Navios Acquisition Corp (NYSE: NNA), the tanker arm of Angeliki Frangou’s Navios Group, has reported stronger profits and additional steps to renew its fleet in the wake of last year’s merger with related-party Navios Midstream.
On May 13, the Monaco-based tanker owner reported net income of $861,000 for the first quarter of 2019, up from a loss of $24.5 million in the same period in 2018. Rates averaged $19,643 per day in the most recent quarter, up 38 percent year-on-year.
Navios Acquisition operates a fleet of 42 tankers totaling 5.8 million deadweight tons (DWT) – 14 very large crude carriers (VLCCs); 26 product tankers, including eight in the LR1 class (55,000-79,999 DWT), and 18 MR2s (40-54,999 DWT); and two 25,000 DWT chemical carriers.
The company is continuing efforts to lower its average fleet age by selling older vessels and buying new ones. During the first quarter of 2019, it signed a lease agreement for a VLCC newbuilding to be delivered in the third quarter of 2021, with the vessel priced at $84.5 million. This follows contracts announced in 2018 for two leased VLCC newbuildings. Navios Acquisition also sold its two oldest VLCCs in the first quarter of 2019. Fleet age is now down to 7.9 years.
The company’s employment strategy uses a mix of fixed contracts to protect against downside combined with floating rates, profit-sharing and open ships to allow for upside.
In 2019, 16.4 percent of its revenue days are on fixed contracts with no profit sharing, 43 percent are on fixed contracts with profit-sharing, 17.7 percent are on fixed contracts with floating rates (index-linked time charters), and 22.9 percent of revenue days still remain open.
On December 14, 2018, Navios Acquisition completed the purchase of its former daughter partnership, Navios Midstream, which had owned six VLCCs. The first quarter of 2019 marks the first full quarter since the fleet consolidation.
Navios Midstream was a master limited partnership (MLP) sponsored by Navios Acquisition and spun off through an initial public offering and NYSE listing in November 2014.
MLPs are designed to offer tax advantages to investors, who fund growth via share purchases in expectation of strong dividend returns. The MLP sector is dominated by U.S. pipeline companies; over the past two decades, several ship owners have also used the structure.
When the price of crude collapsed in 2015, it had a severely negative impact across the entire MLP universe, including shipping MLPs. The inability of MLPs to pay acceptable dividends or to secure equity financing raised the existential question of whether the concept still made sense.
In the shipping sector, Teekay Corp (NYSE: TK) ultimately opted to sell all of its interests in its offshore MLP, Teekay Offshore LP (NYSE: TOO), to Canada’s Brookfield Business Partners. Capital Product Partners (NASDAQ: CPLP) sold off a portion of its fleet to Diamond S Shipping (NYSE: DSSI). And Navios Acquisition decided enough was enough and that the MLP wasn’t worth it – and brought those ships back into the parental fold.