Capital Product Partners L.P. (NASDAQ:CPLP) Q2 2020 Earnings Conference Call July 31, 2020 9:00 AM ET

Company Participants

Jerry Kalogiratos - Chief Executive Officer

Conference Call Participants

Ben Nolan - Stifel
J. Mintzmyer - Value Investor's Edge
Randy Giveans - Jefferies
Liam Burke - B. Riley

Operator

Thank you for standing by, and welcome to the Capital Product Partners' Second Quarter 2020 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. [Operator Instructions] I must advise you, this conference is being recorded today, the 31st of July 2020.

The statements in today's conference call that are not historical facts, including our expectations regarding cash generation and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates may be forward-looking statements such as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements whether because of future events, new information, a change in our views or expectations to confirm to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our common units.

I would now like to hand over to your speaker today, Mr. Kalogiratos. Please go ahead, sir.

Jerry Kalogiratos

Thank you, and thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. As previously announced, we concluded on March 27, 2019, the spin-off of the partnership's tanker fleet and subsequent merger with DSS Holdings, forming Diamond S Shipping. Accordingly, we present our financial results for the comparative periods on a continuing operations basis except where reference is made to discontinued operations.

The partnership's net income from continuing operations for the second quarter was $8.7 million compared with net income from continuing operations of $8 million for the second quarter of 2019. Our Board of Directors has declared a cash distribution of $0.10 per common unit for the second quarter of 2020 and has set a new annual distribution guidance of $0.40. The second quarter cash distribution will be paid on August 14 to common unitholders of record on August 9.

As previously announced, we successfully concluded the refinancing with ICBC Financial Leasing for the sale and leaseback of three of our vessels, generating $38.8 million of additional liquidity. Also, during the quarter, we extended the time charters for our three 10,000 TEU vessels for two additional years through April 2026. And most recently, we [secured deployment] for either the Akadimos or the Adonis in the partnership's option of up to 2.5 years.

As a result, the partnership's charter coverage for the remainder of 2020 and for 2021 stands at 89% and 80%, respectively. Correspondingly, the partnership's remaining charter durations stood at the end of the second quarter at 4.8 years.

Turning to Slide 3. Revenues for the quarter were $36.6 million, compared to $27.4 million during the second quarter of 2019. The increase in revenue was primarily attributable to the increase in the size of our fleet and the increase in the average charter rate and by certain of our vessels. The increase in revenue was partly offset by the off-hire period incurred by two of our vessels, which completed their special survey within the quarter.

Total expenses for the quarter were $22.7 million, compared to $15.3 million in the second quarter of 2019. Total vessel operating expenses during the second quarter amounted to $9 million, compared to $6.5 million during the second quarter, again, of 2019. The increase in operating expenses was mainly due to the increase in the size of our fleet and the completion of the special surveys of two of our vessels within the second quarter of 2020.

Total expenses for the second quarter of 2020 also includes vessel depreciation and amortization of $10.5 million compared to $7.2 million in the second quarter of 2019. The increase in depreciation and amortization during the second quarter was mainly attributable to the increase in the size of our fleet, passing of special surveys for eight of our vessels and installation of scrubber systems on seven of our vessels during the second half of 2019 and the first half of 2020.

General and administrative expenses for the second quarter of 2020 amounted to $1.8 million as compared to $1 million in the second quarter of 2019. The increase is mainly attributable to noncash items associated with the equity incentive plan adopted in the third quarter of 2019.

The partnerships recorded a net income from continuing operations of $8.7 million compared with a net income from continuing operations of $8 million for the second quarter of 2019. This translates into $0.46 per common unit or $0.53 excluding the impact of the $1.4 million write-off of debt issuance costs related to our ICBC refinancing.

On Slide 4, you can see the details of our operating surplus calculations that determine the distributions to our unitholders compared to the previous quarter. Operating surplus is a non-GAAP financial measure, which is defined fully in our press release. We have generated approximately $25.5 million in cash from operations for the quarter before accounting for the capital reserve.

We allocated $9.3 million to the capital reserve, compared to $10.2 million in the previous quarter, reflecting the decrease in debt amortization costs as a result of the refinancing of the three 9,000 TEU container vessels. After adjusting for the capital reserve, the adjusted operating surplus amounted to $16.2 million, which translates into 8.5 times coverage in view of the new quarterly distribution of $0.10 per common unit.

On Slide 5, you can see the details of our balance sheet. As of the end of the second quarter, the partnership's capital amounted to $409.8 million, an increase of $3.1 million compared to $406.7 million as of year-end 2019. The increase reflects net income for the six months ended June 30 and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the first half of 2020, the total amount of $13.3 million.

Total debt increased by $135.9 million to $398.3 million compared to $262.4 million as of the end of 2019. The increase is attributable to the term loan on the two sale leaseback transactions entered for the acquisition of the three 10,000 TEU containers in January 2020 and the refinancing of the three 9,000 TEU container vessels, partially offset by scheduled principal payments during the period.

Total cash as of the end of the quarter amounted to $54.1 million, including restricted cash of $14.9 million, in total representing the $7 million minimum liquidity requirement under our financing arrangements and the $7.9 million pledged to ICBC to be released upon securing employment for a minimum of 12 months for the vessel Akadimos. Please note that if the Akadimos is nominated to take on the charter, which I'll describe in more detail in the next slide, the $7.9 million will be released to the partnership.

Turning to Slide 6. We are pleased that we have secured employment of 20 months to 24 months with a Top 10 liner operator in terms of capacity for either the Akadimos or the Adonis at an escalating rate, which is expected to average approximately $29,800 per day over the term period. The charter is scheduled to commence in late September 2020. The charter has the option to extend the time charter by six months at $35,000 gross per day.

As previously announced, we also agreed to extend the time charters for the vessels Athos, Aristomenis, and Athenian, the three 10,000 TEU container vessels, for two additional years by reducing the time charter rate and, for each vessel, by $1,050 per day. The vessels currently earn a daily rate of $25,950 per day increasing to $26,950 per day for the Aristomenis from October 2020, and from July 2021 onwards for the Athos and the Athenian. The time charters will expire at the earliest in April 2026 and includes two one-year options at $31,450 and $32,450 gross per day, respectively.

Overall, and given the circumstances, we have so far navigated with success the COVID-19-induced charter market crash and ensuring volatility. As the ex-CMA CGM Amazon, now renamed Akadimos, was redelivered to us after a five-year charter in May, the container charter market was at the lowest point since the Hanjin bankruptcy in 2016. In view of this, we secured short-term employment of only 80 days, but have substantially reduced rate of approximately $17,000 per day.

Importantly, however, we did not give out any options as we felt that there was limited downside at that point. While the overall container market remains weak, we did see more activity in the post-Panamax segment as of the last few weeks. And we took advantage of this to fix the Akadimos with option for the Adonis at a substantially higher rate by almost 75%, compared to our first picture for a medium-length charter of approximately two years, as previously described.

We will continue to weigh market prospects ahead as uncertainty going forward remains high, and the supply/demand balance can turn quickly in either owner's or charter's favor. We intend to fix our remaining two 9,000 TEU container vessels by ensuring, to the extent possible, staggered charter expirations and varying period lengths while also retaining some market exposure until we return to mid-cycle charter levels.

It should also be noted that the 10-year charter for the Cape Agamemnon with Cosco came to an end in early July. We decided to take advantage of the buoyant spot cape market at the time. And instead of dry-docking the vessel right away, we fixed Cape Agamemnon to Rio Tinto under a voyage charter that is expected to generate a daily TC in the high-teens until mid-to-end August. Thereafter, we expect her to proceed to a dry-dock in China for passing its special survey and retrofitting of a ballast water treatment system.

Overall, we will remain opportunistic with regard to our approach for this vessel. And depending on developments in the charter market, as well as the S&P market, we shall decide whether we will seek to continue to trade the vessel with the intention of securing longer-term employment or potentially divest from this asset and redeploy the proceeds.

As a result of the aforementioned employment developments, I'm turning to Slide 7, the partnership's charter coverage for the remainder of 2020 and for 2021 stands at 89% and 80%, respectively, while the remaining charter duration amounts to 4.8 years. We have three vessels that we will need to re-charter over the next seven months, namely the Cape Agamemnon and the Akadimos or the Adonis, depending on which one will go into the new charter, as well as the CMA CGM Magdalena, which will see its five-year charter with CMA CGM expire, at the earliest, in January 2021.

On Slide 8, we review the container market. The impact of the COVID-19 pandemic is still the primary driver in the containership sector. The world economy, consumer activity and supply chains under major pressure, the global container trade is expected to have experienced a deep contraction in the second quarter. Latest analysts' estimates project a fall in seaborne box trade for full year 2020 of 7.2% in TEU miles compared to an initial estimate in excess of 10%. However, we expect that the rebound growth in 2021 has been equally tempered from 9.3% to 6.8%.

Looking ahead, the recent sporadic outbreaks of COVID-19 across the globe as nations endeavor to reopen their economies, growing protectionism, reigniting of trade tensions and shortening of supply chains can lead to further downward revisions in next year's outlook and, as a result, both owners and charters behavior is affected by the associated uncertainty.

On the positive side, while vessels around and below Panamax size continue to struggle to achieve charter rates above OpEx, demand for post-Panamax tonnage has picked up. And as a result, we saw upward pressure in charter rates in June and July, albeit still at reduced levels compared to the beginning of the year.

Longer periods, defined as longer than two years, are currently rare. While medium-term length periods, such as two-year deals, are only available to modern, eco vessels like our 9,000 TEU containers or older tonnage fixing at very low levels. Presently, the day rate for the open benchmark 8,500 TEU vessels is approximately $18,000 to $20,000 per day for a period of up to one year.

Moving to Slide 9. Container supply growth for 2020 has been revised downwards to 1.3% from 3.1% at the beginning of the year as the pace of box ship deliveries has been relatively subdued year-to-date. For 2021, supply growth is expected at similar levels. The container order book is estimated to be at historical lows and now stands at 9.1% of the worldwide container fleet, a decrease from 10.2% in the previous quarter and a fraction of what it was 10 years ago.

Meanwhile, slippage, including cancellations of new building container vessels, is estimated to have reached 40%, while container demolition year-to-date stands at 58 units and 150,000 TEU. Demolition yards in India, Pakistan and Bangladesh have partly resumed operations, but vessel demolition remained slow, partly because of restrictions or repatriating crews. In 2019, demolition stood at 183,000 TEU.

Finally, the idle container fleet is estimated at 8.3%, including 1.5% of the fleet that is currently undergoing scrubber retrofits, compared to a peak of 11% in May and only 1.5% at the end of the second quarter last year.

Turning to Slide 10. As previously announced, the partnership's Board of Directors has set the new distribution quarterly guidance of $0.10 in view of the continued uncertainty associated with COVID-19 and its impact on the global economy and our underlying markets and in view of the partnership's long-term need to grow and replenish the fleet and ensure long-term value creation for CPLP unitholders.

We believe that our shipping business model is sound. We have a young fleet of approximately eight years average age; lower leverage compared to most of our peers; no debt maturities until 2023; a backlog of charters to reputable liner operators of remaining charter duration of five years, generating strong cash flows after accounting for our debt amortization; and we believe that we successfully and prudently navigate the volatility of underlying markets by taking shorter charters when the market deteriorates, but also locking in longer periods where we can achieve above-average long-term rates.

In addition, we have consistently concluded over the last few years, accretive acquisitions with long-term charters at attractive returns for the partnership. However, in the very root of the MLP business model is that MLPs, in principle, pay out a large part of their free cash flow to its unitholders, provided the [Technical Difficulty] they can also accretively tap public equity markets to grow the business and ensure long-term value creation and increasing long-term distributable cash flows.

This is especially important for shipping MLPs, such as CPLP, whose assets have a shorter lifespan compared to pipelines or similar businesses. This virtuous circle has been unattainable for CPLP for some time. The adverse impact of COVID-19 to the valuation of the wider MLP space, combined with the fall of energy prices, has further impaired CPLP's equity valuation and, hence, its long-term prospects for tapping public equity markets for fleet renewal in an accretive manner.

To illustrate this point, you can see on this slide, the partnership's net asset value based on a third-party fleet and charter value indicative appraisal as of the end of the second quarter. Our charter-free NAV stood at $246 million or $13 per unit. And on charter adjusted basis, CPLP's NAV amounted to $408 million or $21.5 per unit. If you compare this with the market cap of CPLP as of June 30, this translates into an approximately 38% discount to the charter-free NAV or 62% on a charter-adjusted basis. At yesterday's closing price, these numbers are 47% and 68%, respectively.

While charter-adjusted NAV estimates can vary depending on one stake on asset value, charter differential between secured charter rates and market rates, as well as discount rates, I do believe that this is indicative of the very high discrepancy between CPLP's net asset value and its trading price.

Moreover, if one were to use operating surplus after the contribution to the capital reserve as a proxy for the partnership's free cash flow, the implied yield for the second quarter, if annualized, translates to around 42% as of June 30 or 50% at yesterday's closing price.

In other words, it would be highly dilutive for the partnership to raise equity at this valuation while, at the same time, it's paying out a large part of its free cash flow in distributions, setting only a little aside to grow and replenish the partnership's fleet.

The impact of COVID-19 on the container market further exacerbated this picture as even after some improvement in [feeder rates] for post-Panamaxes, we are still fixing for 25% to 30% less than expected at the beginning of the year and for shorter periods, meaning that there is less available for growth than originally expected.

Turning to Slide 11. It is worth noting that the Board and CPLP's management have taken various measures over the years to the extent possible, to fix this valuation gap while, at the same time, returning as much capital as possible to unitholders. This includes sale of older assets, acquisition of modern tankers with period charters in place; no material common or preferred equity offerings; and, of course, the DSSI transaction, which was a deal that effectively addressed a number of issues by distributing $236 million of NAV to our unitholders in the form of DSSI shares.

The DSSI deal meant that CPLP divested from its older assets, removed spot exposure and the associated cash flow volatility and addressed the Class B preferred unit overhang of $117 million. At the same time, and over the last five years, the partnership paid out $281 million in cash to its common unitholders.

Post the DSSI transaction, the partnership focused on procuring long-term charters that provide our unitholders with cash flow visibility and the acquisition of modern assets with long-term employment in place with attractive equity returns. On the back of the latest acquisition, the three 10,000 TEU containers, the Board increased the partnership's common unit distribution by approximately 11%.

Turning to Slide 12. While the measures taken were incrementally helpful, they were not enough to close the valuation gap in a material way and the impact of COVID-19, the associated uncertainty going forward, as well as the adverse impact on our underlying markets and MLP capital markets exacerbated the gap even further.

The new quarterly distribution guidance of $0.10 will provide the partnership with approximately $19 million per year of additional liquidity, which will bestow the partnership with more flexibility in view of the COVID-19-related uncertainty, but importantly, also allow the partnership to grow organically and deliver long-term value creation for unitholders and increase the partnership's distributable cash flow.

I would like to note that the partnership's Board will regularly revisit the capital allocation strategy and balance growth with returning capital to unitholders once the COVID-19 uncertainty abates.

Turning to Slide 13. I would like to stress that CPLP, at its current valuation, is very attractive across any metric when compared to other peers in the container shipping space. CPLP boasts of the youngest fleets compared to its container peers with a long backlog of charters in place, low leverage and an appealing yield even at the revised distribution guidance. While NAV metrics are less transparent to include here, we believe that CPLP is also very attractive compared to its peers in terms of NAV valuation.

Moving on to the final slide, Slide 14. You can see here an indication of the partnership's free cash flow generation capacity. This does not purport to be a projection as it does not take into account, for example, dry-dock expenses and related off-hire, but it does show that in a scenario whereby the container charter market for a 9,000 TEU container stays at similar levels like we experienced today, that is around the $30,000 per day mark, the partnership will have $48 million to $50 million in free cash flows before dry-dock CapEx and related off-hire and after paying out distributions that will give CPLP added flexibility to face additional volatility in the market, but also once they certainly abates to take advantage of acquisition opportunities.

We believe that the current market environment will generate opportunities with enhanced returns as capital availability in scale is scarce and willingness to invest is limited. We, therefore, expect CPLP to be a winner under any foreseeable circumstances. If the global economy recovery stalls amid COVID-19 uncertainty and geopolitical tensions, the partnership will be well fortified to deal with more volatility going forward and potentially pick up distressed assets.

If, on the other hand, we see a mostly steady recovery followed by increasing volumes in global seaborne trade, CPLP, with its [indiscernible], will be able to grow its asset base, with the aim of increasing its long-term distributable cash flow and create long-term value for its unitholders.

And with that, I'm happy to answer any questions you may have.

Question-and-Answer Session

Operator

Thank you very much, sir. [Operator Instructions] Our first question is from the line of Ben Nolan from Stifel. Please go ahead.

Ben Nolan

Hi, good morning, good afternoon Jerry. I have a handful, but I'll try to limit that and leave some room for others, but my first is really a fundamental question about the distribution cut, but more importantly, sort of the implicit thinking of the whole structure now. I mean it's still – CPLP is still an MLP, a limited partnership. Although now, retaining the majority of cash flow will grow while – the issue I think here is that they're still the sponsor, and the sponsor is still, I presume, acquiring assets and now is in much more direct competition for potential assets from the partnership because you no longer – the partnership no longer needs the sponsor to warehouse assets and wait until they get good contracts or whatever because there's no call for the cash flow distribution. Why does it even make sense for this to be an MLP anymore at all? How do you work through that potential conflict of interest?

Jerry Kalogiratos

So that's a great question. Firstly, the – as you know, in terms of structure, CPLP is a C-Corp for tax purposes, and our unitholders file their 99s. So as you said, we have reset our distribution to only a fraction of our net income in view of the wider market uncertainty and be able to internally fund growth going forward. So effectively, what differentiates us from the other C-Corps is the [CPLP] structure, which we will review if required, but at least in the short term, does not materially affect the strategy that the Board has determined for the future.

Now with regard to competition, I don't think there is really so much direct competition for the following reasons. First of all, Capital Maritime does not have any assets – container assets of the kind that we are looking for. Secondly, I think that Capital Maritime, and I think it's good to recap certain things from time to time, has been – first of all, it holds 18% of the partnership at this point. So, it has fueled growth for CPLP for the last 13 years, but interestingly enough, because we went through the exercise, Capital Maritime has invested since 2007, $130 million in cash or in kind in CPLP common units.

That includes around $25 million of units bought over the last decade in the market, but excludes also $36 million of that Capital Maritime has invested in Class B preferred units back in 2011 and 2012. So Capital Maritime has invested a total of $136 million, again, in cash and in kind, over the years. So Capital Maritime, like in the past and today, is very much incentivized being the largest shareholder to see CPLP do well in the medium to long-term.

So when it comes to opportunities in the container space, if CPLP is the one that is in the space, especially in the post-Panamax space, I think that CPLP will be given priority. It could be also that there could be synergies. If, for example, there is a big transaction – a transformative transaction for CPLP, Capital Maritime, like it has done in the past, could be supportive of CPLP in many different ways, in getting the transaction done.

So, like we have, I think, dealt in the past and as the incentives continue to be very much aligned, if anything, I think the friction is even smaller now that there is not – there are no at least immediate acquisition opportunities from Capital Maritime. I think it is only a positive thing that we will have Capital Maritime on our side.

In addition to that, and I think that's also important, Capital Maritime is an entity that has visibility into many different segments. CPLP is positioned as a container company, and that's where we are looking at into the immediate future, but if there were to be other opportunities in other segments that would be highly accretive or very attractive to us or transformative, again, we have, if you want, the unique advantage of this vantage point that Capital Maritime offers to look into other opportunities. So overall, I think it is a very positive sign. And as far as larger post-Panamax containers, I see the way – I see it more as symbiotic as opposing each other or there being a conflict.

Ben Nolan

Okay. And then, sort of as a [junction] to that last question, obviously, again, with lower distributions, it really sort of changes the mold in how, I think, people would consider or think about the company or the partnership, and you'd mentioned that the shares are trading well below the – which you estimate to be NAV. It's not a large market cap at this point, not an awful lot of trading liquidity. At what point do you just say, okay, well, it makes more sense to roll this up into the sponsor company? Or alternatively, you probably get a very good price, I would imagine, given the high quality of your assets, the good long-term contracts, etcetera from one of these larger containership lessors who might – would want to buy it outright, pay a reasonable premium to where the shares are currently trading?

Jerry Kalogiratos

Firstly, with regard to Capital Maritime that is rolling back, no decision whatsoever has been taken to roll back the company. As I said earlier on, Capital Maritime is the largest shareholder and wants CPLP do well. I think we have, if you want, a unique opportunity over the coming quarters to show that we can execute on our business model. There are opportunities out there, I'm happy to go through examples, who have very attractive equity returns out there.

And once we have more visibility with regard to where this market is going, I think there are good transactions to be had, and if we manage to deliver in our business model, that is, fix our ships, be able to provide cash flow visibility and have confidence in our cash flows, start having excess liquidity and then deploying that liquidity into getting transactions done and showing that we can provide that, if you want those equity returns that investors are looking for; and finally, also, from time-to-time, see what is the best use of our liquidity.

Maybe [Technical Difficulty] for example, valuation remains very low, maybe balancing growth with stock repurchases at some point in the future might be also on the cards. And then we can see whether – where we are with regard to our equity valuation. But I think that we have done as much as we could within the MLP structure, we have, I think, done – I mean the DSSI transaction was a transaction that gave all the value to unitholders.

And also, unitholders were rewarded with very high returns on the back of this transaction, but I don't think anybody could have forecasted the impact of the pandemic which thrust everything to turmoil from our markets, container markets. We saw 2.7 million TEU being redelivered within a month, 45 days, by liners back into the market. We saw T-bills falling by 140 basis points. We saw companies stopping their dividend policies and share buyback policies. We saw the whole economy coming to a global – the global economy coming to a complete lockdown.

So, unprecedented situations, and that dislocated completely where the partnership stood, as well as its prospects going forward. I mean we're talking about the recovery in the container market, but still, when, I think, we were discussing at the beginning of the year, we were thinking of fixing our 9,000 TEU containers at $40,000 for five years. Now we fixed one at $17,000, the next one at $30,000, and it's for a year or two.

So, I think we shouldn't underestimate the current situation and what it meant in terms of our ability to execute on the MLP business model. Now that we have the excess cash, both the cushion to go through any – this type of volatility or more volatility going forward, but also the ability to grow organically, I think we can still prove to the market like we have done in the past because I think in terms of the shipping performance, we have done very, very well to replicate further this model in a more self-funded growth scenario and see if we can deliver equity value long-term. And I think the rest, we can think about later on and once we had that opportunity.

Ben Nolan

Okay. I would be interested in sort of examples or anecdotal returns that you're seeing in the market. But the last question, I guess, in addition to that for me, is how you're thinking about the Cape Agamemnon, the last remaining dry bulk vessel or really the only dry bulk vessel in the fleet. Is that for sale? Or should we model – keep that?

Jerry Kalogiratos

We will follow – as I said in our prepared remarks, we will follow a more opportunistic approach. And I think that's the right approach in such a volatile market. So depending on where the asset market is, over the coming weeks, months, we might divest of the asset. Or if we see a very good opportunity to fix longer-term, longer-term, of course, in dry bulk market might mean 12 months, we might take that.

So like we did – the vessel was supposed to go into dry-dock just after she completed the 10-year charter to Cosco, but instead, we decided we should take advantage of the market because it's a good market. So, I think in markets like the one we have today, you have to solve this flexibility. In order to solve this flexibility, you have to have the right balance sheet and liquidity. And this is exactly the kind of, if you want, approach that traditional private shipping companies have, and we can have more of that.

Ben Nolan

Okay. I appreciate it, Jerry. I appreciate you taking the questions. And again, if you do have any anecdotal sort of return sort of scenarios, it'd be interesting to hear where the market is at the moment from an acquisition standpoint?

Jerry Kalogiratos

So firstly, I want to make clear that I don't think necessarily that tomorrow is a day to start buying ships. We do think that there's a lot of uncertainty out there, as I think we have stressed enough times. And many things are in flux. Having said that, we follow always very closely what happens in the asset market. Today, the container market, S&P market, is relatively quiet.

We have more activity in the Panamax size as well as the smaller-size segments. But our first preference, like we have said in the past, is more the post-Panamax segment. But there is definitely less on offer there, but we follow certain opportunities that are – that tie well with our existing fleet. But in order to just give you an outline of an opportunity without saying too much, for example, a modern, eco post-Panamax container, you would probably require around $25 million of equity, assuming a 70% LTV for that acquisition.

Given what we see today, that would probably mean that this asset could generate about $8.5 million to $10.5 million, and potentially, current market environment would imply the upper end of the range. And depending on your charter and loan service costs, that should leave about $4 million to $6 million – your charter assumptions and your loan service costs, that will leave $4 million to $6 million of free cash flow. So, a simple equity – return on equity would be around 18% to 25%.

Now, if you think about [do we] have a cash balance of $54 million as of the end of this quarter, given our new distribution guidance and depending on where the charter market goes, we could be generating another $15 million to $20 million of free cash flow before year-end.

So if you were to assume that we deploy $50 million at the midrange of the implied equity returns, say, at 20% that would generate an additional $10 million of distributable cash flow on an annualized basis and excess $20 million of incremental EBITDA. So, I think a result like that would be a good result. And if we can replicate such acquisitions going forward, that we could quickly show how we can generate equity value.

Operator

Thank you very much, sir. Moving on to the next question, Mr. J. Mintzmyer from Value Investor's Edge. Please go ahead.

J. Mintzmyer

Hi good afternoon. Jerry, I'd like to start on a good note and congratulate you on fixing a couple of those ships on a bridge charter. I understand it's a very difficult market.

Jerry Kalogiratos

Thank you, J.

J. Mintzmyer

So, Jerry, I think Ben kind of asked really fundamentally strong questions here, looking at the principle of CPLP remaining a limited partnership in the sense that a limited partnership traditionally distributes almost all of its excess cash flow and doesn't necessarily rely on a self-funding model. At the same time, if you look at Slide 10, which you shared, you can see that CPLP trades at a massive discount. So what mechanisms are there to close that discount? We talked about repurchases. Is that something that you're willing to commit to?

Jerry Kalogiratos

J, the – first of all, I think, as you know very well, the discounts to NAV has been there for some time. And that is also why the partnership has not issued equity now for more than five years. If anything, the COVID impact meant that this gap has been further exacerbated, making it extremely difficult to see how things will stack up going forward. In the end, what would happen if you'd look to the medium to long term, and I think most of investors appreciate that, is that, we would just run down our assets and be returning not really profits but just capital to the unitholders until the partnership closes. And I don't think this is what people intended with the MLP model. And that's not what the Board wants for the partnership or the management.

The share buybacks or growth are definitely on the table not in the immediate future because I do think that the COVID-19 issue and the geopolitical tensions are very important. I think first, you have to have visibility and then look at what you do next. So, I think over the next few months, we will be amassing liquidity and see what is our next step. By delivering against our business model, I think, over time – and generating value, I think that's something that can help with closing the gap by doing good deals like, I think, we have done in the past.

Secondly, and depending on the equity valuation, of course, share buybacks would be on the table as well. For a company that has been returning capital to unitholders, not stopped for 13 years and has done also the DSSI transaction, I think you know that the incentives of management and Board are very well aligned with that of our common unitholders.

Operator

Thank you very much, sir. Moving on to our next question, Randy Giveans from Jefferies. Please go ahead.

Jerry Kalogiratos

Hey Randy.

Randy Giveans

Hi Jerry. How is it going?

Jerry Kalogiratos

Not bad. Yourself?

Randy Giveans

Doing great. First question, just on the distribution side, just trying to get a sense for why it was cut to $0.10 instead of maybe $0.20 or $0.05, how did you come up with that $0.10 number?

Jerry Kalogiratos

Well, I think, in the end, if we are returning to a self-funded kind of a business model, it's important to do it properly. Secondly, just on the back of the lower re-chartering rates of what we assumed at the beginning of the year compared to what we see today – today in the improved market, right, not in May – this is already $10 million to $12 million less EBITDA than we originally expected.

So, I think we are paying out a dividend, which is still very meaningful given where interest rates are. And obviously, it's only a very small fraction of the income that we generate, but at the same time, we thought that this level will generate enough additional liquidity for us to, firstly, feel comfortable that we can effectively face more uncertainty going forward and more volatility but also, once that abates, to be able to start growing in a meaningful way.

Operator

Thank you very much, sir. We have time for one more question today. This question comes from Liam Burke from B. Riley. Please go ahead.

Liam Burke

Yes, good afternoon Jerry, how are you today?

Jerry Kalogiratos

Hi, Liam, I'm very well. Yourself?

Liam Burke

Good thanks. Jerry, what has changed from the first quarter when you were paying out $0.35? The world was in a worst place. Things are – admittedly, they're bad, but incrementally getting better. You've always been very clear about return on assets and how that's a priority, but why now versus the beginning of the year when you could have made this adjustment or after the first quarter when you could have made this adjustment when things were worse?

Jerry Kalogiratos

Firstly, we wanted to give the benefit of a doubt to the container market, as well as the capital markets. What – there was a big fall in our unit price together with everybody else's share prices. I think we saw that capital markets [tanked] at the time, but we – despite the uncertainty at the time, we persevered, not knowing exactly where we would be in terms also the container market.

I think since, a few things have happened, we have seen capital markets recover, but not in our case or the wider MLP case, for reasons that have not so much to do with us, but the wider business model, as well as energy prices, but also today, we have better visibility with regard to where the container market went and where it is heading, and as I said, it's [Technical Difficulty] or thereabouts lower than we originally thought at the beginning of the year. And thirdly, we had to look at how we can – what we can do going forward. And there were not many avenues.

So, I think we did everything that we could, But at the same time, given what's happening in the world, and again, I cannot stress enough how I do think that we are not done with the adverse impact of COVID and as well as the geopolitical tensions in the world. We thought that we – or the Board thought that the prudent thing would be to cut the distribution. Simply, it was not sustainable in the long-term, and it was not the prudent thing to do.

Liam Burke

Right. Okay. And if I can go back to your example of a potential asset purchase, and you mentioned the nice return profile of that particular asset, how are you looking at acquisitions if you're still looking at an uncertain environment? Are you guys just going to step aside until things clear up or are you going to be opportunistic and take a little risk when it comes to what you're seeing in potential acquisitions?

Jerry Kalogiratos

As I said, I think it's important first to take a step back. We need a little more visibility. So, I do think that's the important thing to do. At the same time, we are keeping a tab on what's happening. If we were able to combine, for example, both asset and charter at the same time in a way that de-risks the transaction, maybe we would look at it sooner, but it's not the intention from one day to the next to jump to capital allocation policies and invest in ships. We do think that given the risk profile of what's happening out there, it is worth sticking to our guns and monitor the market.

Liam Burke

Okay, thank you Jerry.

Jerry Kalogiratos

Thanks Liam.

Operator

Thank you very much. We actually have time for one more question. It's a follow-up from Randy. Please go ahead.

Randy Giveans

Hi, Jerry, sorry the line got dropped there.

Jerry Kalogiratos

No worries – yes, sure.

Randy Giveans

Awesome. And I guess for the distribution, you increased it a couple of quarters ago. If markets improve, is there a chance that the distribution gets reinstated – or I don't know if the word is reinstated – back to the 35% level in the near-term? Or is it kind of staying at $0.10 no matter what going forward for at least the next year or so?

Jerry Kalogiratos

Nothing is set in stone. As I said, the Board is committed to revisit the capital allocation strategy going forward. So, I do think that we will need to balance asset growth with returning capital to unitholders going forward. So, we will have, from time-to-time, to revisit distributions or buybacks and see what is the best way of doing this, both in terms of the format, as well as of the timing, but nothing is set in stone at this point.

Randy Giveans

Got it. And then for the containership, for the 80-day charter, [indiscernible] I think you said that was $17,000 a day. I guess what are the plans for the Uruguay, I guess, Adonis now until September? I know it had some dry-docking. And then if it doesn't get chosen, are you looking for other time charters? If it does, is the Akadimos scheduled for another time charter? How are you playing that for those two vessels?

Jerry Kalogiratos

So yes, it's going to be the one or the other. So, either of the two will need to be re-chartered, as you correctly point out. It is more probable that the Akadimos will go into the new two-year charter. So that would leave the Uruguay for mid-September. That would be – if I had to guess, a one-year charter level today would be similar to what we fixed, so the $30,000 mark. And then we will have the Magdalena left from mid-January onwards to fix. I think it's important to note that it's, right now, a market that's quite balanced.

So, a lot of post-Panamax ships were absorbed over the last few weeks from the market. And as such, there is very little on offer. So, there seems to be at least more inquiries than vessels available. So, you would expect that the market will continue to remain at good levels. Having said that, I think what has changed compared to a few years back, and it was very evident in this crisis when COVID hit, is that a number of those vessels are now on [short to seize] or flexible periods, which means that as soon, for example, [charters] see a fall in demand, they can very quickly start redelivering ships, which will suddenly compete with yours and push rates downwards.

That was definitely not the case four or five years ago in the Hanjin crisis or in the Lehman crisis because those vessels at the time were long-term project vessels that were on charter, five, 10-year deals. So they were not – liners were not able to quickly redeliver ships. So, what I'm trying to say is that we have a good market balance right now, and we are trying to take advantage of that. But do not underestimate how quickly this balance can change also toward the other direction if you see a drop in demand given that we now have [indiscernible] outbreaks in many parts of the world.

Randy Giveans

Sure. And then I guess last question on the Cape Agamemnon. So, the current rate there was mid-to-high teens. It will be short-term employment. I guess looking at a possible sale of that, how much debt is on it? And what is your kind of estimate of the fair market value?

Jerry Kalogiratos

The approximate debt is around $8 million to $9 million. It depends on the relative valuation of the rest of the ships that are collateral under that loan facility. So today, a vessel like that would be in the $19 million to $20 million asset valuation range, but there is limited liquidity in the market. They are – as you know very well, the market there has been also very volatile in terms of charter rates. And it is, in fact, more difficult to divest of assets given the issues with repatriation of crews that create a lot of complications. It looked as if this was going to become easier over the last months, but now we have, again, countries closing down with – while others are opening up. So, it's a sliding doors game at this point.

Randy Giveans

Got it. Okay. [Indiscernible] see good equity value there, historically, $7 million, $8 million, $9 million across the outstanding debt, which is going to go a long way in purchases or further liquidity. So, all right. Well, that's it for me. Thanks so much.

Jerry Kalogiratos

Thank you, Randy. Thank you all for joining us today.

Operator

Thank you very much sir. Ladies and gentlemen that does conclude the call for today. Thank you all for joining. You may now disconnect your lines.