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Capital Product Partners LP (NASDAQ:CPLP)
Q1 2019 Earnings Call
May. 13, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Capital Product Partners' First Quarter 2019 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer and Mr. Nikolaos Kalapotharakos, Chief Financial Officer of the Company. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you this conference is being recorded today the 13th of May 2019.

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

These forward-looking statements involve risks and uncertainties that could cause the 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 conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements.

We make no prediction or statements 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 -- Chief Executive Officer

Thank you, Steve, and thank you all for joining us today. As a reminder we'll be referring to the supporting slides available on our website as we go through today's presentation. As previously announced, we concluded on March 27th, the spin off of the Partnership's tanker fleet and subsequent merger with DSS Holdings, forming Diamond S Shipping, one of the largest publicly traded tanker companies.

In connection to transaction, the Partnership effected a one-for-seven reverse split on common and general partnership units.

Post transaction, the Partnership's fleet comprises 11 vessels consisting of ten neo panamax container vessels and one drybulk vessel which constitute our continuing operations. Accordingly we present our financial results for the first quarter of 2019 as well as comparative periods on a continuing operations basis except where reference is made to discontinued operations.

The Partnerships' net income from continuing operations for the first quarter improved to $7.2 million compared with net income from continuing operations of $3 million for the first quarter of 2018. Our Board of Directors declared a cash distribution of $0.315 per common unit for the first quarter of 2019.

The first quarter cash distribution will be paid on May 15th, 2019 to common unit holders of record on May 13th.

Common unit coverage for the first quarter 2019 after adjusting for the capital reserve stood at 3.5 times including the contribution of the tanker business or 1.4 times taking only into account the adjusted operating surplus generated from the Partnership's continued operations.

Remaining charter duration stood at the end of the first quarter at 5.1 years with 94% and 76% of our fleets available days fixed for 2019 and 2020 respectively.

Turning to Slide 3 and looking back, we believe our transaction with Diamond S has been a positive transaction overall with numerous advantages for CPLP and its unitholders. Firstly, CPLP today owns more modern MLP suitable assets under medium to long term charters that provide long term cash flow, stability and visibility.

With access to numerous dropdown opportunities from our sponsor and the second hand market, we believe that we are well-positioned to grow our fleet again with the aim of increasing our long term distributable cash flow.

CPLP unitholders received a significant premium in the amount of $23 million as part of the Diamond S transaction and among the highest paid in shipping M&A between third parties. Moreover CPLP unitholders have the opportunity to maintain their exposure and potential upside to the tanker market through their ownership of Diamond S.

In addition, the Partnership divested through this transaction of a number of tanker assets whose average age is approximately ten years with the maturity employed under short term or spot charters. Last but not least, this proved to be a highly accretive transaction for our unitholders as it generated significant equity value as explained in more detail in next couple of slides.

Moving to Slide 4, as a result of the transaction, our unitholders received in addition to their CPLP holdings approximately 32% of Diamond S equity or approximately $224 million on net asset value as measured at the end of the first quarter of 2019.

As you can see on Slide 5, based on the closing price of CPLP and Diamond S on May 9th, this translates into an accretion of $71 million or 24% in terms of sum-of-the-part's equity value compared to the market capitalization of CPLP as of March 27th, which is the last trading day before closing of the transaction.

Turning to the next slide and going forward, we believe that there is further potential upside for CPLP compared to its current valuation as the new CPLP with its modern fleet, long charter coverage, strong unit -- common unit distribution coverage and healthy balance sheet compares very favorably across all financial and operational metrics with other Maritime MLPs as well as container ship companies.

Turning to slide 7, we focus on the results generated from the Partnership's continuing operations.

Revenues for the quarter decreased by 9% to $26.8 million compared to the first quarter of 2018. The decrease was primarily attributed to the decrease in the average number of vessels in our fleet following the disposal of the tankers in Amore Mio and Aristotelis in October 2018 and April 2018 respectively, partially offset by the increase in the average charter rates earned by certain of our vessels compared to the first quarter of 2018.

Please note that these two tankers are included in the presentation of our continuing operations as they were sold before the transaction with Diamond S. Moving on, total expenses for the quarter were $15.4 million compared to $21.9 million in the first quarter of 2018. Voyage expenses for the first quarter of 2019 decreased to $0.5 million compared to $3.2 million in the first quarter of 2018 mainly due to the decrease in number of days during which our vessels were employed under voyage charters.

Total vessel operating expenses during the quarter amounted to $6.6 million compared to $8.4 million during the first quarter of '18. The decrease in operating expenses was mainly due to the decrease in the average number of vessels in our fleet following the disposal of the two tankers Amore Mio and Aristotelis.

Total expenses for the first quarter of 2019 also includes vessel depreciation amortization of $7.2 million compared to $8.6 million in the first quarter of '18.

The decrease in depreciation and amortization was similarly attributable to the decrease in the average number of our vessels in our fleet. General and administrative expenses for the first quarter of '19 amounted to $1 million as compared to $1.7 million in the first quarter of 2018.

The Partnership's recorded net income from continuing operations of $7.2 million for the first quarter of 2019 compared to $3 million for the first quarter of 2018. As disclosed in our earnings release, the net loss per common unit amounted to $0.10 as this reflects a $9 million preferred unit holders interest in the Partnership's net income for the quarter.

This includes $2.7 million in dividends accrued until the Class B series redemption on March 27th and $6.3 million which reflects the original issue discount of certain Class B units and their redemption price at par value paid on March 27th.

This difference is presented as a deemed (ph) dividend and is deducted from net income before arriving at the income available to common unitholders. EPU excluding the preferred unitholder's interest in net income would have been $0.40 per common unit.

Turning to Slide 8, 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 $30.5 million in cash from operations including cash from discontinued operations for the quarter and before accounting for the capital reserve and the accrued distributions of the Class B units outstanding until their redemption on March 27th.

We allocated $7.7 million to the capital reserve, compared to $13.6 million in the previous quarter reflecting the reduction in CPLP's total outstanding debt. After adjusting for the revised reserve and the accrued distributions of the Class B units, the adjusted operating surplus amounted to $20.2 million which translates into approximately 3.5 times common unit coverage.

The operating surplus generated from continued operations for the first quarter of 2019 amounted to $16.1 million which added a contribution to our capital reserve, translates into approximately 1.4 times common unit coverage.

I would like to highlight here that our capital reserve of $7.7 million per quarter or $30.8 million per year which is equal to our debt amortization is a conservative reserve and in excess -- and well in excess of our book value of vessel depreciation of $7.2 million per quarter.

If we were to continue to reserve the same amount over the remaining life of our fleet about approximately 18 years, and assuming no reinvestment, that would amount to an aggregate of $555 million in addition to the scrap value of the vessels.

On Slide 9, you can see the details of our balance sheet. As of the end of the first quarter, the Partners' Capital amounted $406.7 million, a decrease of $474.6 million compared to the $881.3 million as of year-end 2018. The decrease was primarily due to the spin off of the tanker business, the redemption of our Class B units, distributors declared and paid for the first quarter of 2019 and the total net loss of $139.3 million for the period including an impairment charge of $149.6 million related to the Diamond S transaction.

The impact of these factors on total partner's capital were partially offset by the receipt of $319.7 million from DSS as per the terms of the Diamond S transaction. Total debt decreased by $160.4 million to $285.5 million compared to $445.9 million as of the end of 2018.

The decrease is attributable to the prepayment of our debt of $146.5 million in connection with the Diamond S transaction and scheduled principal payments during that period. Total cash as of quarter end amounted to $79 million, following the reduction in the number of our ships in connection to the Diamond S transaction, restricted cash amounted to $5.5 million down from 18 (ph) at the end of the fourth quarter of 2018.

Moving to slide 10, our balance sheet as of the end of the quarter remains strong with a net debt to cap of 29.8% and with Partner's capital representing 55.7% of our total assets. Through the Diamond S transaction, we have significantly reduced our outstanding debt while simultaneously we have fully redeemed and retired our Class B convertible preferred series at par, were $116.9 million plus accrued distributions, thus addressing early the refinancing of the Class B units, simplifying our capital structure and further enhancing our common equity value.

Our debt consists of only the amended 2017 credit facility in the total amount of $285.5 million. As a remainder, the facility bears interest at LIBOR plus a margin of 3.25%. It's important to highlight the Partnership has no debt maturities until the fourth quarter of 2023. The facility's annual amortization schedule is quite conservative as we repay approximately $30.8 million per year which means that by maturity at the end of 2023, the balloon outstanding of $139.1 million will be just in excess of the scrap value of our fleet of approximately $110 million when our fleet will be at the time only 11.5 years old.

Now turning to Slide 11, the average remaining charter duration of our fleet is solid at 5.1 years with 94% and 76% charter coverage for 2019 and 2020 respectively. We are currently in discussions with various charters for the employment of the Agamemnon, one of our 8,000 TEU container vessels that is expected to come off charter in the next couple of months and are contemplating various structures and charter durations.

Turning to slide 12, you can see the expected Scrubber installation time schedule of our fleet. In view of the IMO 2020 fuel and sulphur regulation and that as previously communicated, the Partnership has booked Scrubbers for all 11 of its vessels.

It is important to highlight that this schedule is tentative as the actual installation dates will depend among others, with the arrangements we come to with our charters, drydock availability as well as actual equipment delivery.

Currently, we expect five of our ships to be retrofitted with Scrubbers by the end of the year while for another five of our ships, the installation is expected to be completed mostly in the first half of 2020. Finally, for one of our vessels, retrofitting is currently scheduled to occur in the first quarter of 2021. We expect the scrubber refitting to take 30 days to 40 days including repositioning, time for retrofitting and sea trials.

In this regard we have scheduled also for all 11 vessels to pass their respective special surveys, at the same time, thus minimizing potential of hire. Importantly, HMM, the charter of our five 5,000 TEU container vessels will pay us a daily applicable time charter rate for these vessels after the first 12 days of entering drydock which will count as off-hire.

In terms of the cost, our total remaining estimated CapEx, including equipment installation corresponds to approximately $17 million for 2019, $14 million for 2020 and $2.6 million for 2021. I would like to note that the partnership will finance that CapEx with cash from its balance sheet.

As previously discussed, part of the rationale of making less on the pro rata repayment under our credit facilities in the Diamond S transaction was to partly finance the acquisition and installation of scrubbers for all 11 vessels remaining in CPLP.

On slide 13, we review that container market. Demand for the Neo-panamax market is strong with rates for 8,000 TEU vessels having doubled since the end of 2018 from $12,000 to $24,000 per day.

At the same time, supply is expected to remain scarce. Currently, operators are seeking long-term coverage for larger strategic vessels of 8,000 TEU and above and have even begun to commit vessels for 2020 delivery.

Demolition year-to-date has been quite robust compared to last year as approximately 94,000 TEU have been scrapped until the end of April, which compares with 112,000 TEU for the full year of 2018. The order book for containers stands at 12.6% remaining close to historical lows and a slight decrease from 13% in the previous quarter.

Moreover, the overall container vessel demand is predicted to grow by 3.8% in 2019, which is notably higher than the estimated supply growth of 2.6%. It's noteworthy that vessels which are currently or will go for drydock due to scrubber installation are not considered in this forecast.

Supply is also expected to be constrained by a decrease in average speed as due to the implementation of IMO 2020 and the subsequent to higher fuel costs shipowners, liners, and operators are expected to reduce bids in an attempt to lower the overall cost.

Turning to slide 14, we describe some of the positive fundamentals benefiting the container market, which partly explain the increase in charter rates for Neo-panamax vessels. The positive trend primarily seems to be connected to supply factors, including the historically low order book, slippage running at elevated levels, higher scrapping which has already reached 80% of the full year scrapping of 2018, and the number of vessels which have been retrofitted or are expected to be retrofitted with scrubbers over the coming quarters.

It is estimated that 71 container vessels are in the process or have been already scrubber retrofitted and another 287 are expected to be retrofit in the remaining of 2019 and 2020. This represents 7% of the fleet, but importantly, 14% of the fleet's TEU capacity.

On the back of this positive developments, the idle fleet has decreased substantially and is presently standing at 1.5% of the total fleet.

At such levels, operators are already facing challenges allocating the most suitable vessel for its trade, explaining the earlier mentioned interest in 2020 vessels and why we expect modern, wide-beam container vessels to continue to outperform standard container vessels both in terms of charter rates as well as period duration.

Moving to slide 15, the Partnership has access to a number of assets that could be potential dropdown candidates. Our sponsor has a variety of vessels with long-term employments, all fixed at solid rates that could be suitable to be dropped down to CPLP, including tankers and containers.

With the Diamond S transaction behind us and with a strong balance sheet including an enhanced cash position, good charter coverage, cash flow visibility, and an improving container market, we are well-placed to consider how we will grow our asset base again with a view to growing our long-term distributable cash flow.

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

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. (Operator Instructions). Thank you. We will now take our first question. Please go ahead. Your line is open.

Sean Morgan -- Evercore -- Analyst

Hi, guys. This is Sean Morgan from Evercore.

Jerry Kalogiratos -- Chief Executive Officer

Hi, Sean.

Sean Morgan -- Evercore -- Analyst

So, just a couple of quick questions. The Agamemnon -- the Cape Agamemnon has a pretty attractive charter rate now, and I guess it expires in 1H, 2020. Would you look to try to recharter that at potentially a lower rate or would you look to possibly exit the segment or what do you think in terms of drybulk?

Jerry Kalogiratos -- Chief Executive Officer

I think we will take that decision closer to the date. The vessel is expected to be redelivered sometime around June, July 2020. If you look at the rechartering of our vessels as it stands today, the two 8,000 TEU containers, but also the step ups that we have secured for the HMM charters, you would see that these more than make up for the expected drop in the earnings of that vessel.

Now, for the moment, we have the intention and -- is to continue with that vessel and we have booked the scrubber. And -- but again, as I said, it will a bit depend on what we see in terms of period interest closure to the date.

We might decide to sell the ship as you say and let's say focus on another asset class or we might decide that depending on what we see in the period market to go ahead with installation of the scrubber and secure a longer term charter for the ship.

Sean Morgan -- Evercore -- Analyst

Okay. And then on the existing fleet, I think you guys took a pretty material writedown on the fleet that was disposed of the Diamond S. Was the existing fleet -- did you do an impairment test on the remaining container ships at that time, or are those sort of insulated from any kind of impairment due to the long-term charters that they have in place?

Jerry Kalogiratos -- Chief Executive Officer

No, we do an impairment test every quarter for our fleet, both in the past as well as of course for this quarter. And the impairment test did not result in taking an impairment on our continuing fleet.

The reason that we had to take an impairment on the tanker fleet, which is part of our discontinued operations was that their carrying value was simply at the time of the transaction below the estimated fair value. But we do an impairment test every quarter.

Sean Morgan -- Evercore -- Analyst

Okay. So the fair value of the residual remaining fleet is fine where you guys have?

Jerry Kalogiratos -- Chief Executive Officer

Exactly.

Sean Morgan -- Evercore -- Analyst

Okay, great. That's all from me. Thanks.

Jerry Kalogiratos -- Chief Executive Officer

Thank you so much.

Operator

Thank you very much. We will now take our next question. Please go ahead. Your line is open.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Great, thanks. This is Ben Nolan from Stifel. Thanks, Jerry.

Jerry Kalogiratos -- Chief Executive Officer

Hi, Ben.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

I have a few, but just really quick. First, just I guess for modeling purposes, are there any -- should we expect any other discontinuing operation, line items or preferred issues in subsequent quarters or is all of that now backward looking?

Jerry Kalogiratos -- Chief Executive Officer

No. It is all backward looking, of course, when it comes to comparative periods, you will -- you won't have discontinued operations, but you will have the preferred interest in the continued operations when it comes to the comparatives, but going forward, you will have none of that.

So, this is also why I mentioned in our prepared remarks that in this quarter if it wasn't for the preferred interest, our revenue (ph) would be closer to $0.40 as opposed to the loss of $0.10.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay, got you. So, just wanted to make sure there. Now, as it relates to the regular Agamemnon that does comes off, sort of, I guess in the next few weeks or months or whenever it is.

That is -- it looks like you're installing a scrubber in the third quarter and I know in the release you said that ships of that 8,000 plus -- 8,000 TEU plus or the market is 24,000. I'm curious now I'm sure you're having discussions with charterers about the use of that ship, scrubber fit and I assume the 24 is for non-scrubber fit.

Are you getting any closer to any sense of what that scrubber premium might be worth to charterers relative to, kind of where the market is?

Jerry Kalogiratos -- Chief Executive Officer

That's a good question. So, the -- as we've discussed in -- during the presentation, there is a lot of interest for 8,000 TEU plus ships, the supply scarce and especially for ships like ours where you have AMP installed, so cold ironing that's, I think especially attractive for charters.

At the same time, you have to take into account that charterers over the last few years with a few exemptions have been quite spoiled in terms of choice. There was always a kind of a perceived oversupply of container ships and suddenly, we have seen the rates rise.

So, liners are definitely there to pay up. We have seen ships potentially inferior to ours having being fixed at around $24,000 per day for 12 months. But what we haven't seen much of is longer period commitments when it comes to vessels without scrubbers.

So, I think there is a push and a pull here. So, for owners like us who take it upon us to spend the CapEx and then secure a fixed return on that scrubber, I think we will be able to achieve a longer period. But definitely at a lower perceived rates than you would get, let's say for one year or maybe two, if you were to commit today a ship without the scrubber.

So, that's a complicated way of saying that, we are together with some other owners trying to create a market -- a long-term market for these vessels. And the question that -- the real question is what is the rate for an 8,000 TEU -- the long-term rate for an 8,000 TEU vessel without a scrubber and then you can discuss what the scrubber premium is.

And I think that's what's missing from the market now -- right now. There is no less than or isn't less than for a long-term period. So we are looking -- what we want to do here is, find long-term employment, preferably for those two ships, but at a rate that does not represent, including the scrubber, a big discount to what the current market is. If we don't see that, then we might actually go for a shorter period and aim for a higher rate.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay. Now that's very detailed. And I certainly appreciate the color and understand that the principle behind it. And then lastly for me, just again, kind of looking at the drop down candidates, you primarily found a combination of container ships and crude tankers.

But I'm curious if you can -- some of those are a little bit older, 2010, 2011 versus more modern crude tankers, but generally, it looks like they have pretty good time charters across the board.

As you're thinking through drop downs, and the right price to pay for drop downs, how do you weigh in or, I think, one of the areas that a number of MLP have gotten in trouble is buying older equipment at -- on the basis of cash flows without taking into account the older nature of the assets.

What's the right discount in terms of how you think of valuing the cash flows or something that might be 2010 or 2011 versus 2018?

Jerry Kalogiratos -- Chief Executive Officer

I think it's a combination of factors. So, with an average age of around 70 years today, we have a fairly modern fleet. Definitely, it qualifies as modern when compared to a number of our peers, but we are very much cognizant that, as you say, these assets have a finite life and partly the Diamond S transaction was done also for this -- the very same reason that increasingly those assets would be inappropriate for our business model.

So, I think, the answer or the board when it will contemplate drop downs, it will look at distributable cash flow accretion. It will look at, for how long this accretion is secured, so that is a tender of the charter, and then as you say, the age of the fleet.

And of course, again, there is a bit of a push and pull in the sense that you'd get obviously better returns from an older vessel compared to a newbuilding especially nowadays, depending on what the debt amortization is, which is a very big factor in the accretion calculation.

So, I think, it's going to be -- in the end, it's going to be a combination of all these three. I'm not sure if we have a particular number for you when it comes to what discount these vessels should be acquired for. But in my mind, overall, I think, vessels around six -- 70 years of age, which is our average age, are actually quite a nice spot, a sweet spot when it comes to acquisitions and return on equity.

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Okay. Now that's very helpful. I appreciate. Thanks Jerry.

Jerry Kalogiratos -- Chief Executive Officer

Next Ben.

Operator

Thank you very much. The next question today comes from the line of Amit Mohindra. Your line is open. Please...

Liam Burke -- FBR Capital Markets -- Analyst

Liam Burke.

Jerry Kalogiratos -- Chief Executive Officer

Hi, Liam.

Liam Burke -- FBR Capital Markets -- Analyst

Hi, Jerry. How are you doing today? Jerry, could you -- you've got a multiple dropdown opportunities, could you talk about your current liquidity situation and how much funding or dry powder you have to fund potential acquisitions?

Jerry Kalogiratos -- Chief Executive Officer

Post transaction or rather let's say today, which is even more important. We have an enhanced cash position compared to where we were before the transaction. We have approximately $60 million in cash sitting on the balance at the day after the quarterly debt repayment, and after also significantly reducing our payables, which were mostly associated with our tanker business.

Now with $5.5 million restricted cash, and all our vessels on time charters, our working capital requirements are limited. And as such that's leave approximately $40 million in the cash to fund CapEx related to scrubbers and of course potential acquisitions.

Now, you should add on top of that, that with our contracted revenue profile and given what our common unit distribution is today, we should have a portion of free cash flow to fund future growth as well.

So with let's say, $40 million of available cash on top of our, let's say of a $20 million buffer, working capital buffer, which I think is more appropriate for 11 vessel fleet with -- on time charters. We have some scrubber CapEx, but as I said, we are also generating cash and putting aside cash every quarter.

I think that should easily allow for about $30 million or $40 million of that money to be deployed within 2019 for acquisitions. If you want on a 50-50 debt equity basis, that would be anywhere between $60 million to $80 million of new acquisitions.

Liam Burke -- FBR Capital Markets -- Analyst

Sure. And then looking at your potential drop downs, do you see anything outside of the dropdown opportunity to do on the acquisition front or are you going to stay within the dropdown model?

Jerry Kalogiratos -- Chief Executive Officer

Well, there is definitely no obligation to remain within the dropdown menu. Typically, we think -- more convenient to look at the sponsor's dropdowns because they are for us. They can wait for us. They can wait for our process.

They are typically good assets from a stable that we know quite well. But if there are other opportunities in the secondhand market or M&A, if it came down to that, we are definitely open.

What we do recognize is that we need to grow our asset base again. We have been quite busy closing the transaction and also making sure that we get the reporting right, which is more complicated than our usual reporting.

But I think over the coming months, management together with the Board would look at the whole menu be it dropdowns from Capital Maritime or anything else outside of that.

Liam Burke -- FBR Capital Markets -- Analyst

Great. Thank you, Jerry.

Jerry Kalogiratos -- Chief Executive Officer

Thank you, Liam.

Operator

Thank you very much. We will now take our next question. Your line is open. Please go ahead.

Chris Snyder -- Analyst

Hey. This is Chris Snyder on for Amit. So, first question just following up on the scrubber premium, so you got roughly $5,000 per day premium on the five high-end (ph) day 5,000 TEU. So, the rest of the container ship fleet is larger.

So, is it fair to think of this as kind of the baseline rate and the premium could -- could actually come in above that on the bigger ships?

Jerry Kalogiratos -- Chief Executive Officer

Hi Chris. Not necessarily, the HMM arrangement was a bit unique in the sense that we had a superior negotiating position, if I may say, in the sense that we had a very long-term charter. So, the installation of the scrubbers, if the charter wanted to have it as they did, it went through the owners.

Also, I think we were -- we had a bit of an early movement advantage, because when we were negotiating the scrubber, the spread between high sulphur fuel oil and gas oil or at least compliant fuel was much wider than it is today.

So, 5,000 TEU vessel consumes on average from our historical, let's say, data around 14,000 tons of heavy fuel oil that is main engine of generators. At today, the spread is smaller, it's closer to $200 (ph), if you compare it to very low sulfur fuel oil for first quarter of 2020. But that would still be a substantial saving for the charter.

Now, for the 9,000 TEUs, for example, or the 8,000 TEU vessels where the vessels are coming off charters, it's going to be a new negotiation. So, I wouldn't necessarily expect us to be able to achieve the same kind of a return at least on the scrubber installation.

Chris Snyder -- Analyst

Okay. Thank you for that. That's interesting. So, I think, you guys said, you have about $60 million to $80 million of purchasing power over the somewhat near-term. But I guess, I was kind of wondering on, if you did see something very attractive would you guys consider using shares as a source of currency? I think the yields were around 12%. So, it's obviously kind of high, but it's just kind of wondering how you thought about that given where we are in the cycle.

Jerry Kalogiratos -- Chief Executive Officer

No, I think that as we also pointed out in the presentation, the valuation of CPLP today is I think, at least compared to its peers, quite low. I mean almost across many of the financial and operational metrics, we have a strong balance sheet in modern fleet, some distribution coverage, and importantly, after adjusting for a conservative capital reserve and the longer remaining charter duration.

And if you look at our rechartering exposure that lies predominantly in Neo-panamax container sector, which is actually doing quite well as of late. So, I think before we use common equity at least at this valuation as at all, I think we would need to see our equity valuation improve and I think that will happen as the -- the characteristics that I just mentioned and the ones that you saw on page six of the deck become more apparent to the investor community, but also as we deliver growth in an accretive manner, mostly with internally generated cash flows and cash sitting on the balance sheet.

Chris Snyder -- Analyst

Okay. Yeah, makes sense. And then just real lastly, so you guys kind of talked about crew tankers, container ships and maybe even LNG as a source of growth.

When you are kind of evaluating all these options, how much -- or you're just looking for what you think is the best deal on whether it'd be like a DCF or just freight value. And how much are you taking a view on each of these different segments and saying hey, I think, this one's going to outperform that one?

Jerry Kalogiratos -- Chief Executive Officer

Yeah. So, that's a fair question, I guess. The idea is, to look at the transactions that have, I would say, medium to long-term charters, that would be anywhere between three to five years remaining charter duration. We do have a view, as you say; some segments long-term have a very good potential. LNGs, for sure, it's easy to construct a story, whereby you can see that long-term demand growing.

But, I think, also, to be honest, in the shipping world anything -- any projections over two, three years, they are, let's say, more theoretical as this is also very geopolitical. So, I think, if you look at unsecured long-term charters, the accretiveness of those tangible charters is what will be mostly driving the decision. And what do we need to make sure is, that we actually find assets with that good charter coverage.

Chris Snyder -- Analyst

Okay. Makes sense. Thanks for the time, Jerry. I appreciate it.

Jerry Kalogiratos -- Chief Executive Officer

Thanks, Chris.

Operator

Thank you very much. (Operator Instructions).

We'll now take our next question. Your line is open. Please go ahead.

Randy Giveans -- Jefferies -- Analyst

Jerry, this is Randy Giveans from Jefferies. How are you?

Jerry Kalogiratos -- Chief Executive Officer

Hi, Randy, I'm well, yourself?

Randy Giveans -- Jefferies -- Analyst

Hey, good, good. So two quick questions from me, first, we're assuming a coverage ratio of about; let's call it two times for CPLP later this year and 2020. Obviously, units are yielding 12%. So what is your distribution coverage target and thoughts around possibly growing the distribution?

Jerry Kalogiratos -- Chief Executive Officer

So for this quarter, as I said in my prepared remarks, the coverage for the continued operation was about 1.4 times. There is -- you have a few things happening in 2019, so you have potentially the rechartering of one of our 8,000 TEU ships. If we were to recharter that vessel and/or let's say, a shorter term charter is definitely upside to that -- to the number that it is fixed today.

But at the same time, as we discussed in the presentation, there will be significant off-hire associated with the scrubbers. So I think, when you're looking at the coverage of 2019 and 2020, these are not really -- just let's say, the first half of 2020, you have to take into account this off-hire, because it's going to affect the coverage from one quarter to the next.

So, right now, we're not targeting a specific coverage. What we have said is the capital reserve. And the capital reserve is equal to our debt amortization and I tried to make a point in the call earlier that this is a very conservative reserve higher than many of our peers put aside.

Given what the yield is today, I don't think it makes an enormous sense to increase the distribution simply on the back of improving, let's say cash flows going forward. But as we see our valuation normalize, we might revisit this again. In the end, the game is to increase our distributable cash flow, but we have to be also -- we have also to get to a more fair valuation in order for us to consider increasing the distribution without a dropdown.

Randy Giveans -- Jefferies -- Analyst

Okay. That's fair. And then I guess lastly from me, obviously the U.S.-China trade war, making a lot of new headlines, so how do you see the container ship market being impacted by possibly no trade deal in 2019 versus a trade deal actually happening relatively soon?

Jerry Kalogiratos -- Chief Executive Officer

So as you know, the U.S. administration first imposed a punitive tariff of 25% on $50 billion worth of Chinese industrial exports in July last year. So it has been quite some time when we had the first round of this. Now in September, we had the 10% tariff, additional tariff imposed on a broader range of goods, but it was $200 million annually.

And now this is going to be raised to 25%. And I understand that again the U.S. administration said over the weekend that they would start the paperwork to apply a 25% rate and all the remaining Chinese imports worth $325 billion, so this is quite heavy.

I understand also that China just announced that they will now raise tariffs on part of the list of the U.S. goods worth $60 billion. Now all this or the newly announced tariffs are going to apply to Chinese goods shipped from this week onwards.

So not on products already on the route to U.S. ports and given that this is going to be a transpacific trade that should give both sides some extra time until the end of the month to negotiate a settlement.

Until now, this roller coaster of trade tariff discussions had an initial adverse impact on charters appetite for long term deals. But we have also seen a short-term positive effect in the form of stockpiling ahead of the potential increased tariffs, but all this over the last few months has been kind of put in the backburner as the overall positive sentiment for large Neo-panamax vessel has taken over the agenda between owners and charterers and everybody has been focusing on the increased rates that the vessel supply grants has generated.

In other words, we have not seen much of an effect from an owner standpoint, maybe from a liner standpoint, but from an owner standpoint if anything -- rates have been rising because simply Neo-panamax vessels or 8,000 TEU plus vessels were not -- are not there in the same quantity as they were.

But to answer your question more directly, I think that in order to have a sustainable environment for vessel charter rates in the medium to long run, we need the operators to have -- to operate at better margins. And if we see a substantial reduction in global trade. That would be a step in the wrong direction.

But from the -- again from the micro world of an owner facing the liner, I think the whole discussion of tariffs has not really been an issue other than the lack of -- or the decrease in long-term deals that we used to have in the past.

Randy Giveans -- Jefferies -- Analyst

Perfect. All right, Jerry. Well, that's it from me. Thank you.

Jerry Kalogiratos -- Chief Executive Officer

Thank you, Randy.

Operator

Thank you very much. There are no further questions at this stage. Please continue.

Jerry Kalogiratos -- Chief Executive Officer

And with this, I would like to thank you all for, once again, listening in today.

Operator

Thank you very much. That does conclude the conference for today. Thanks for participating, and you may all disconnect.

Duration: 48 minutes

Call participants:

Jerry Kalogiratos -- Chief Executive Officer

Sean Morgan -- Evercore -- Analyst

Benjamin Nolan -- Stifel Financial Corp. -- Analyst

Liam Burke -- FBR Capital Markets -- Analyst

Chris Snyder -- Analyst

Randy Giveans -- Jefferies -- Analyst

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