May 13, 2015
Executives
Angeliki Frangou - Chairman and CEO Leonidas Korres - CFO Ted Petrone - President, Director
Analysts
Amit Mehrotra - Deutsche Bank Ben Nolan - Stifel Chris Wetherbee - Citi Spiro Dounis - UBS Securities Donald - Wells Fargo
Operator
Thank you for joining us for this morning's Navios Maritime Acquisition Corporation First Quarter 2015 Earnings Conference Call. With us today from company are Chairman and CEO, Ms.
Angeliki Frangou, Vice Chairman, Mr. Ted Petrone and Chief Financial Officer, Mr.
Leonidas Korres. As a reminder, this conference call is also being webcast.
To access the webcast, please visit the Investors section of Navios Acquisition's website at www.navios-acquisition.com. Also on the website, under the Investors section, you will see a corresponding presentation that we will reference throughout this conference call.
I would now like to read the Safe Harbor statement. This conference call contains 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 I would like to outline the agenda for today's call.
First, Ms. Frangou will offer opening remarks.
Then Mr. Petrone will explain the operational update and industry overview.
Next, Mr. Korres will review Navios Acquisition's financial results and finally we will open the call to take questions.
Now, I would like to turn the call over to Navios Acquisition's Chairman and CEO, Ms. Angeliki Frangou.
Angeliki?
Angeliki Frangou
Thank you, Laura and good morning to all of you joining us on today's call. I am pleased with our results for the first quarter of 2015.
This has been our best quarter on record. We grew revenue by 29% and EBITDA by approximately 50%.
We also generated $20 million on net income, certainly more than we had generated in any prior full fiscal year. We declared a quarterly dividend of $0.05 per share for the quarter resulting in a dividend yield of about 5.5%.
We're proud to note that we have consistently paid the dividend since inception aggregating to $0.90 per share. As we have noted in the past, we view the dynamic decline in the price of oil as positive for oil consumption and oil transportation.
Indeed the spot rate for our VLCC improved about 90% this year from an average rate of around $27,000 in 2014 to an average of approximately $51,000 for 2015 year-to-date. Capital was increased for Europe and elsewhere.
We would expect the oil transportation business to continue to be solid for the foreseeable future. Turning to Slide 2, we have been building scale for about five years.
In 2013 and nearly 2014 we reentered the VLCC market and acquired six vessels. Subsequently in November of 2014, we launched Navios Midstream Partners and Midstream MLP with four VLCCs.
After the previous NAP is trading above 17% higher than in Asian price while having declared total distribution of $0.61 per unit. The total is then for an intentional purchase NAP only six months ago and exceeded 20%.
Slide 3 highlights that we've created several low value. We transformed NNA into a leading package company with a 39 vessel fleet.
Based on the first quarter EBITDA, we have the potential to generate $212.8 million in full year EBITDA for 2015. NNA also generates value for its shareholders towards 57.5% interest in NAP which is worth about $193 million or $1.27 per share.
Navios Midstream brings NNA flexibility and liquidity while providing a new platform in the work sector for dividend seeking investors. From our perspective, Navios Midstream is a natural home for sharing of our assets that we developed to provide a drastic long-term returns.
Slide 4 presents our company highlights. NNA's assets derives modern vessels with an average age of 4.6 years.
Our entire fleet is the water and almost 19% of our available base accounts for 2015 and above 32% covers for 2016. Our goal is to protect the downside by focusing on monitoring risk and allow the upside to take care of itself and NNA balance sheet and income statement are merged through a chartering strategy that balances risk management and market opportunity.
We have discipline in our operating cost. We benefit from the economies of scale of the Navios Group and our OpEx is 18% less than industry average it has been fixed through mid 2016.
We were well positioned to capture rate upside as we have profit sharing in almost 50% of our remaining nine months of 2015 and almost 25% of the remaining base are open or fleets on floating rate. Slide 5 highlights the key development during the first quarter.
NNA has enabled that run rate of $212.8 million for 2015 based on the company's EBITDA during Q1 of 2015. NNA is well positioned for a strong cash flow generation in 2015 with almost 90% of our available fleet and about 2,600 base open on a floating rate.
We had $7.7 million in profit sharing in the first quarter of 2015 and $6.7 million in profit sharing during the entire 2014. Navios Midstream is expected to pay $15.7 million in dividends in 2015, but on a run rate basis, this is actually more than $18 million.
We continue to have access to this from the owners as evident by the second transaction we recently announced with age bonds. We expect to acquire 14 vessels with a novel age of four years old at more favorable economics than the first transaction.
Slide 6 showcases NNA continued growth. Our available days grew by 37% in 2014 compared to 2013 and we'll have a further growth of another 7% in 2015.
As you can see, available days and fleet have posted solid growth over the year. We're positioned for a strong EBITDA growth going forward and as mentioned nearly a net income of $20 million generated in the first quarter of 2015 has been hired from the entire 2014 financial year.
Slide 7 details our chartering strategy. We've balanced market opportunities with long-term employment.
This strategy is designed to provide protection from market volatility through previous charter covers, 90% and 32% of our fleet is contracted out for 2015 and 2016 respectively. Our VLCCs on floating range and about $56,000 on Navios for the first quarter of 2015, while we earned a total of $7.7 million in profit sharing on our entire fleet during the first quarter of 2015.
Ending market improvement will be capture through one of the three mechanisms; open days, days fixed on floating rate and days with base rate and profit sharing. Slide eight demonstrates our strong liquidated position.
We have total liquidity $103.3 million at the end of the first quarter 2015, including $63.3 million in cash. We have no significant debt maturities until fourth quarter of 2021.
We expect that amortization to continue to reduce naturally as we enjoy the cash flow benefits from our vessels. Slide nine shows our cash flow cushion from our low breakeven.
88.2% of our fleet is contracted for 2015. We expect to earn an average contracted daily charter-out rate of $18,381.
For 2016, 51.6% of our relevant fleet base is contracted and we expect to earn an average contracted daily charter-out rate of $18,522. Our average fully loaded cost is $15,878 per day for 2015, which reduces to $15,293 per day in 2016.
As you know, our daily operating cost includes drydocking, general and administrative expenses, interest expense and capital repayment. As you can see from the free cash flow sensitivity table with excess cash over cost of $10.5 million and $2,605 days opened or fixed on floating rates and an they could earn in the rate of $85 million to a $112 million is free cash based on different rate assumptions.
And at this point, I would like to turn the call over to Mr. Ted Petrone.
Ted?
Ted Petrone
Thank you, Angeliki. Please turn to Slide 11.
Since January 2014, we took delivery of nine tankers, six VLCCs and five MR2s. With these recent acquisitions, our fleet under water stands at 39 vessels.
Navios acquisition continues the Navios Group policy of locking in secure cash flow with creditworthy counterparties. 2014, we chartered out our VLCCs for total of eight years of coverage, our product tankers for 17.5 years and our chemical tankers for a total of two years of coverage.
So upon 2015, we’ve chartered our VLCCs for two additional years of coverage and our product tankers for additional years for coverage. Please turn to Slide 12.
Navios acquisition diversified fleet consists of 39 vessels totaling $4.1 million deadweight. The fleet consists of eight VLCCs, 19 MR2 product tankers, eight LR1 product tankers and four chemical tankers.
Navios acquisition currently has vessels on the water with an average age of 4.6 years. Since the beginning of 2013 our product tanker fleet in the water has grown a 140% from 12 to 29 and the total fleet in the water grew 105% to 39 vessels.
17 product tankers have delivered since the beginning of 2013. Turning to Slide 14, we have fixed about 88% of our capacity for 2015 in what should be improved conditions.
We have fixed just 31.6% in 2016 and about 10% of revenue days for 2017. About 50% of our contracted fleet has profit sharing in 2015.
The average contracted daily charter out rate for our fleet is $18,381 for 2015. The rates for 2016 and 2017 are $18,522 and $19,525, respectively.
Available fleet days will grow from $14,185 in 2015 to $14,274 in 2016. Please turn to Slide 14.
We have gained market exposures for our VLCCs by charting vessels on index point or two underlying spaces. By doing so we not only secured quality, credit counterparties, but also high fleet utilization and continued exposure to the spot rate environment.
During the first quarter, four of our VLCCs on floating rates are in about $56,000 a day, about $5,000 per day more than the market average for this period. Average of VLCC earnings for Q2 continue at healthy levels averaging above $50,000 a day, which allows us to generate healthy cash flow for 1,100 VLCC opened or floating rate days.
Creating stable cash flows through long-term charters remains our core strategy and we’ll rebalance charters to include longer term contracts in appropriate time. Please turn to Slide 15.
For a 15 build deeper into our chartering strategy for our product tankers, we’ve retained upside potential through profit sharing arrangements on majority of our available days. Profit sharing earned us $6.6 million in Q1 as displayed in the chart on the bottom left.
In fact, the average daily charter out rate in Q1 for our LR1s was about $19,000 and $17,000 for our MR2s with profit sharing. The uptick in product tanker rates that begin during Q4 of 2014 should create better re-chartering opportunities for our fleet.
Please turn to Slide 16. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from the diverse group for the first class charters.
As a result, the average duration of all charters is about one year. During the continuing strong market for our vessels, we earned $7.7 million of profit sharing in Q1 of this year.
In comparison, we earned $6.7 million of profit sharing in all of 2014. Please turn to Slide 17.
We have strategic relationships with participants in the industry and a strong vetting track record with major oil companies. Good management is integral in the long-term success and is therefore a fundamental part of our business plan.
NNA, as a part of the Navios Group provides world-class ship management services that meet safety, environmental and customer requirements. The attributes we seek in our counterparties are strong credit quality and the ability to conclude long-term contracts.
I note that these charters are only available to those owners that have been thoroughly vetted. Turn to Slide 18.
Navios Acquisition enjoys operating expenses significantly below the industry average. Currently, Navios Acquisition’s daily OpEx is about 18% below the industry average.
We achieve these operational savings through our management agreement with Navios Holdings. The operating costs under the management agreement are in force until May of 2016.
Please note that the operating cost shown here include all dry-docking costs. Please turn to Slide 20.
During the fourth quarter of 2014, we launched Navios Midstream Partners, a midstream MLP with four VLCCs. Navios Midstream brings Navios Acquisition flexibility and liquidity while providing a new platform in the West sector for dividend seeking investors.
Navios Acquisition owns 57.5% of Navios Midstream Partners including the 2% GP interest with a market value of approximately $185 million as of two days closing price. Please turn to Slide 21.
Navios Midstream Partners fleet is fixed under average charter duration of 7.3 years providing approximately $0.5 million in long-term revenue top Tier counterparties. In Q1, which is the first full quarter of performance for Navios Midstream Partners after its IPO, Navios Midstream earned $12.6 of EBITDA including $1 million in profit sharing.
Navios Midstream Partners declared a cash dividend of $0.4125 per unit, providing NNA with approximately $18 million in annualized distributions. Turning to Slide 23.
According to the IEA, refinery capacity is expected to increase by 6.4 million barrels a day for the period 2015 through 2020. About 70% 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 1.5 million barrels and 1.2 million respectively.
New low-cost capacity in Asia is forcing rationalization of old high-cost capacity in the OECD. Recent refinery closings in Europe and the Caribbean as well as closures due in Australia and Japan can be probably attributed to the age and inefficiencies of these facilities.
Because of this structural shift, the growth of ton miles in refined oil products is expected to continue to outpace the general demand for refined oil products in the long run. Please turn to Slide 24.
As expected, refineries have opened or expanded in Saudi Arabia and India. These refineries have ramped up production and are now contributing significant volumes of product export.
These volumes are another reason that we have seen particularly strong LR1 and MR2 rate in the Pacific so far this year. Turning to Slide 25.
U.S. crude production has increased by 85% since the end of 2008, reaching 9.2 million barrels a day in February.
Since U.S. crude exports are prohibited by law, the U.S.
has increased its total product exports by 360% to over 4.2 million barrels per days in 2004. 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. 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 26. Oil refineries vary greatly in their quantity, variety and specifications of products that they produce.
As depicted in this slide, regional surpluses and deficits combined with relative low-cost transportation drive arbitrage trades and increase product ton miles, increasing world-wide products in balances point to increased ton mile development. This global multidirectional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue.
Please turn Slide 27. In the product sector, demand for transportation expressed in terms of ton miles increased by about 79% in the period 2004 to 2014, equivalent to a CAGR of 6.5%.
Projections indicate similar growth in 2015. The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades.
The map at the bottom of the slide depicts existing product tanker trade routes as well as prospective routes based on the anticipated eastward shift in global refinery capacity. Please turn Slide 28.
In 2014, tanker non-deliveries equaled 35% at 6.4 million deadweight delivered out of a projected 9.8 million deadweight. Through the first quarter of 2015, we saw a surprising 61% non-deliveries a year which when combined with a 0.5 million deadweight scrapped rose to 1.4 million deadweight or only 1% net fleet growth demand.
About 5% of the product tanker fleet is 20 years of age or older. As of the end of Q1 of this year, the order book totaled $24.5 million deadweight or about 18% of the fleet.
And while we usually considered adequate for regular replacement of existing fleet with little or no demand growth. The order book declined after this year as only $13.9 million deadweight is due after 2015.
High scrap prices should encourage further scrapping of older or single haul units. Demolition products are attributed to depend on overall steel prices and not the supply of vessels.
Please turn to Slide 30. IMF projects global GDP growth for 2015 and 2016 of 3.5% and 3.8% respectively, led by emerging and developing markets growth of 4.3% in 2015 and 4.7% in 2016.
Increases in world GDP growth year-on-year has generally led to higher time generates of VLCC that we're seeing since the middle of last year. The IAS broadcast in global demand for 2015 has been raised in April by 90,000 barrels a day to 93.6 million barrels a day, a gain of 1.1 million in barrels a day on the year.
The notable acceleration of 2014's 0.7 million barrels a day growth follows a steadily improving global economic backdrop. Please turn to Slide 31.
According to the [plan] [ph] oil consumers and importers will benefit from the recent drop in oil prices. The top five crude oil importers are expected to get a GDP increase as a result of lower oil prices.
This could move global output by 0.5% to 1% higher by 2016 and it's one of the reasons that the IAA recently raised its oil consumption estimates for this year. Lower oil prices and increased consumption has been beneficial for VLCC peer rates as you can see in the lower graph.
Please turn to Slide 32. Refinery expansion in both the Asia Pacific and Middle East regions is the key driver to VLCC demand.
As the Middle East refines more crude and they expand refinery network, there will be less food available for exports. As a result of the refineries being built in the Far East they have to source food to follow it.
As noted in the bottom half of Slide 32 in terms of ton miles, the movement of crude from West Africa to South America to China uses as about as many VLCCs as the movement from the Arabian Gulf even through the Arabian Gulf has shipped 1.9 times more oil to China. The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa, as it diversifies its sources of oil more than offsetting any decline in U.S.
imports. Please turn to Slide 33.
China is the world's second largest consumer of oil, importing more than half of its requirement. Chinese imports have more than doubled since January of 2009, representing a 15% CAGR.
Crude imports reached a record 7.4 million barrels a day in April, surpassing U.S. imports for the first time.
Additional refinery opening this year will add about 400,000 barrels a day in crude demand. As you can see in the upper right and the table below, on a per capita basis, U.S.
oil usage is 7.5 times that of China. European usage is 3.5 times that and world usage is 1.6 times that of China.
If China grows to world per capita consumption levels, China would require an additional 300 VLCCs, assuming all crude is imported by sea. This represents an expansion of the existing fleet by about 50%.
Please turn to Slide 34. When there is Contango in oil prices, that is oil prices being higher than the current price and land storage is limited, traders have in the past made money by chartering vessels for floating storage.
This has the added benefit for ship owners of reducing vessel supply and has raised time charter rates. In the 2008 to 2010 period, many VLCCs were chartered for floating storage reaching 8% of the fleet at one point.
8% of today's fleet would equate to approximately 50 VLCCs. The lower graph spotlights the additional crude demand that is likely to come as the Chinese complete 100 million barrels as part of the second phase of the strategic petroleum reserve.
New refinery climates additionally requires acquiring by existing refineries and the SPR fills should be met by shipments on VLCCs to the economies of scale. Current projections show China's crude oil imports will grow to about 13 million barrels a day by 2035 as the country continues the urbanization, industrialization and motorization of its economy.
Please turn to Slide 35. In 2014, VLCC non-deliveries equaled 25%, at 7.6 million deadweight delivered out of a projected 10.2 million deadweight.
Net fleet growth in 2014 equaled 2.3% and continued to slow dramatically due to the continued elevated scrapping and non-delivery levels. The higher price of steel led to continued scrapping and renewals.
In 2014, 12 vessels of about 3.3 million deadweight were removed from the fleet. Two more non-deliveries were 48%; 1 million deadweight delivered against an expected 1.8 million deadweight and scrapping amounted to 0.5 million deadweight, which led to the modest fleet growth of 0.4% so far this year.
Please turn to Slide 36. World crude oil consumption has generally grown for 30 years with declines in '08 and '09 due to the global financial crisis.
2010, world crude oil and refined product consumption returned to this pattern of growth. The main structural drivers going forward are minimal net VLCCs fleet growth for 2015 through '17, increasing demand from the Asian economies, particularly China as well as the boost to the U.S.
and Euro zone GDP growth that comes from declining energy prices. Turning to Slide 37; as you can see on the left hand graph longer term time charter rates have increased dramatically since the middle of last year standing at $41,000 a day as of the end of last week above the 10-year average.
As global demand for energy continues to grow, major oil companies and power producers should seek to secure more vessels on long-term charters. Where there always be seasonality, higher rates are projected going forward.
Please note on the right hand graph, there were 30 fixtures of longer term time charter rates through mid May which is equal to the entire number of long-term charters fixed over the last year. This year's deals have easily surpassed number of long-term deals done in 2011, '12 and '13.
Thank you. This concludes my review and I would now like to turn the call over to Leonidas Korres for the Q1 financial results.
Leo?
Leonidas Korres
Thank you, Ted. Now we'll discuss the financial results for the first quarter of 2016.
As shown on Slide 39, our operating metrics for the first quarter of 2015 have significantly improved compared to the same period in 2014. We were able to benefit from the strong tanker market through our VLCCs that are fixed on floating rate and the profit sharing on the majority of oil charters.
Furthermore, the available days of oil fleet increased by 12% from 3,079 days to 3,458 with fall of vessels continuing to our results for the first time since we started operations. Revenue for Q1 2015, increased by 29% to $78.6 million from $61 million in Q1 2014.
We enjoyed almost 100% fleet utilization and an increased time charter equivalent of $22,521 per day compared with $19,544 per day time charter equivalent in Q1 2014. Operating and voyage related expenses were $25.2 million and G&A expenses were $3.2 million.
We continue to demonstrate significant EBITDA growth. EBITDA for Q1 2015 increased to 53.2% from $21.6 million in the same period of 2014.
Other expenses include depreciation and amortization of $15.2 million and interest expense and finance cost of $18.2 million. Net income improved by $32.8 million from a net loss of $12.8 million in the first quarter of 2014 to a net profit of $20 million or $0.13 per share in the first quarter of 2015.
I would like to remind you that EBITDA and net income in Q1 of 2014 had been negatively affected by the $10.7 million impairment loss related to the sale VLCCs singular plant and the $2.2 million loss related to a default charter. As you can see on the graph at the bottom on slide, should we commence operation in 2010, we have grown our operating metrics significantly reflecting the growth of our fleet.
Slide 40 provides selected balance sheet data of March 31, 2015. Cash and cash equivalents including restricted cash were $63.3 million.
Vessels, net of depreciation increased $1.4 billion reflected addition of two vessels in our fleet. Investment in affiliates was $153.1 million mainly reflects Navios Acquisition subordinated sales in deep interest in Navios Midstream Partners accounted for under the equity method.
Total assets amounted to $1.7 billion. Total debt as of March 31, 2014 was $1.16 billion resulting in a net debt to book capitalization ratio of 66%.
With all our vessels in the water and no remaining CapEx since all acquired vessels have now delivered, we expect the company to deleverage going forward through the repayment of expected credit facilities and the strong cash flow generation. As of March 31, 2014, Navios Acquisition was in compliance with all of the covenants of its credit facilities and the ship mortgage notes.
Turning to Slide 41, our financial strength has enabled us to announce a dividend of $0.05 per share for another quarter, equivalent to $0.20 per share on an annualized basis providing a yield of above 5.5%. The dividend will be paid on July 2, 2015, to shareholders on record as of 18, 2015.
At this point, I would like to highlight that given our 57.5% ownership in Navios Midstream Partners, we expect to receive on an annual basis a minimum of $18.1 million in dividends from Navios Midstream Partners at the distribution of $1.65 per unit. Please turn to Slide 42.
Navios Acquisition has a prudent financial strategy. Approximately half of our debt is non-amortizing and expiring at the end of 2021, providing significant cash flow flexibility.
Overall, our financial structure provides lenders additional comfort relating to the stability of our balance sheet. Our liquidity position is strong.
We have no remaining CapEx and we have significant cash flow visibility since 88.2% of our available days are contracted in 2015 with profit sharing in 49.7% of the remaining nine months available days and is another 24.3% of our days open or fixed on floating days, we are benefited from the improved tanker market. Moreover, Navios Maritime Midstream Partners provides a platform to increase liquidity and grow through the dropdown of vessels as realizes into the MLP.
And now, I will pass the call back to Angeliki. Angeliki?
Angeliki Frangou
Thank you, Leo. This completes our formal presentation.
We'll open the call to questions.
Operator
Our first question comes from the line of Amit Mehrotra of Deutsche Bank.
Amit Mehrotra
Yes thank you good morning excuse me congrats on the good results. Angeliki, the company is generating some nice cash flow obviously, which begs the question of cash deployment and I’m specifically talking about the leverage profile of the company, which has been coming down and the question is do you expect the net leverage to continue coming down or are you sort of comfortable with where you are today.
And also would you consider increasing the dividend given the cash visibility and profile of the company?
Angeliki Frangou
We believe that with the current rate we will be able to really have a strong generation as were waiting to see how good these development and we see that there is a healthy, very healthy levels that remain. So we’re committed on deleveraging one, which we did also this quarter.
If you have seen, paid some liabilities, got also delivery of our two vessels and as we will progress, we will see some deleveraging and of course return to shareholder via either increase and increase dividends or buyback.
Amit Mehrotra
Okay, could you just be a little bit more specific in terms of could we see net leverage in the high 50% level, say this time next time year based on the cash flow generation?
Angeliki Frangou
Yes.
Amit Mehrotra
Okay, fantastic. And then just one follow up to that, you mentioned share repurchase it doesn’t look like the company has done any share repurchase since the $50 million authorization back in December.
Can you just update us on what your thinking is with respect to sort of the utilization of that authorization?
Angeliki Frangou
This is a -- the buyback is in place. What we’re seeing is that, evaluation of our internal evaluation of the company has increased.
You have seen that today we have about a $1.27 per share cash from NAP that provides us an divisional volume for our company and we’d reviewing the buyback.
Amit Mehrotra
Okay. Can I just ask one industry question and then I'll hop off.
The crude tanker market, the product tanker market obviously two different markets, just would love to get your comparing contrast on the two different markets. Both are seeing improvement, but maybe the crude market is a little further along in terms of the rate inflection.
So can you just give us some of your thoughts on maybe the pluses or minuses as you see it for both segment at this point in the cycle? Thank you.
Leonidas Korres
I think the -- one of the plus and minuses that's actually affecting both markets is the new refineries that are online and coming online in the Persian Gulf. You’re getting a lot of work for the LR1s and its also creating crude that has to be moved from the Atlantic back out to the Pacific.
Think about if you see our chart, you can see the Saudi, they're up another two million barrels a day in terms of clean product. So that’s one VL, right the day that's it's not moving from them.
But when you replace it, you have to replace it from the Atlantic. So it’s almost another VL on top of that.
It’s a 1.9 ratio to 1. So I think that’s helping both.
I think, the net fleet growth versus ton mile issue is a very -- it’s excellent for crude. It’s just very good for product.
That’s probably the difference. You’re getting hardly any new building deliveries in terms of the crude, but on the product it's going to be a little bit more maybe 3.5%, 4% on the MRs where you’re going to be what 1.5% on the Vs, 10 Vs.
Most of that is going to be soaked up by Chinese SPR fill. So the volumes and the distances for both clean and crude are continuing to move at greater speed up within too far.
Amit Mehrotra
Got it, okay, that’s very helpful. Thank you very much.
Angeliki Frangou
Thanks.
Operator
Our next question comes from the line of Ben Nolan of Stifel.
Ben Nolan
Hi, thanks. I guess my question, first question has to do with where you guys are thinking about maybe -- perhaps as it relates to potential dropdowns, but obviously is not very many vessels in the existing fleet at the sponsor level that have what I would call ideal MLP dropdown charters long term fixed rate charters.
Are you seeing much appetite among the charters for your existing vessels to do this sort of fixtures or is that even something that you're really contemplating are you preferred to have them the more spot oriented exposure there?
Angeliki Frangou
No, we see bigger charters. We have seen the ability to fix for longer periods and we have some vessels that they will see the profile therefore the initial drop down.
So as we’ve already committed NAPs contemplating to have at least two drop downs, I think that's going to be very feasible.
Ben Nolan
Okay and you’d said the market at movement with respect to those long-term charters is sufficiently high enough that it’s a level at which you would contract.
Leonidas Korres
You’re getting that, it will benefit first is the first stage of what we would say on the trading side is the mating dance right. I think now that Q2 numbers in terms of returns has been as high as Q1 as quite a lot of people to the table for discussions and that’s the beginning.
As we say, you need to volume the pickup before you get going. So we’ve already started having discussions with others in terms of deals longer than one year.
Ben Nolan
And that is primarily in VLCC side or also sort of rolling over into the product mix as we'll?
Angeliki Frangou
On the products we have done a year deals already and we're seeing now on the LV which is really the market where we have -- the rest of that also there kind of day drop downs.
Ben Nolan
Okay. Sure.
Alright, well, my next question I guess has to do with the deal that was done with HSH and I realize that it’s not an enormous deal with respect to magnitude, but it is interesting nonetheless. I guess my question was, how much of that capital is allocated to NNA, what’s the ticket size on this part of the platform.
Angeliki Frangou
On the $-14 million investments there is about $5 million, $6 million representing about 47%.
Ben Nolan
Okay. And just curious on that, is this obviously is the second deal of that type that you’ve done is there a solid pipeline of similar transactions would you say or they still sort of maybe categorized as one off opportunistic, maybe it happens every once in a while maybe not, how should I think about that?
Angeliki Frangou
I think there's plenty of vessels in those portfolios and we know and if it attractive, this will be -- it takes little bit longer for this kind of drag to finalize, but I will expect that we’ll be participating in the third transaction.
Ben Nolan
Okay. And lastly I guess with respect to sort of the tanker side obviously your charter rates are higher, assets values are little bit higher, arguably haven’t moved as much as the cash flows have, how do you think about acquisitions at this point?
Have you feel like you’ve adequately bottom tick the market, which you guys have done phenomenal job of and will sit on the sidelines for a little while or you still think that asset prices are pretty attractive here?
Angeliki Frangou
We believe that there will be opportunities. We’re not in the phase where we will buy in 15 vessels a year.
I think that -- we’ve moved away from that position but on vessels that are promptly very close to coming to the water with sales I think we’ll opportunistically look because let's not forget. the dry docks have suffered big devastation and obviously simply has suffered.
So whenever you have mix fleet of companies with exposures in different sectors, they may need liquidity event. So this is the kind of opportunities that now we’re always is very inclined to step in quickly and we’re watching very closely what is under construction and what vessels slightly more than out for sale.
Ben Nolan
Okay, well that’s interesting and I don’t want to take up too much time, but obviously the dry dock is a different platform containers, within NNA’s is it something that you guys would look to branch out away from the West side, potentially just sort of if the opportunity arises.
Angeliki Frangou
No, we’ll have pretty very much crude and the product I think is an assembly. This is the beginning of the good cash flow generation.
If you see just taking in consideration is just one quarter and we have $20 million net income, more than we have generated entire last year. And if you see some sensitivity as we have put in place nine, where you can see the free cash flow sensitivity with different rate assumptions and think how to do develop that really provides with very good free cash which can bring it close on either returning to our shareholders deleveraging our opportunistically buying couple of vessels.
Ben Nolan
Okay, that’s helpful. I’ll turn it over.
Thanks.
Angeliki Frangou
Thank you.
Operator
Our next question comes from the line of Chris Wetherbee of Citi.
Chris Wetherbee
Good afternoon guys. When you're balancing the product versus the VL side, I’m just trying to get a sense, what’s more attractive right not in terms of asset acquisitions?
Is it product or is it on the tanker side where we’ve seen a little bit of stronger recovery so far?
Angeliki Frangou
It is very strong on the VA definitely, but you can see also cash from LL1 we have done on that profit sharing, which is product position. We have 50% of LVC that still generated $19,000 a day.
So you realize that depending on the amount of cash you want to redeployed you may on the product tanker you may have more sellers, more vessels. On that it is more selected group and you have to find ways to point of stress.
The returns there always we’ll have a much bigger return on the VA, but we do it in a -- we see it in a company what cash flow generation versus what visible return we can have.
Chris Wetherbee
Okay. So little bit of balance but maybe more liquidity on the product side is that fair to say?
Angeliki Frangou
Yes.
Chris Wetherbee
Okay, that’s helpful. When you think about NAP and the ownership assuming a couple of drop downs this year how do you think about your pro forma ownership, let’s just look out towards the end of 2015 of that vehicle?
Angeliki Frangou
At this time, we’re at a very high level. We own about 57.5%.
We have a $190 million investment there. As we’ll be doing much work as each way and then after the first year and you start dropping down, we’ve been aiming to create a preferable conversion overnight.
You will most probably believed yourself from that point, but we’ll have the position we have. Honestly we like the cash flows and the cash generation.
You will -- today we’ll get distribution to generate over $18 million on dividend.
Chris Wetherbee
Okay. No that makes sense -- makes sense to me.
My last question I guess is maybe sort of prioritizing uses of cash a little bit. I’m a little surprised to hear the commentary around the share repurchase deleveraging certainly understand potentially where we are in the cycle would seem that paying down debt and buying ships would arguably be sort of the first usage of cash.
Am I thinking about that right? Just thinking about maybe being opportunistic so leaving that opportunity to buy back shares on the table or how should I be thinking about that prioritization of cash flow uses?
Angeliki Frangou
Listen, deleveraging is number one as we always have said, as we approach -- when you approach mid-cycle level we’ll have to more de-lever. On opportunities, the cash flow generation as we see can be very healthy.
So it will give you the opportunity to buy couple of vessels. The repurchasing we see that a very nice way to return to our investors instead of just doing a dividend increase only.
The reason for that is that other companies have started given dividend today. Navios has already given we have provided over almost a $1 in dividend back to our shareholders.
We're consistent on our dividend distribution, but one thing we like is that we never change -- we’re very careful of how we increase our dividend. So on ways that on the free cash that we're generating, deleveraging is definitely important opportunity, buying couple of vessels you’ll still have plenty of liquidity and then you find ways to return back to our shareholders.
Chris Wetherbee
Okay. That makes sense, certainly a lot of cash generation, so that’s a very high quality problem to have.
So thanks very much for the time. I appreciate it.
Angeliki Frangou
Thank you.
Operator
Our next question comes from the line of Spiro Dounis of UBS Securities.
Spiro Dounis
Good morning thanks for taking the question. Yeah just following up on maybe the state of VSMP market and being out in the market and buying vessels it sounds like you're watching it closely.
We’ve heard 10% of the VLCC market is up for sale, but agreeing on price has been difficult. I was wondering if you can give us a sense of what the markets look like in the midsized, crude fleet or even the product fleet.
Is there a same level of vessel up for sale and maybe owners can’t be on a price or how that market looks?
Angeliki Frangou
You’re meaning the sales marks and on product.
Spiro Dounis
I’m sorry.
Angeliki Frangou
Sorry, can you please in which segment, I think…
Spiro Dounis
Yeah, just both on may be Suezmax and Aframax or for crude and then just across the product spectrum, how does that market look? How much is up for sale right now and are both parties are agreeing on prices a little here or there?
Angeliki Frangou
I think there is a -- as you have other number of vessels, you have more opportunities and choosing -- going away from doing a very big purchase like may the operations and trying to choose one and two will provide you the best deal. Trying to do a major deal most probably with pay a premium.
So doing a vessel acquisition opportunistically will provide you a better situation and as a goal, you got away from the VL ability to find more builds is clearly I agree with you.
Spiro Dounis
Got it. Thank you.
And then just in terms of MLP friendly, I guess charters of vessels, shuttles, tankers are up and brought up as maybe a potential vehicle or asset to use in that avenue, would you -- is that something that you looked at in the past and maybe decided against it. I’m just wondering what your thoughts are there?
Angeliki Frangou
Listen we like very much of VAs. We see that there is going to be nice opportunity, they provide long durations and we see that they find here as I said earlier, the five-year period is coming and you can find it with very attractive means.
Spiro Dounis
Got it. Appreciate the color.
Thank you.
Angeliki Frangou
Thank you.
Operator
Our final question comes from the line of Michael Webber of Wells Fargo.
Donald
Hi, this is Donald stepping in for Mike. Taking a shorter term view on the upcoming quarter, can you comment on what percent of your Q2 revenue days have been booked to date and generally have those numbers compared directionally with the previous quarter?
Angeliki Frangou
I think you have almost everything in Page 7. You have a lot of the -- we'll give you how that the nine months of development.
So you have exactly how we're open and let say on charter 423, we see over $63,000 per day. The Q2 is developing on the same level if you take average earnings on the VL say much too long and on the product tankers, we can even see a stronger market on a low line.
So I think that looking in May, almost half of the quarter is complete we can see that Q1, it looks developing at the same level or better to Q1.
Donald
Okay. Thank you for that.
And then just a general question on the overall asset cycle, we’ve seen pretty strong earnings, pretty robust sentiment among owners, but there has been a lack of S&P activity, but I think based on your previous comments that you’re starting to see charters reach out for longer duration charters, maybe more two, three year deal. Is that the shoe that you think needs to drop to increase S&P activity at this point in the asset cycles where owners can lock in that longer term coverage after acquiring vessels and is that something that you would look to do and ahead of potential acquisition?
Angeliki Frangou
Yes even though usually owners like to be more sport, but when we see the period market developing, that gives them a benchmark to evaluate, return on your investment. So yes, I think that by seeing more multiyear transaction, you can say okay, this sounds reasonable on values.
Donald
Okay. I appreciate the color.
Thank you.
Angeliki Frangou
Thank you.
Operator
That was our final question. I will now like to turn the floor back over to Angeliki Frangou for any additional or closing remarks.
Angeliki Frangou
Thank you. This completes our first quarter results for Navios Acquisition.
Operator
Thank you. This concludes today’s call.
You may now disconnect.