Genco Shipping & Trading Completes Ultramax Acquisition and Divestiture Portion of Fleet Renewal Plan, Declares a Regular Quarterly Cash Dividend of $0.02 per Share

Genco Shipping & Trading Limited, the largest U.S. headquartered drybulk shipowner focused on the transportation of major and minor bulk commodities globally, reported its financial results for the three months and twelve months ended December 31, 2020.

The following financial review discusses the results for the three and twelve months ended December 31, 2020 and December 31, 2019.

Fourth Quarter 2020 and Year-to-Date Highlights

We recorded a net loss of $65.9 million for the fourth quarter of 2020
Basic and diluted loss per share of $1.57
Adjusted net income of $9.3 million or basic and diluted earnings per share of $0.22, excluding $74.2 million in non-cash vessel impairment charges and a $1.0 million loss on sale of vessels
Voyage revenues totaled $95.5 million and net revenue1 (voyage revenues minus voyage expenses and charter hire expenses) totaled $57.3 million during Q4 2020
Our average daily fleet-wide time charter equivalent, or TCE1, for Q4 2020 was $13,167
For FY 2020, our fleet-wide TCE was $10,221, which outperformed the relevant benchmark sub-indices as adjusted for our owned fleet profile by approximately $800 per vessel per day on a scrubber adjusted basis2
Recorded adjusted EBITDA of $29.7 million during Q4 20201
Genco announced a regular quarterly cash dividend of $0.02 per share for the fourth quarter of 2020
Payable on or about March 17, 2021 to all shareholders of record as of March 10, 2021
We have now declared cumulative dividends totaling $0.755 per share over the last six quarters
Maintained a strong financial position with $179.7 million of cash, including $35.8 million of restricted cash, as of December 31, 2020
Acquired three modern, fuel-efficient Ultramaxes in exchange for six non-core, older Handysize vessels (“Vessel Swap”)
In addition to the Vessel Swap, we have completed several vessel sales in Q4 2020 and Q1 2021 to date as part of our fleet renewal program
During the fourth quarter of 2020 we delivered four vessels (the Genco Bay, Baltic Jaguar, Genco Loire and Genco Normandy) to their new owners.
In the first quarter to date, we have delivered three additional vessels to their respective buyers:
The Baltic Panther, a 2009-built Supramax, delivered to buyers on January 4, 2021
The Baltic Hare, a 2009-built Handysize, delivered to buyers on January 15, 2021
The Baltic Cougar, a 2009-built Supramax, delivered to buyers on February 24, 2021
We have also agreed to sell our final two 2009-built 53,000 dwt Supramax vessels: the Baltic Leopard and the Genco Lorraine
We expect to deliver these vessels to their respective buyers in 1H 2021
These sales will complete the divestiture portion of our fleet renewal program
We signed The Neptune Declaration on Seafarer Wellbeing and Crew Change to address the unprecedented crew change crisis caused by COVID-19
In 2020, Genco completed over 100 crew rotations involving approximately 2,000 seafarers
John C. Wobensmith, Chief Executive Officer, commented, “During a highly challenging operating environment in 2020, our strong in-house commercial platform continued to build on its track record of benchmark outperformance through active management while we took important steps to execute our strategic plan to effectively position Genco for the long-term. Importantly, we outperformed our internal benchmarks by approximately $800 per day resulting in incremental earnings of approximately $15 million for the full year and posted our highest quarterly TCE in two years during the fourth quarter. Notably, on the minor bulk fleet, this marks the third consecutive year of benchmark outperformance. As part of the significant progress we have made renewing our fleet, we completed the cash neutral acquisition of three modern, fuel-efficient Ultramax vessels during the fourth quarter, in exchange for six older, non-core Handysize vessels. With Genco maintaining the lowest leverage profile among our peer group and a solid cash position, we returned cash to shareholders, paying quarterly dividends even during the year’s earlier market lows. We have now declared our sixth consecutive quarterly dividend totaling $0.755 per share since initiating our dividend policy. Going forward, we view the drybulk market favorably given the record low orderbook as a percentage of the fleet, an anticipated rebound in global output as well as growth in drybulk trade volumes in both major and minor bulk commodities which fits our barbell strategy towards fleet composition well. Additionally, amid the ongoing COVID-19 pandemic, Genco continues to prioritize the health and safety of both our crew members and onshore team, and we thank global seafarers for their sacrifices and commitment to professionalism during a very challenging period.”

1 We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance. Please see Summary Consolidated Financial and Other Data below for a further reconciliation.

2 TCE relative performance is benchmarked against the weighted average of the relevant sub-indices of the Baltic Dry Index as published by the Baltic Exchange (BPI, BSI 58 and BHSI) as well as the Platts Scrubber Fitted Capesize Index net of 5% for commissions, adjusted for our owned-fleet composition as well as the characteristics of our vessels. We benchmark our fully scrubber-fitted Capesize fleet of 17 vessels against the Platts Scrubber Fitted Capesize Index as we view this as a more relevant benchmark as compared to the Baltic Capesize Index which represents a non-scrubber fitted vessel.

Genco’s active commercial operating platform and fleet deployment strategy

Overall, our fleet deployment strategy remains weighted towards short-term fixtures, which provide us with optionality on our sizeable fleet. Our barbell approach towards fleet composition enables Genco to gain exposure to both the major and minor bulk commodities with a fleet whose cargoes carried align with global commodity trade flows. This approach continues to serve us well given the upside experienced in major bulk rates together with the continued improvement recently and relative stability of minor bulk rates. Our strong commercial platform complements our fleet composition and provides incremental value by outperforming the relevant benchmark sub-indices as adjusted for our owned fleet profile.

Our fourth quarter of 2020 TCE results by class are listed below.

Capesize: $17,460
Ultramax and Supramax: $11,352
Handysize: $8,822

Fleet average: $13,167During 2020, our active commercial platform outperformed our internal benchmarks by approximately $800 per day on a fleet-wide basis. Regarding our Capesize vessels, the firm drybulk market during Q3 2020 carried into Q4 2020, which saw Capesize rates reaching highs for the year in October. With our active commercial trading strategy geared towards spot market employment and prior positioning of our fleet to the Atlantic basin, we were able to capture this firm market. This is reflected in our strong Q4 2020 TCE results which led to Genco’s highest quarterly fleet-wide TCE in two years. During Q4 2020, the Pacific Capesize market traded at a premium relative to the broader market leading to an improved earnings environment for our Capesizes in the region. We utilized this strong Pacific market to continue trading in the region mostly through December with less ballasting to the Atlantic. At the start of 2021, we have ballasted select Capesize vessels to the Atlantic basin and intend to ballast further tonnage during the quarter to redistribute our fleet positions to improve earnings over the remainder of the year.

Regarding our minor bulk fleet, 2020 marked the third consecutive year of benchmark outperformance led by active management of our fleet. Minor bulk rates in the second half of the year were led by the strong grain trade, particularly shipments from the U.S., coupled with augmented trade flows of commodities closely tied to global economic activity. For the minor bulk fleet in Q1 2021 to date, we have repositioned select vessels to key regions and we expect to have the majority of our minor bulk fleet open to be fixed from mid-March to mid-April to take advantage of the meaningful rate improvement we have seen in recent months.

Based on current fixtures to date, we estimate the following to be our TCE to date for the first quarter of 2021 on a load-to-discharge basis. Actual rates for the first quarter will vary based upon future fixtures.

Capesize: $13,021 for 82% of the owned available Q1 2021 days
Ultramax and Supramax: $11,102 for 72% of the owned available Q1 2021 days
Handysize: $7,681 for 95% of the owned available Q1 2021 days
Fleet average: $11,655 for 77% of the owned available Q1 2021 days

Fleet Update

In December 2020, the Company announced that it had entered into an agreement to acquire three modern, fuel-efficient Ultramax vessels in exchange for six older Handysize vessels. The transaction is structured as an asset swap without monetary consideration or additional capital required. We have taken delivery of all three Ultramax vessels, namely the Genco Magic, the Genco Vigilant and the Genco Freedom. We have also delivered the six Handysize vessels, consisting of the Genco Ocean, Baltic Cove, Genco Spirit, Baltic Fox, Genco Mare and Genco Avra.

The execution of this transaction accomplished a number of key objectives for Genco including the following:

Continue to build scale in the core Ultramax sector and complement our in-house commercial platform while divesting non-core assets;
Reduce the average age of Genco’s fleet;
Avoid drydocking and ballast water treatment system costs in 2021 of approximately $3.6 million relating to three of the Handysize vessels included in the transaction;
Preserve exposure to the upside of the Capesize sector

With the conclusion of the transactions, Genco has now fully exited the Handysize sector while creating a more focused fleet consisting of Capesize, Ultramax and Supramax vessels.

Separate from the Vessel Swap, we have continued to divest our older, less fuel-efficient tonnage as part of our efforts to modernize our fleet and create a more focused asset base while reducing our carbon footprint. Specifically, we delivered four vessels (the Genco Bay, Baltic Jaguar, Genco Loire and Genco Normandy) to their new owners during the fourth quarter of 2020. In Q1 2021 to date, we have delivered three additional vessels to their respective buyers (the Baltic Panther, Baltic Hare and Baltic Cougar).

We have also agreed to sell our final two 53,000 dwt Supramax vessels, the Baltic Leopard and the Genco Lorraine for aggregate gross proceeds of $16.0 million. We expect to deliver these vessels to their new owners in the first half of 2021. Completion of these sales will conclude the vessel divestiture portion of our fleet renewal program. As a result of the Vessel Swap and the agreements to sell four vessels, the Company recorded a $7.0 million non-cash impairment charge for the fourth quarter and a $1.0 million loss on sale of vessels which delivered during the fourth quarter. Also, during the fourth quarter, the Company recorded a $67.2 million non-cash impairment charge related to nine Supramax vessels in its fleet, as the estimated future undiscounted cash flows for each of these vessels did not exceed their net book values. These vessels are not a part of our fleet renewal program and we do not intend to sell these vessels currently.

As of December 31, 2020, $35.5 million of restricted cash is recorded on our balance sheet relating to the sale of four vessels which were sold in previous quarters, as well as an additional four vessels sold during the fourth quarter of 2020. Under the terms of our $495 million credit facility, the Company can either repay this amount, which represents the debt associated with these vessels, or utilize the 360-day reinvestment period to redeploy this capital towards the acquisition of a replacement vessel instead of repaying the loan, if the applicable terms and conditions under the facility are met.

Regular Quarterly Cash Dividend Policy

For the fourth quarter of 2020, Genco declared a regular quarterly cash dividend of $0.02 per share. Management and the Board of Directors determined to pay a dividend in light of the Company’s strong balance sheet, its emphasis on returning cash to shareholders and the receipt of net proceeds from the sale of non-core assets. This dividend is payable on or about March 17, 2021, to all shareholders of record as of March 10, 2021.

Dividends going forward remain subject to the determination of our Board of Directors each quarter after its review of our financial performance and will depend upon various factors, including limitations under our credit agreements and applicable provisions of Marshall Islands law.

Financial Review: 2020 Fourth Quarter

The Company recorded a net loss for the fourth quarter of 2020 of $65.9 million, or $1.57 basic and diluted net loss per share. Comparatively, for the three months ended December 31, 2019, the Company recorded net income of $0.9 million, or $0.02 basic and diluted net earnings per share. Net income for the three months ended December 31, 2020, includes non-cash vessel impairment charges of $74.2 million as well as a loss on sale of vessels of $1.0 million. Net income for the three months ended December 31, 2019, includes non-cash vessel impairment charges of $1.3 million as well as a $0.8 million loss on sale of vessels.

The Company’s revenues decreased to $95.5 million for the three months ended December 31, 2020, as compared to $108.7 million recorded for the three months ended December 31, 2019, primarily due to the operation of fewer vessels in our fleet. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $13,167 per day for the three months ended December 31, 2020 as compared to $12,619 per day for the three months ended December 31, 2019. During the fourth quarter of 2020, record steel production in China together with strong levels of iron ore imports drove Capesize spot earnings to the year’s peak in October while minor bulk earnings continued to recover led by a resurgence of U.S. grain shipments to China as well as increased trade of commodities linked to levels of global economic activity.

Voyage expenses were $33.4 million for the three months ended December 31, 2020 compared to $45.3 million during the prior year period primarily attributable to changes in bunker prices, as well as the operation of fewer vessels in our fleet. Vessel operating expenses decreased to $21.1 million for the three months ended December 31, 2020 from $23.9 million for the three months ended December 31, 2019, primarily due to fewer owned vessels. General and administrative expenses decreased to $4.9 million for the fourth quarter of 2020 compared to $6.3 million for the fourth quarter of 2019, primarily due to lower office rent and administrative expenses, as well as lower travel expenses and legal fees. Depreciation and amortization expenses decreased to $15.5 million for the three months ended December 31, 2020 from $18.3 million for the three months ended December 31, 2019, primarily due to a decrease in depreciation for certain vessels in our fleet that were impaired during 2020, as well as a decrease in depreciation for eight of the vessels sold during 2020.

Daily vessel operating expenses, or DVOE, amounted to $4,726 per vessel per day for the fourth quarter of 2020 compared to $4,640 per vessel per day for the fourth quarter of 2019. This increase is primarily attributable to higher crew related expenses, partially offset by lower drydocking, spare parts and stores related expenditures in the fourth quarter of 2020 as compared to the prior year period. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers, our DVOE budget for 2021 is $5,000 per vessel per day on a fleet-wide basis reflecting the larger weighting of our fleet towards Capesize vessels following the sales of smaller Supramax and Handysize vessels as well as an anticipated increase in COVID-19 related expenses. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic.

Apostolos Zafolias, Chief Financial Officer, commented, “Amid the global pandemic, we have maintained our financial strength and flexibility, while returning capital to shareholders, underscoring our industry leadership. During the fourth quarter, we continued to improve our industry leading balance sheet through operating cash flow generation and opportunistic vessel sales of non-core assets. We also continued executing our fleet renewal through an exchange transaction which allowed us to purchase three modern Ultramaxes. During the quarter, we increased our cash position to $180 million, including $35.8 million of restricted cash, as of December 31, 2020. We also declared our sixth consecutive quarterly dividend.”

Financial Review: Twelve Months 2020

The Company recorded a net loss of $225.6 million or $5.38 basic and diluted net loss per share for the twelve months ended December 31, 2020. This compares to a net loss of $56.0 million or $1.34 basic and diluted net loss per share for the twelve months ended December 31, 2019. Net loss for the twelve months ended December 31, 2020 includes $208.9 million in non-cash vessel impairment charges and a $1.9 million loss on sale of vessels. Net loss for the twelve months ended December 31, 2019, includes non-cash vessel impairment charges of $27.4 million, a $0.2 million non-cash impairment of the operating lease right-of-use asset, as well as a loss on sale of vessels totaling $0.2 million. Revenues decreased to $355.6 million for the twelve months ended December 31, 2020 compared to $389.5 million for the twelve months ended December 31, 2019, primarily due to the operation of fewer vessels. Voyage expenses decreased to $157.0 million for the twelve months ended December 31, 2020 from $173.0 million for the same period in 2019. TCE rates obtained by the Company decreased to $10,221 per day for the twelve months ended December 31, 2020 from $10,182 per day for the twelve months ended December 31, 2019. Total operating expenses for the twelve months ended December 31, 2020 and 2019 were $558.9 million and $417.9 million, respectively. Total operating expenses include $208.9 million in non-cash vessel impairment charges, as well as a loss on sale of vessels of $1.9 million for the twelve months ending December 31, 2020. For the twelve months ended December 31, 2019, total operating expenses include $27.4 million in non-cash vessel impairment charges as well as a loss on the sale of vessels of $0.2 million. General and administrative expenses for the twelve months ended December 31, 2020 decreased to $21.3 million as compared to the $24.5 million in the same period of 2019, due to a decrease in office rent and administrative expenses, as well as lower travel expenses and legal and professional fees. DVOE was $4,612 for the year to date period in 2020 versus $4,576 in 2019. The increase in DVOE was predominantly due to higher crew related expenses, partially offset by lower drydocking related expenses. EBITDA for the twelve months ended December 31, 2020 amounted to $(139.0) million compared to $44.7 million during the prior period. During the twelve months of 2020 and 2019, EBITDA included non-cash impairment charges, an operating lease right-of-use asset non-cash impairment and gains and losses on sale of vessels as mentioned above. Excluding these items, our adjusted EBITDA would have amounted to $71.8 million and $72.5 million, for the respective periods.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the years ended December 31, 2020 and 2019 was $36.9 million and $59.5 million, respectively. This decrease in cash provided by operating activities was primarily due to changes in working capital, offset by a decrease in drydocking related expenditures.

Net cash provided by investing activities during the year ended December 31, 2020 was $37.4 million as compared to $22.8 million net cash used in investing activities during the year ended December 31, 2019. This fluctuation was primarily due to an increase in net proceeds from the sale of vessels in 2020 as compared to 2019, as well as a decrease in scrubber and ballast water treatment system related expenditures.

Net cash used in financing activities during the years ended December 31, 2020 and 2019 was $56.9 million and $77.2 million, respectively. The decrease was primarily due to the $24.0 million drawdown on the $133 Million Credit Facility during 2020 and an $11.0 million decrease in the payment of dividends during 2020 as compared to 2019. These decreases were partially offset by a $10.3 million decrease in drawdowns under the $495 Million Credit Facility, as well as a $2.8 million and a $1.9 million increase in repayments under the $133 Million Credit Facility and $495 Million Credit Facility, respectively, during 2020 as compared to 2019.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of February 24, 2021, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, nine Ultramax and 15 Supramax vessels with an aggregate capacity of approximately 4,421,000 dwt and an average age of 10.2 years.