 million barrels per day in 2015. This growth remains well below historic averages.
It is expected that all of the projected growth will come from all non-OECD countries. Turning to slide 27, China is the world’s second largest consumer of oil, importing more than half of its requirements.
Chinese imports have more than doubled since January of 2009. However, on a per capita basis European usage is 3.5 times that of China and U.S.
usage is 7.5 times. In October, China imported 5.7 million barrels per day of crude.
Current projections showed China’s crude oil imports will likely surpass the U.S. next year growing to about 14 million barrels per day by 2035 as the country continues the urbanization, industrialization and motorization of its economy.
As noted at the bottom of Slide 27 in terms of ton miles, the movement of crude from West Africa and South America to China uses about as many VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.9 times more oil to China. The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil, West Africa as it diversifies its sources of oil more than offsetting any declines in U.S.
imports. In addition, Indian companies have recently secured crude oil from Brazil to replace existing Iranian supplies, increasing VLCC ton mile demand.
With demand for oil increasing only marginally on an annual basis, distance has been a key driver on tanker demand. Please turn to Slide 28 through Q3 of 2014 non-deliveries equaled 39%, that’s 5.1 million metric tons delivered and have rejected 8.4 million deadweight tons.
Net fleet growth continues to slow dramatically due to the continued elevated scrapping and non-delivery levels. The high price of steel combined with high level fuel prices led to continued high scrapping and removals.
Through end October, 11 vessels of about 3.25 million deadweight have been scrapped. Please turn to Slide 29.
Since 1991 increases in world GDP growth year-on-year have generally led to rises in one year VLCC time charter rates. According to the IMF, the world GDP growth is expected to be higher in ‘14 than it was in ‘13, which if past patterns continue, would lead to improved VLCC rates.
In conclusion, world crude oil and refined product consumption has generally grown for 30 years with declines in ‘08 and ‘09 due to the global financial crisis. Starting in 2010, world crude oil and refined product consumption returned to this pattern of growth.
The main drivers are increasing demand for the Asian economies, particularly China as well as the increase of refined capacity in the broader Asia and Middle East regions. Going forward, we see this trend continuing.
Thank you. I would like to now turn the call over to Leonidas Korres for the Q3 financial results.
Leo?
Leonidas Korres - Chief Financial Officer
Thank you, Ted. I will discuss the financial results for the third quarter and the nine months period ended September 30, 2014.
As shown in Slide 31, our operating metrics for the third quarter of 2014 have improved compared to the same period in 2013 mainly due to the 31% increase in the number of available days of our fleet from 2,646 to 3,476 days. In order to make the comparison with the prior period more meaningful, we have adjusted EBITDA and net income for the $1.5 million non-cash stock-based compensation expenses.
Revenue for Q3 2014 increased by approximately 30% to $69.3 million from $53.4 million in Q3 2013. We enjoyed almost a 100% fleet utilization and an increased time charter equivalent of $19,327 per day compare that with $18,835 per day time charter equivalent in Q3 2013.
Operating and voyage-related expenses were $27.3 million and G&A expenses were $3.9 million. We continue to demonstrate significant EBITDA growth in this quarter.
Adjusted EBITDA for Q3 2014 increased by 35.8% to $39.7 million from $29.2 million in the same period of 2013. Other expenses include depreciation and amortization of $17.8 million and interest expense and finance cost of $18.5 million, resulting to an adjusted net income of $3.1 million or $0.02 per share, increased by $4.8 million compared to the adjusted net loss of $1.7 million in Q3 2013.
Turning to the financial results for the nine-month period ended September 30, 2014, EBITDA and net income have been adjusted for the following items: $11.6 million impairment loss and loss related to the sale of the VLCC Shinyo Splendor, $2.2 million loss related to a claim from a defaulted charter, and $4.4 million stock-based compensation expenses. Revenue increased by 33.1% to $192.5 million from $144.6 million last year, reflecting a time charter equivalent of $19,060 per day and 99.8% fleet utilization.
Operating and voyage-related expenses were $75.5 million and G&A expenses were $11.2 million. Adjusted EBITDA for the first half of 2014 increased by 27.7% to $110.5 million from $86.5 million in 2013.
Depreciation and amortization was $51.4 million and net interest expense and finance cost was $53.8 million. Adjusted net income for the nine months improved by $5.1 million from an adjusted net growth of $0.9 million in 2013 to an adjusted net income of $4.2 million in 2014.
Slide 32 provides selected balance sheet data as of September 30, 2014. Cash and cash equivalents including restricted cash were $72.3 million.
Vessels net of depreciation increased $1.6 billion reflecting the increased number of vessels in our fleet. Vessel deposits of $57.5 million represent deposits in capitalized cost for vessels to be delivered.
Total assets amounted to $1.8 billion. Total debt as of September 30, 2014 was $1.28 billion resulting to a net debt-to-book capitalization ratio of 69%.
Pro forma for the $132.3 million of bank debt repaid and the net cash received of $82.5 million following the recent IPO of Navios Maritime Midstream Partners net debt to book capitalization ratio has reduced by 11% to 61.4%. As of September 30, 2014, Navios Acquisition was in compliance with all of the covenants of its credit facilities and ship mortgage notes.
Turning to Slide 33, our financial strength has enabled us to announce a dividend of $0.05 per share for the third quarter equivalent to $0.20 per share on an annualized basis. Based on last night’s closing price, our dividend provides an annual yield of 7.8%.
The dividend will be paid on January 6, 2015 to shareholders on record as of December 17, 2014. At this point, I would like to point out that given our 57.5% ownership we expect to receive on an annual basis minimum $18.1 million of dividends from NAP other distribution of $1.65 per unit.
Please turn to Slide 34. Navios Acquisition has a prudent financial strategy.
Approximately half of our debt is non-amortizing, which provides significant cash flow visibility. Our senior notes mature at the end of 2021 and we have no debt maturities on our bank debt until 2016.
Overall, our financial structure provides lenders additional comfort relating to the stability of our balance sheet. Our liquidity position is strong.
Our CapEx is fully funded. And we have significant cash flow visibility since 99.4% of our available days are contracted in 2014 and 56.9% in 2015.
Given that 70% of our contracts are profit sharing, we are well positioned to capture the upside of the improving tanker market. Moreover, the recent IPO of Navios Maritime Midstream Partners provides a platform to increase liquidity and grow through the dropdown of vessels at favorable prices into the MLP.
And now, I will pass the call back to Angeliki. Angeliki?
Angeliki Frangou - Chairman and Chief Executive Officer
Thank you, Leo. This completes the formal presentation.
We open the call to questions.
Operator
[Operator Instructions] Your first question comes from the line of Chris Wetherbee of Citi.
Prashant Rao-Citi
Good morning, guys. This is Prashant in for Chris.
Hi, guys. My first question, congratulations on the quarter and with regards to Navios Midstream, you talked about the acquisition opportunities last quarter between the products in the VLCC side.
I was wondering does that change your outlook in terms of your acquisition appetite, especially just sort of puts and takes given the recent commodity volatility we have had, what valuations for VLCC acquisitions are looking like, how you guys are thinking about that and how you are thinking going forward in terms of your acquisition appetite between the product and the crude side?
Angeliki Frangou
Actually, we like very much the VLCC sector. The volatility we are talking about we saw a 25% drop really on the value of the commodity on the oil.
We are not value-driven we are volume-driven and you have seen that the VL has had a very nice run-rate, very healthy because at the end of the story, cheaper commodity provides more transportation and we have seen that events like even what the sellers are saying that they will sell more oil to the West and the United States creates more ton mile demand. So, we like the sector, we like the VL and we see also this very positive overall for the VL sector.
Also we can say that the product tankers are going very well and we are – and our portfolio is nicely run on both the product and the VL. But the VL also has a very nice traffic which was having less than 1.5% net growth with ton mile demand of 2.5%, so you are sitting in a very nice position and we like the sector.
Prashant Rao-Citi
Great. And then in terms of spot rates, again sort of with the backdrop of commodities, since the close of the quarter are you seeing any stabilization there and sort of how are we looking in terms of the projected turnaround going into 2015 that I was looking at through the slides?
Angeliki Frangou
Actually and I will let Ted Petrone. I will give you my short answer is rates are healthy, we are sure hitting almost 50,000 there now around 40,000 the DP3 are in the way we have our adapted index is about 10,000 above that.
And we see this level remaining and even becoming stronger as we go to the Q1.
Ted Petrone
Yes. I think Angeliki is right, I think just look at the deliveries and net fleet growth versus the ton mile growth as Angeliki said we are being volume driven here.
Things continue to move. Just look at the numbers, the numbers tell it all.
So far Q4 you are averaging around 31,000 for the one year time charters, similar numbers for the GD3 and last year those numbers were under 20 averaging. So the numbers are starting to show the fundamental values going forward.
And usually Q1 is a stronger quarter than the others, so everything looks favorable right now out of these.
Prashant Rao-Citi
Great. And just one last question and then I will turn it over.
The $18.1 million coming in from dividend income from Midstream, how should we think about that in terms of possible dividend increases or other return of capital to shareholders for acquisition?
Angeliki Frangou
I think with a more general question where you see Navios NNA, if you see it where it trade versus real volumes of our vessels and the cash flows you can say that we can – we have to think creatively how we can provide value to our shareholders. One way may be really you will always review acquisitions in the open market or buying your own shares and this is may be another way to provide shareholder value.
Prashant Rao-Citi
Okay, great. Thanks guys.
I appreciate it.
Operator
Your next question comes from the line of Ben Nolan of Stifel.
Steven Tittsworth-Stifel
Hi, thank you for taking my call. This is Steven Tittsworth on for Ben Nolan.
Just had a couple of questions, first one given the strength in tanker rates that you are seeing in terms of rates and its overall demand, are you looking at stretching the duration of your contracts or charter is now or do you want to keep them short-term in length?
Angeliki Frangou
We see that portfolio, to be honest we are at all times we are in talks and what we find is that the long-term charter needs to reviewed where it is and far more closely that you really are interested of restructuring the profit sharing. This is something we look actively.
And this is something that we find it will provide us nice portfolio with durations that can be attractive also as the drop down candidate.
Steven Tittsworth-Stifel
Okay, perfect. And my last question was given the recent VLCC acquisition you made, are there any special circumstances surrounding that deal?
Angeliki Frangou
Active seller, there is an active second hand market. In reality the response where you buy – its better to buy 4 vessels together, the response in the market that’s being in for a single vessel buyer is the best buy.
And in this market I think being needful and going for single vessel makes far more sense than trying to do a big acquisition.
Steven Tittsworth-Stifel
Okay, perfect. Thank you for your time.
Angeliki Frangou
Thank you.
Operator
Your next question comes from the line of Amit Mehrotra of Deutsche Bank.
Amit Mehrotra-Deutsche Bank
Yes. Thank you very much.
Good morning everybody. First question is around the creation of Midstream Partners, more to do with the timing of the transaction, clearly the public market appetite was weaker, but you still decided to go ahead with it.
Obviously, I am sure you thought a lot about the timing of the transaction, but I am just trying to get some understanding and how you thought about balancing the value that you are getting for the new entity versus maybe the necessity to go forward with this transaction?
Angeliki Frangou
It’s always, they may happen this location from where we launched to where we dry, it was a very different environment for our peer group. So you always have – you and your vendor you always have the risk of where the market is.
Let’s not forget that for NNA, we thought that the premium to the fair market value, to the book values and at the end of the story. So above let’s say I mean you are trading below NAP, so you are selling above NAP it makes sense as a trade.
Reality is don’t forget, this is a platform and we like to grow NAP and that will be a valuable company and it’s in a long run. Let’s not forget that we are only showing about 40% of the value of our vessels and we still own 60% and this is a long-term run.
We see that VL as an attractive asset, if you have long-term charter provide so that VL, MLP platform makes sense and creates the best values on the long-term debt.
Amit Mehrotra-Deutsche Bank
Okay, okay. And just a couple more here, with respect to that chartering strategy at the Acquisition Corp level your spot exposure for ‘16 should translate I would think to some nice incremental earnings potential if the market continues to trend as it has, what’s your thinking on sort of the coverage for ‘16 as we look out maybe over the next 12 months, will you guys continue to increase coverage so that by the end of ‘15 you will have pretty much the majority of ‘16 locked in or would you wait a little bit longer than usual to capture some of the upside potential?
Angeliki Frangou
But if you have seen the strategy we do is a lot of index plus premium. So we are now able – so of floating rate, so you are fixed, you don’t have market risk or credit risk but you are able to capture the upside of the market, so you may see us fix, but we are not fixed on floating rate.
So I think that gives us a very good indication and we already have started that strategy for some period. And on the vessels we have a fixed rate.
We have 70% of our vessels have profit sharing. And this quarter we will generate more than we did on profit sharing on the entire 9 months of the company and it’s trending upwards.
Amit Mehrotra-Deutsche Bank
Yes, okay, that’s helpful. And then just the last question, I wanted to follow-up on the comment that you made with respect to a potential buyback to maybe close the dislocation or the perceived dislocation, I mean is this something that you are actively discussing and will come to a conclusion in the near future, I am just trying to get a understanding of what the real potential of a buyback is and whether the market or investors will get any clarity on sort of in the near-term what conclusion you come to as you do the analysis for buyback or a potential buyback.
Angeliki Frangou
I think that we are very transparent and very clear when we get a message as part of the year end and realizing where this location in the market is and where the difference between the fiscal earnings of the company and perception in the market exists. And as we see our 2015 earning capacity, we will articulate a message to the market.
Amit Mehrotra-Deutsche Bank
Okay thanks guys. Thank you very much.
Angeliki Frangou
Thank you.
Operator
Your final question comes from the line of Herman Hildan of RS Platou Markets.
Herman Hildan-RS Platou Markets
Good afternoon. My first question is on Midstream Partners, could you give some color on what motivation behind that IPO was, was it due to kind of arbitrage between the MLP structure and your term structure or was it driven by improving cash flows?
Angeliki Frangou
In the United States there is a clear appetite for dividend or yield investors and there is a difference between the valuation of dividend growth company and an MLP, that is a motivation and that’s not – it’s not a consideration on fuel charges. We have the ability to do that and we know how to structure this with profit sharings and we have this kind of dedication that’s actual.
This is a best way we can provide and unlock value back to our investors in NNA.
Herman Hildan-RS Platou Markets
So kind of with Midstream Partners in place does that increasingly mean that you are not necessarily going to raise dividends in NNA or how should we think about that in terms of the improved markets from them just going forward?
Angeliki Frangou
We are aligned with our shareholders and we will make sure to provide the maximum returns. They consolidated them to that.
Herman Hildan-RS Platou Markets
And also on your comments on the call your liking for the VLCC space, also Suezmax and Aframax have been doing pretty well recently, is there any particular reason why you have chosen not to add as mentioned in that space?
Angeliki Frangou
Listen, we like the VL goes very, very straightforward directionally and it provides economies of scale. We are not Suezmaxes as attractive within it just happened that we had a clear concentration on the VL made much more, easier directional trade, this is not something we exclude.
Herman Hildan-RS Platou Markets
Okay, that’s all from me. Thank you very much.
Angeliki Frangou
Thank you.
Operator
Your next question comes from the line of Spiro Dounis of UBS.
Spiro Dounis-UBS
Hey, good morning, everyone. Thanks for taking my question.
I just had two quick ones. I was just wondering if you could walk us through your methodology on how to value future dropdowns that is accretive to both parties.
Obviously, these VLCCs went down at a pretty good price something above NAV. Just wondering how we should think about that going forward and I realize that’s heavily dependent on market at the time and where the stocks are trading?
Angeliki Frangou
I think this is you stated very correctly, don’t forget you have two independent boards and this is done by the independent board and it is based really to be accretive on the NNA side on the sponsor and we at the same time have to be accretive on cash flows and durations and dividends on their MLP. So, it has to work both ways and it does depend on market whereby market exactly on where it makes sense for the dropdowns, don’t forget as a management we have good experience on that and we can be careful about making sure that don’t forget multiple sometimes is only 1 year cash flow.
You have to see duration. So, for the MLP, it has to have a nice duration of cash flows and the sponsor has to make sense to do that.
Spiro Dounis-UBS
Got it. No, that makes sense.
And then just given your renewed growth structure now the vehicle that you can use to dropdown and then finance new growth, just wondering from the debt side of things just in light of the asset quality review results, just wondering how that’s gong to factor into financing growth from the debt side, the discussions you have had with counterparts just I guess what the appetite is for new debt finance to fleet going forward?
Angeliki Frangou
I think because we have low leverage overall and we have been very careful through the cycle Navios has a great access of – in the debt markets. I think we will see that a lot of banks liked this part of our section and as you become you create largest amounts of debt than you can be more than used capital markets term loan be also bonds.
Spiro Dounis-UBS
Perfect. That’s it from me.
Thank you.
Angeliki Frangou
Thank you.
Operator
At this time, there are no further questions. I will now return the call to Angeliki Frangou for any additional or closing remarks.
Angeliki Frangou - Chairman and Chief Executive Officer
This completes – thank you, this completes our Q3 results. Thank you.
Operator
Thank you for participating in today’s conference call. You may now disconnect.