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Capital Product Partners LP (NASDAQ:CPLP)
Q1 2021 Earnings Call
Apr 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Capital Product Partners' First Quarter 2021 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer of the company. [Operator Instructions] I must advise you this conference is being recorded today, 29th of April 2021. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, capital reserve amounts, employment of our vessels, including redelivery dates and charter rates may be forward-looking statements as 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 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 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.

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Thank you, Sarah, 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. The partnership's net income for the first quarter of 2021 was $10.9 million compared with net income of $6.7 million for the first quarter of 2020. Our Board of Directors has declared a cash distribution of $0.10 per common unit for the first quarter of 2021. The first quarter cash distribution will be paid on May 10 to common unitholders of record on May 3. The partnership's operating surplus for the first quarter was $24.5 million or $14.4 million after the quarterly allocation to the capital reserve. During the quarter, we took delivery of the three 5,000 TEU sister container vessels with long-term employment to Hapag-Lloyd, which we agreed to acquire from our sponsor in January 2021. On April 7, we entered a memorandum of agreement for the sale of two 9,300 TEU containers to an unaffiliated third party for a total consideration of $195 million. Moreover, since the launching of the unit repurchase plan on 17th of February, we repurchased approximately 168,000 common units.

Finally, the partnership charter coverage for 2021 and for 2022 stands at 88% and 80%, respectively, while the remaining charter duration corresponds to 4.1 years. Turning to Slide 3. Revenues for the quarter were $38.1 million compared to $33.7 million during the first quarter of 2020. The increase in revenue was primarily attributable to the increase in the size of our fleet and the decrease in off-hire days as none of our vessels underwent special surveys during the period compared to three vessels that incurred off-hire days in connection with installation of scrubber systems and passing of the special survey during the first quarter of 2020.

The increase in revenue was partly set off by the decrease in the average daily charter rate earned by the vessels in our fleet. Total expenses for the quarter were $24.2 million compared to $22.5 million in the first quarter 2020. Voyage expense for the quarter increased to $2.2 million compared to $1.2 million in the first quarter of 2020 as one of the vessels in our fleet was employed under voyage charters compared to none during the respective period in 2020. Total vessel operating expenses during the quarter amounted to $9.2 million compared to $9.9 million during the first quarter of the last year. Operating expenses decreased during the quarter mainly due to costs incurred during the passing of the special surveys of three of our ships in 2020, partly offset by the increase in the size of our fleet. Total expenses for the first quarter of 2021 also includes vessel depreciation and amortization of $11.1 million compared to $9.6 million in the first quarter of 2020.

The increase in depreciation and amortization during the first quarter of 2021 was mainly attributable to the increase in the size of our fleet and the completion of the special surveys and the installation of scrubber systems in certain of our vessels during 2020. General and administrative expenses for the quarter amounted to $1.7 million as compared to $1.8 million in the first quarter of 2020. Interest expense and finance costs decreased by $1.3 million despite the increase in average debt outstanding during the period due to lower LIBOR weighted average interest rate compared to the first quarter of 2020. The partnership recorded net income of $10.9 million compared with net income of $6.7 million for the first quarter of last year. 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 $24.5 million in cash from operations for the quarter before accounting for the capital reserve.

We allocated $10.1 million to the capital reserve, an increase of $0.8 million compared to the previous quarter due to the increased debt amortization resulting from the acquisition of the three 5,100 TEU container vessels. After adjusting for the capital reserve, the adjusted operating surplus amounted to $14.4 million. On Slide 5, you can see the details of our balance sheet. As of the end of the first quarter, the partner's capital amounted to $430.2 million, an increase of $8.1 million compared to $422.1 million as of year-end 2020. The increase reflects net income for the first quarter and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the period in the total amount of $1.9 million and the repurchase of partnership's common units for an aggregate amount of $1.4 million. Total debt increased by $26.7 million to $406.4 million compared to $379.7 million as of the end of 2020. The increase is attributable to increased indebtedness associated with the acquisition of the three Panamax containers acquired in February 2021, partially offset by scheduled principal payments during the period.

Total cash as of the end of the quarter amounted to $60.6 million including restricted cash of $8.5 million, which represents the minimum liquidity requirement under our financing arrangements. Turning to Slide 6. The partnership's charter coverage for 2021 and for 2022 corresponds to 88% and 80%, respectively, while the remaining charter duration amounts to 4.1 years. Looking ahead, following the sale of two of our ships for which we'll discuss in detail later on, all of our container vessels are under long-term charters with the earliest charter expiration in July 2022. The Cape Agamemnon, our sole dry bulk vessel, continues to trade in the spot market, having earned approximately $15,000 per day for the first quarter of 2021. So far, the opportunistic strategy we have followed for this vessel has paid off as we have seen recently a material improvement, both in terms of the underlying charter market as well as the value of the vessel itself.

The Cape Agamemnon is expected to open up again in mid-May for new business with current market being estimated in the high 30s for Australia to chime around. As previously discussed, we will continue to monitor the dry bulk market closely as the recent increase in dry bulk acid prices makes the opportunistic divestment of this asset more attractive. On Slide 7, we review the container markets. After a strong fourth quarter, the container charter market experienced during the first quarter of 2021 probably the most bullish market over the last 20 years. A standard 8,500 TEU container has gone from fixing around $17,000 per day during the second quarter of 2020 to presently above $40,000 per day for a 5-year period. This level has not been seen since before the financial crisis of 2008/2009. Underlying the strong improvement in demand, the base case forecast for container vessel demand contraction for 2020 has been revised to minus 1.2% compared to minus 4.1% in the previous quarter, and minus 10.7% estimate in May during the outbreak of the COVID pandemic. For 2021, demand growth is expected at 6% while the 2022 forecast amounts to 3.8%.

On the supply side, the container order book has increased 17% of the total fleet capacity. Importantly, if all options and letters of intent out there are exercised, the order book could quickly rise to more than 20%. This needs to be compared against an order book of just sort of 11% at the beginning of the fourth quarter. 2023 seems especially heavy on deliveries with presently 1.7 million TEUs scheduled for delivery that year. As of quarter end, slippage in TEU terms of newbuilding container vessels amounted to 18%, including cancellations, whereas demolition year-to-date stands at only 10,000 TEU versus 190,000 TEU in 2020. Due to the increased vessel ordering, newbuilding prices have increased rapidly with most yards now being fully booked beyond 2023, especially for larger container vessels. The fall of the U.S. dollar and the increase in steel prices has also resulted in upward pressure on prices. Today, Korean yards would go in excess of 100 million for 13,000 TEU with high wafer capacity in the scrubber, while deliveries would be likely at the very end of 2023, if not early 2024. Altogether, supply growth for 2021 and 2022 is estimated at 4.3% and 2.4%, respectively. Despite the improved charter market, we remain cautious on the long-term prospects for the container market.

The longevity of the container freight and charter bull market is closely in line with the developments on the COVID-19 front, including the rollout pace of vaccines, virus mutations and their impact on quarantine measures globally and other demand and supply drivers such as the change in consumer behavior and supply chain disruptions. An easing of the logistics chain disruption going forward, combined with a more balanced spending pattern between manufactured products and services could have an adverse effect on demand for container vessels that could lead to a weaker market. This could be further exacerbated if it coincides with increased vessel deliveries on the back of the now inflated order book. Turning to Slide 8. We have entered the memorandum of agreement for the sale of two 9,000 TEU vessels, built 2015 and 2016, namely the CMA CGM Magdalena and Adonis, to an unaffiliated third party for a total consideration of $195 million. Delivery of the CMA CGM Magdalena and the Adonis to their buyer is expected in May and July, August 2021, respectively.

The Adonis and the Magdalena were acquired in September 2015 and in February 2016, respectively, both for a purchase price of $81.5 million. We expect to record a capital gain on the sale of the vessels of $48.8 million in the third quarter of 2021 and gross cash proceeds from the sale after repaying outstanding debt of approximately $97.6 million. In the next few slides, we present a few concrete examples of what the partnership can potentially do with the sale proceeds in addition to the increased liquidity going forward expected from internally generated cash flows. That is in addition, of course, to the unit buyback program we have already put in place.

Now starting with Slide 9. And while no decision has been taken by the Board, we expect that the partnership will consider the acquisition of three latest eco type 13,000 TEU container vessels currently under construction at the Hyundai shipyard in South Korea and due for delivery from October 2022. As previously communicated, Capital Maritime contracted the vessels in the fourth quarter of 2020 and is in the process of securing employment to a reputable liner company for 10 years, generating an estimated annual EBITDA of approximately $11.6 million. Assuming increased leverage and an acquisition multiple close to 10 times EBITDA in view of the 10-year charter, the three ships would generate approximately $35 million of EBITDA against equity deployed in the range of $70 million to $80 million. For sake of comparison, If you were to fix the two 9,000 TEU ships that we sold for five years -- that we sold for five years at current market levels, they would generate a combined EBITDA between the two vessels of about $30 million against an implied equity of approximately $97 million.

A 10-year charter for our 9,000 TEUs if available would come, of course, at a discount to that. Importantly, that is before taking into account the relative value proposition, which is better described on Slide 10. Here, we compare the two vessels that we have agreed to sell with a 13,000 TEU newbuilding series. As you can see here, we would be replacing two approximately 5- to 6-year-old vessels with three newly built vessels with higher capacity by 4,000 TEU and with a better speed consumption profile despite their increased size. In addition, the 13,000 TEU Series will have an additional 700 reefers, will be Tier three compliant and will come with a hybrid scrubber installed. The value of these upgrades alone and without taking into account size or age is estimated at excess $10 million compared to the vessels we have agreed to sell. Importantly, the new vessels comply with EEDI, Phase III and EEXI regulations and are expected to reduce CO2 emissions in ton mile basis by approximately 30% compared to our existing 9,000 TEU ships. As far as commercial considerations are concerned, it is important to highlight that we were one of the first companies to invest in the 300-meter LOA, higher reefer 9,000 TU design And CPLP will be again among the first to invest in the 51-meter design with 335-meter LOA.

The design, similar to what we did last time, will be built to cater for the LOA and draft restrictions in South America. This new design or class of container vessels, if you want, is built to replace the smaller 9,000 TEU class as the strategic ports on the East Coast of South America can cater now for longer vessels. Moving to Slide 11. In addition to the three 13,000 TEU containers, the partnership has access to a number of other assets that could be potential drop-down candidates, including seven LNG carriers with two in the water and another four to be delivered by the end of the third quarter this year. five of these LNG vessels have medium to long charters in place to investment-grade counterparties such as BP and Cheniere. In our view, the LNG market is currently at an inflection point with a strong upward trajectory. In comparison, as we discussed earlier, the container market feels more inflated with positive prospects in the short term but with potentially more downside in the medium to long term as demand normalizes and we see the effects of the increasing order book.

Turning to Slide 12. I would like to conclude by laying out the strategy of the partnership going forward. We believe that by releasing the equity lock in these two vessels we sold and the increasing liquidity from our internally generated cash flows, we have a unique opportunity to achieve a number of objectives for the partnership at a larger scale. First, continue with our unit buyback program that we put in place in the previous quarter, with the aim of returning capital to our unitholders on top of our common unit distribution. And at the same time, of taking advantage of the disconnect between our equity valuation and our NAV. Second, continue to grow the partnership's fleet with the aim of concluding first and foremost, accretive transactions to our earnings and distributable cash flow. But also reducing the partnership's fleet average age as well as its environmental footprint. With regard to the latter, we expect ESG considerations and especially the environmental footprint of the industry to come under increased scrutiny in the future.

The recent change in the administration in the U.S. and the ever-rising attention of international institutions to shipping and its environmental impact is expected to only add to an increasingly heavy regulatory framework. In addition, discussions with the potential inclusion of vessel emissions in the EU trading systems where other forms of taxing emissions are expected to increasingly penalize older and less efficient vessels. Hence, we aim to focus going forward on modern vessels taking into account their emissions profile as well as their contribution toward reducing the partnership's environmental footprint. Finally, to the extent we can take advantage of increased asset prices, we will continue to look for divestment opportunities of older tonnage. We are fortunate to have access in this endeavor to a substantial asset pipeline, as described earlier, amounting to approximately $1.7 billion in value with an estimated annual EBITDA of approximately $185 million.

Our preliminary estimates show that the acquisition of any combination of these assets will be highly accretive to our earnings, will enhance the sustainability of our common unit distribution and created the basis for increasing the distribution in the future will materially improve the average age of our fleet as well as the environmental footprint of the partnership and ensure long-term cash flow visibility beyond 2024 and 2025, when most of our existing charters expire and certain of our vessels approach their 20th anniversary. As we think about these potential acquisitions, it is important to note that we're going to prioritize internally generated cash flows and taking over the existing debt in place as well as explore avenues of raising additional capital, such as the preferred equity market. We hope to make progress on the above considerations in the coming months as we discuss with the partnership's Board more concrete acquisition proposals. But I do believe that the partnership is in a unique position to grow while we continue to return capital to our unitholders.

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

Questions and Answers:

Operator

[Operator Instructions] We'll now take the first question. Please go ahead your line is now open.

Randall Giveans -- Jefferies -- Analyst

Jerry, it's Randall Giveans from Jefferies how are you?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Hi Randall I am well how about you?

Randall Giveans -- Jefferies -- Analyst

Good good. All right. So looking at the asset sales, the $195 million, obviously, very good price for those two vessels. Can you speak to just how strong those asset values are right now and your expectations for containership asset values throughout 2021?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Yes, that's, I guess, a very good and typical question. The container market is definitely on steroids right now. And I think the issue for many liner companies is that there's simply not enough punnets out there. So especially when it comes to larger ships, let's say, Panamax and above, you'll see that a lot of the buying interest like in our case, comes from the liner companies themselves. I think what effectively we are doing is solving two problems. First of all, getting their hands on capacity on vessels. And secondly, also deploying cash as they are generating record high profitability. In our case, we -- I think the attraction of our ships was that they could -- at least one of them could give relatively prompt delivery. And really, I think that's the one that the buyer wanted. We negotiated two ships despite the second ship having substantially below charter attached until November of later this year. And needless to say also, the Magdalena will be delivered to the buyer without passing its special survey, which is a saving of $1 million plus and you save also 15 days off-hire. But whenever you sell a vessel in the market like this and don't get me wrong, I think there is a lot of strength. Potentially, we might see even higher prices, this price was agreed before the blockage in the Suez Canal for what it's worth.

But you have to think what you do with the money and whether there is any value arbitrage that you can take advantage of. And I think this is what I try to outline in my prepared remarks as to how you can deploy less than the money that you have freed up in a market by selling those ships. By acquiring three ships, we will generate more income for a longer period and therefore more modern, bigger and more efficient ships. But when it comes to the container market itself, I think the prospects are quite strong in the short term, and there's no doubt about that. There is a lot of interest that charter rates are still moving up and together asset prices, you have seen, in many cases, especially for Panamax container vessels, asset prices triple or in certain cases, quadruple. And I think at least until the end of the year, the market seems to be strong, and this has been confirmed also by a number of liners that have been coming out with their earnings recently.

But when you look at beyond this year and especially when you consider the order book, when it -- I think the risk could be potentially on the downside, especially if we get into a more normalized demand environment. And we have a lot of ships coming online from 2022, but especially 2023 onwards. I think it's about 1.7 million TEU that will be delivered in 2023. So it is, let's say, easy to see a weaker market down the line. But for how long the current market would last? It looks like in the short term, it's there. Now what happens beyond that, I think it's going to be very tough. And there will be definitely a lot of volatility.

Randall Giveans -- Jefferies -- Analyst

Okay. And then for the Cape Agamemnon. What are the plans on that? Is it a long-term charter? Is it selling it? What are your thoughts on that?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

I think there's plenty of momentum right now, both on the charter market as well as in the S&P market. That vessel not too long ago, I would say, maybe four or five months ago was valued at around $18 million. Today, its value is probably in the high 20s. But given the strength of the charter market, I think that there is still more room on the asset price. We will be opportunistic as we have been until now. And I think this has paid off. But I think as we move into this kind of territory in terms of asset values, we will consider very seriously a sale. But if somebody came and said five years at a fantastic rate, don't forget that, that ship came off a 10-year charter 42,000. We might look at that as well. But I think the preference would be to sell into the strength of this market.

Randall Giveans -- Jefferies -- Analyst

Got it. All right. And then lastly, just looking at Slide nine or Slide 10, even. You kind of talked about the comparison of replacing the two with the larger vessels. Obviously, they're younger, they're larger, they might have long-term charters on them. What kind of price would that drop down be? Would it be an EBITDA multiple? Like how would you think about that in terms of taking these three vessels?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Well, there is no official discussion or proposal right now between CPLP and Capital Maritime. I did assume when I was discussing my prepared remarks that the acquisition of these vessels will be -- will take place probably around 10 times EBITDA.

Randall Giveans -- Jefferies -- Analyst

Okay. I guess that's a big question here. So you're buying ships at 10 times EBITDA. Your shares are trading at less than 5 times EBITDA and well below NAV. So why not just maximize share repurchases instead of vessel purchases?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

I think we are actually buying units and which is something that we set out to do in -- we announced in the last quarter. And since we announced that, we commenced our unit buyback program on February 19. And we have acquired since 168,000 common units at an average cost of $10.6 million. So we have spent approximately $1.8 million. Now the -- I think you understand that buying back units is not the panacea. There is definitely, as you say, a dislocation between our equity value and the underlying NAV. And by having a unit buyback program, as you said, we are taking also advantage of this discrepancy. It's also accretive to our APU as well as to our NAV. But I think you also know that NAV discounts to different extents are quite widespread in the shipping industry. They're not only specific to us. And resolving them through unit buybacks or share buybacks, as you have seen, has proved to be of limited success. Importantly also, I think size and liquidity has been a better driver for closing this gap as we have seen for larger market cap companies.

Hence, I think by growing the partnership with accretive transactions to earnings as well as distributable cash flow, we should be also getting this valuation gap closed. And finally, when we're thinking about the liquidity of the partnership, we have about $60 million of liquidity sitting on the balance sheet, and then we will have additional liquidity from the sale of the two ships. So in -- by the third quarter when we deliver the second ship to their new buyers, we could be sitting on something along the lines of $175 million of cash when our market cap is approximately $230 million. So I think to the proposition that we will spend $175 million of cash in unit buybacks would effectively mean that we want to take the company private. And this is not a path that we have chosen not at least at this point. I think we have plenty to do. We can grow the company. And together with the unit buyback program that we have, close the NAV gap in a different way. This argument, I think, has definitely value, but it's not, as I said, the panacea for all the yields and problems.

Randall Giveans -- Jefferies -- Analyst

Alright well that is it for me. Thank you.

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Thank you Randy.

Operator

Thank you. We'll now take our next question. Please go ahead your line is now open.

Liam Burke -- B. Riley Securities -- Analyst

Liam Burke, B. Riley. Hi Jerry how are you doin today?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Hi Liam, I am well how are you?

Liam Burke -- B. Riley Securities -- Analyst

I am fine. Thank you. You talked about asset sales, age of the fleet, age of specific vessels as being a potential motivator for selling. You've also talked about how the LNG market looks more attractive to you longer term vis-a-vis container vessels. Could you give us a sense as to how you'd like to balance the fleet over time?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Yes, that's a good question. And I don't necessarily have all the answers today. I think the point of today's presentation was to show the full range of options that we have. But it is important to note that through our relationship with Capital Maritime, we have a unique vantage point, if you want, across all the main commercial shipping markets, including containers, tankers, bulkers, and of course, LNG carriers. Stating the obvious, not all markets move together. And as a result, different opportunities may arise in different markets. Our -- this business model remains the same. So we concentrate on assets and have medium- to long-term charters in place. And we continue to pursue cash flow visibility. And importantly, tangible accretion which comes with long-term charters. You don't have to rely on what the spot market will do. So the point is that we do see the LNG market being at a turning point as LNG carrier charter market has been improving over the last few months quite considerably. And I do think that the LNG industry enjoys strong prospects. Just touching upon the key highlights. LNG production is expected to double over the next 15 to 20 years. Demand comes predominantly from the Far East where demand growth is quite strong. So this means that we will have increasing ton mile demand as a lot of the supply comes from the Atlantic.

And when it comes to values, the LNG market saw low newbuilding prices and asset prices for a while. But now we have seen asset prices increasingly pick up. Shipyards are full with container orders, with very large LNG orders on the back of certain tenders. And we expect that asset values will start increasing in the medium to the long run, driven by both the charter market strength as well as the replacement cost. In addition, propulsion and cargo containment technology has been an investment deterrent in the past. But now technology has reached a plateau and there are no visible technological changes in the near future. And finally, and I think that's going to be an important pillar to our strategy going forward and, be it containers or any other types of ships, LNGs or whatnot. LNGs do deliver improved -- an improved CO2 footprint. Their CO2 emissions per ton mile are significantly lower to our container vessels, and they could improve for CPLP's emission profile. So when you look at the funding of these acquisitions, for example, if there was a larger transaction, you could also look at "green or sustainability bonds" or other forms of capital. So I do think that LNGs are probably in a better part of the cycle compared to containers, so there's more upside there. But of course, if we move on assets like this, it would be again with medium- to longer-term charters in place.

Liam Burke -- B. Riley Securities -- Analyst

Thank you Jerry. Just very quickly, you highlighted the benefits of your buyback program. Is there any -- what is the thought on the unit distribution? Are you just happy where it is? Or is there any consideration of balance buyback with looking at the distribution?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

I think we will focus on returning capital to unitholders through the unit buybacks at this juncture. As I said earlier on, effectively, it's two birds with one stone. We're returning capital and we are taking advantage of the dislocation between NAV and our equity valuation. But what I can say is that if we do execute even partly on our growth program and given the accretion of the potential acquisitions, our distributable cash flow will grow dramatically in the future. And then we can also revisit the distribution.

Liam Burke -- B. Riley Securities -- Analyst

Great. Thank you Jerry.

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Thank you Liam.

Operator

Thank you. We'll now take our next question. Please go ahead your line is now open.

Benjamin Nolan -- Stifel -- Analyst

Hey Jerry, Ben Nolan from Stifel. So I wanted to come back to maybe Randy's last question a little bit. You talked about looking at those new containerships at maybe 10 -- a 10 times EBITDA multiple. Well, actually, before I get there, just going through the fleet list, it looks like there's a whole lot of additional containerships that the sponsor has on orders? Is there anything that precludes those from being part of the pool of assets that might be available?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

We are concentrating more on assets that we have good visibility with regard to deployment. Other vessels that have not found employment or are simply not available to us, they're not to mention here. The sponsor has also -- has newbuilds, has also older secondhand ships in the water. But firstly, the older secondhand ships, we won't look at. I think we have laid out the strategy. And these vessels that we do present are vessels where we think that there will be long-term employment and fit the profile. If this change one way or another in the future, then, of course, we will consider. But I think these are the most suitable kind of candidates. And just to make clear, let's assume for a moment. And again, as I said earlier on, there is no formal discussion right now between CMTC and CPLP in any form. But let's -- if we were to assume that the acquisition price of this three 13,000 TEU vessels was $115 million and $116 million or in the mid $110 million, let's say, just for the sake of argument.

What I was trying to say, to illustrate on Page 10, it is that irrespective of the fact that you are deploying less equity that you had in those -- in the two 9,000 TEU ships, and you are generating more EBITDA and for 10 years, if you just look at the relative valuation proposition alone, even if there was no charter, if you are replacing a vessel that you sold for $97 million with a vessel that will cost you $115 million, and it's larger, importantly, it's five to six years younger, it has a scrubber, it is Tier three NOx compliant, this is -- I mean the reefer capacity is another 700 reefers. I mean that just the upgrades alone cost $10 million. So you are getting effectively the charter and the age differential for free. So I think it would be an extremely nice arbitrage if we were to achieve that. Obviously, there is a gap in terms of earnings because those vessels are in the water today and they could have achieved high 40s to 50,000 for five years. But in the end, and given also our long-term view of the container market, I think that if we manage to somehow replace those two 9,000s with three 13,000s, that would be a great outcome.

Benjamin Nolan -- Stifel -- Analyst

Right. And I would agree, all else equal. The one pushback I was going to give is that most drop-downs, and there's not been many, but most drop-downs have been sub-10 for a while. And especially, I would imagine, if you're a little bit less constructive on the container shipping market, you probably would not want to push the envelope with respect to the multiple that you're paying on the assets. So maybe nine, 9.5 would -- is sort of -- would appear to me at least to be kind of the going multiple, which would put the price closer to $100 million, maybe $105 million. Is there any reason that you'd be thinking differently on that?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

I think the main difference is that until now all these transactions that you're referring to were either for older ships or ships -- newbuild ships that had five year charters or three year charters or four year charters. This is 10-year charter effectively at 10 times EBITDA means you have paid down the ship in 10 years. And the other reason -- and again, this is a discussion that I think it's premature. But the other reason is that today, if you were to try to get that, say, from a shipyard, you would be quoted $120 million plus for delivery at the end of 2023. So you wouldn't even be anywhere near this type of acquisition price. So -- But again, this is very premature in the sense that in the end, CMTC and CPLP might come to completely other understanding of that. I'm just using the 10 times EBITDA as a placeholder here as it has been also -- as we have seen also many other companies recently acquire assets at these or higher multiples.

Benjamin Nolan -- Stifel -- Analyst

Right. So now taking sort of that conversation and flipping it over to the LNG ships that you have sort of laid out there on Page 11. I don't know where the charters are, maybe actually, could you give any color as to sort of what the EBITDA would be on those? And is it relative to, I don't know, that nine to 10 times multiple? Is that something that you can efficiently be able to do on those vessels as well?

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Yes, because I think -- there's a lot of confidentiality around the contracts at this point. Let us say that the EBITDA that we were discussing -- I gave you an EBITDA kind of estimate for all 10 ships. I would say that, let's say, it will be in the mid- to -- mid-60,000 to 70,000, that type of range. Over time, some have much higher charters, some have slightly lower charters. But the important thing is that, again, the acquisitions will probably be in the same range that you described, nine to 10 times. And don't forget, these are assets that have 35 years plus of useful life.

Benjamin Nolan -- Stifel -- Analyst

Okay. Alright very helpful appreciate it. Thank you.

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Thank you.

Operator

Thank you. I'll now hand back to Mr. Kalogiratos, for any closing remarks.

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Great. Thank you, Sarah, and thank you all for joining us today.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Gerasimos Jerry Kalogiratos -- Director and Chief Executive Officer

Randall Giveans -- Jefferies -- Analyst

Liam Burke -- B. Riley Securities -- Analyst

Benjamin Nolan -- Stifel -- Analyst

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