Atlas Corp. (ATCO) Q4 2020 Earnings Call Transcript

Welcome to the Atlas Corp. Fourth Quarter 2020 Earnings Conference Call. I would like to remind everyone that this call is being recorded today, March 9, 2021. I would now like to turn the call over to Robert Weiner, Head of Investor Relations of Atlas Corp.

Thank you and good morning everyone. Thank you for joining us today to discuss Atlas Corp’s fourth quarter 2020 earnings. We issued our earnings release last evening after market close. We will refer to our quarterly earnings release, a company earnings presentation and supplemental documents today in this conference, which all can be found on the Investor Relations tab on our Web site www.atlascorporation.com.

Thank you, Rob, and good morning, everyone. This is Dave Sokol speaking, Chairman of the Board of Atlas Corp, and I would like to welcome all participants today and express my appreciation for your time and attention to our presentation. I’ve asked Bing to allow me to open today’s call with a bit of a look back over the past 3 years, which encompasses the time since Bing joined as CEO in January of 2018. What Bing and his team have accomplished is extraordinary and deserving a clear recognition. We have a wonderful company, a global multi platform business that our team is very excited about. Atlas is uniquely positioned as a long-term capital allocation, global multi platform investment opportunity with key attributes. Three of those attributes are: first, a resilient business model, which ended 2020 with nearly $11 billion in total gross contracted cash flow, pro forma for $5.9 billion of gross contracted cash flow added from recent vessel acquisitions, including 31 newbuilds and two secondhand vessel acquisitions, to create greater clarity for investors, we will be discussing total contracted cash flow today and in the future.

Thank you, David, and good morning, everyone. I would like to first welcome our new CFO, Graham Talbot. Graham is a full-fledged CFO with a world class finance background and decades of experience at global organizations. Since joining in February, he is already a key contributor to our organization. In 2021, I look forward to working with members of the investment community along with Graham and Rob to increase your awareness and appreciation of Atlas' resilient and differentiated business model. Now, let me turn to our performance. Please turn to Slide 13. Looking back at 2020, what a year it has been for the world and markets. The pandemic shutdowns, uncertainties, economic opportunities and consequences and the volatility caused by it all. 2020 was quite a year of unprecedented challenges. I'm happy to report that not only have we exceeded our financial guidance for 2020, but we have emerged stronger, more resilient and have proven our operational excellence. I'm very proud of Atlas' achievements in 2020. But especially how our teams stood ready, adapt well, stayed focused, overcome obstacles and execute with precision, safety and compassion. Our 2020 performance was very strong building significantly upon 2019's momentum. Atlas achieved the following financial milestones in the fourth quarter of 2020. Our core financial matrix all improved quite dramatically in the fourth quarter of 2020, including total revenue growth of 25.9%, adjusted EBITDA growth of 32%, funds from operations or FFO grew significantly by 45.2%. FFO per diluted share growth was 26%, cash flow from operations growth of 53.6%. This is quality growth. All matrix generated strong double-digit growth despite the operational challenges posed by pandemic. This is a testament of our differentiated and resilient business model and our team's commitment to consistent operational excellence and a strong execution. Our 2020 results included a impairment of certain APR assets under their purchase accounting principle following the acquisition in February 2020. The impairment resulted from a independent asset valuation assessment, which also had further third-party opinion and verification. We acquired APR in February 2020 and this process is a typical analysis, which is completed following the first year ownership of acquired assets. But I would like to reiterate that we do not view this as a changing of our principles and the reasons why we acquire APR. The APR acquisition value proposition stands strong, the business is stable and the platform remains viable for future expansion.

Good morning, everyone. Firstly, I'd like to thank Bing for the warm welcome to Atlas. I look forward to working with you and Rob as we engage the investment community going forward. I'll begin my remarks by saying that I'm very excited to join the Atlas team. We have a very robust core business platform and a significant opportunity to continue to develop both our maritime and energy businesses as we simultaneously optimized the Atlas Shared Services model. Consistency is the best way to characterize our financial performance. That is, consistency in relation to our core asset cash flows and consistency in relation to quality growth. Atlas' fourth quarter financial performance was very strong. Compared to Q4 2019, our total revenue increased by 25.9% to $362.7 million, 56% of the increase in revenue was due to the contribution from APR, while Seaspan's revenue increased 11.3% to $320.6 million, primarily due to the expansion of our fleet. The 32% year-over-year increase in adjusted EBITDA was driven by increased revenue, operating expense leverage and lower than expected G&A in both Seaspan and APR. FFO increased by 45.2% as a result of the acquisition of APR and continued growth in Seaspan. We ended the year with over $770 million in liquidity and paid our 62nd consecutive dividend. Seaspan closed out the year with vessel utilization of 99.6%. That's pretty close to perfection, reflecting a very robust container shipping market coupled with operational excellence. APR's asset utilization was as forecasted at 61.8%, reflecting lower utilization as we demobilize the Mexicali project in Q3. During 2020, Seaspan's fleet capacity reached approximately 1.1 million TEU, reflecting the 15 vessels we added during 2020, which would begin to add light in Q4 of 2019. At the same time as delivering these great results, we also improved our safety performance as measured by lost time injury frequency, which declined by 32% to 0.47 at Seaspan and sits at near record lows from 0.76 at APR. The key investment attribute of Atlas is a long-term gross contracted cash flow, which stood at $4.8 billion at year-end for Seaspan and $284 million for APR. The total gross contracted cash flow of $5.1 billion. This does not include any of the recently announced acquisitions and newbuilds, which will contribute further in the coming years. Also note that our $5.1 billion of contracted cash flow pictures an average remaining lease period of approximately 4 years at Seaspan and just under 2 years at APR. Beginning late in 2019, and consistently throughout 2020, we grow our fleet by acquiring 15 young high value vessels. These vessels further strengthen the quality, depth and versatility of our fleet, while also increasing our overall scale, which is an important element of our success. We actively screen both new and secondhand vessel acquisitions, and during the year we turned down a number of opportunities, which did not meet our investment criteria. Each transaction that makes it through our screening has to be driven by customer needs and the creation of mutually economic solutions. Quality growth is a key distinguishing characteristic of our company. But investors should also take note and be assured by our strong financial and capital allocation discipline. Our investments, capital expenditures and acquisitions are all governed by strict capital allocation disciplines which target at a minimum, high single-digit unlevered returns coupled with risk litigation that we diligently adhere to that every incremental investment dollar. Our ability to continuously deliver high quality results and growth is not due to a single factor. There's a combination of many factors that provide a unique full cycle platform and delivery of unmatched and timely customer solutions. These are distinguishing attributes which not only differentiates us from our market peers, but also many mid cap equity investment choices in today's financial markets. Atlas closed out 2020 with continued strong performance delivering value for our customers, business partners, shareholders and employees. While I’m new to the company, I must point out that I find our team's commitment and day-to-day performance gratifying and inspiring, which gives me confidence in our ability to sustain our high performance. Please turn to Slide #23. Now we will turn to the full year financial performance for 2020. Again, as an outsider coming in, the growth has been stunning to me. Many regard the sector is cyclical and driven by external factors outside of management control. It's clear from our 2020 revenue growth of 25.6% that this is not true. Needless to say 2020 has set a benchmark for the organization going forward. Highlights for Atlas full year 2020 performance include: revenue growth of 25.6% compared to 2019, reaching a record of $1.421 billion. FFO growth of 65.8% to a record of $622.3 million. FFO per diluted share growth of 45% to $2.48 and adjusted EBITDA growth of 29.3% to a record of $923.8 million. As you've seen from our recent news, together with our customers, we've been working on newbuild opportunities which have resulted in over 31 newbuild vessels under contract, yet we continue to have secondary market opportunities as well. As Bing mentioned, we have added $5.9 billion of gross contracted cash flows with industry leading customers. This brings our total long-term gross contracted cash flow to $11 billion, and with a total fleet average charter duration of 6.5 years. This is a fantastic accomplishment. Please turn to Slide #24. Now looking at our liquidity and balance sheet, we've strengthened our liquidity by 64.1% during 2020 to $771.3 million at year-end. In APR, we conduct an extensive third-party asset value assessment, which resulted in an impairment of $117.9 million. A number of factors drove the change, including the continuing impact of lower power demand globally, which is increasingly affecting the market value of assets, our strategic decision to progressively exit diesel power generation market due to our ESG principles, and finally, the consolidation and streamlining of warehousing facilities in Jacksonville. The lack of a rebound IN new projects within the overall energy markets primarily in our view associated with COVID that lasted longer than many are anticipated, and has resulted in restraints on new capital commitments, which we see continuing. While never desirable, the reduction in asset values are primarily associated with legacy technologies and fuel sources that do not represent where we plan to take the business in the future. In 2020, the team completed several progressive financings, including a $250 million sustainability linked loan, which is added to our portfolio of financing program, both of which are first for the container shipping industry. This takes our facility up to approximately $1.8 billion at year-end. This is an important step aligning our capital structure to green sustainability linked financial incentives. This is a key focus area for us and is linked to our ESG initiatives, which you'll hear more about at our upcoming Investor Day. Seaspan achieved the investment grade BBB- senior secured rating from Kroll Bond Rating in relation to our portfolio financing program. This is an important step on our path to achieve our investment grade corporate writing from one of the major agencies. Over the next 2 to 4 years, we anticipate being positioned to achieve this milestone. Seaspan also closed an initial placement in the unsecured credit markets $201.3 million of 3.75% exchangeable senior notes. These notes carry an effective stock price of $17.85, which we view as more closely aligned with our value today. The notes mature in 2025 unless earlier exchanged, repurchased or redeemed by the company. APR close to $295 million financing during 2020, providing continued flexibility and liquidity. The package includes a revolver, term loan and a fixed rate privately placed component. In January 2021, Seaspan issued $200 million in senior unsecured sustainability linked bonds in the Nordic market, which is again creating increasing alignment to green initiatives and further diversifying our capital base. In the bottom half of Slide #24 is an important chart. As the new management team and Board came together in mid to late 2017, the team here views 2018 as the starting point for measurement of our progress and performance. When you look at this chart and see growth of 38 vessels, while at the same time you see an increase of 9 unencumbered vessels with very high sustained utilization, flat debt to assets and all with a 1.1x improvement of the net debt to EBITDA ratio. This is excellent performance. In summary, our balance sheet is strong, and we have increasing capacity and access in the capital markets. Going forward, we'll continue to actively manage our capital structure to fuel growth and optimize our cost of capital as we progress towards an investment grade corporate rating. Although we upgraded our guidance twice during the year, our final performance was either above guidance or within the communicated ranges. This demonstrates the high degree of consistency and transparency in our performance, which we continually strive to deliver. We're proud to have delivered these results for our shareholders, remain focused on continuing to execute efficiently, effectively and with high performance utilizing our five key competencies to guide our progress. Now look at our initial 2021 financial guidance. Please turn to Slide #26. With the very strong 2020 performance now behind us, we are initiating our 2021 financial guidance today. It is important to note that more than 93% of Seaspan's 2021 revenue guidance at the midpoint is under contract as of 2020 year-end and the majority of APR's forecasted revenue anticipated in 2021. This creates very strong visibility, dependability, and consistency of our cash flows, which typically is awarded higher multiples and valuation by our investors. Our guidance for the full year 2021 is as follows. Revenues in the range of $1.325 billion to $1.355 billion for Seaspan and $180 million to $205 million for APR. Operating expense of $276 million to $290 million for Seaspan and $35 million to $37 million for APR. G&A expense of $41 million to $46 million Seaspan and $45 million to $47 million for APR. Operating lease expense of $144 million to $152 million for Seaspan and $3 million for APR. Adjusted EBITDA in the range of $839 million to $874 million for Seaspan and $97 million to $118 million for APR. The financial objectives for 2021 reflect continued significant progress. We have work to do. We have a team that has consistently delivered for shareholders, who are committed and confident in our result to perform at a high level. Please turn to Slide #28. I will wrap up my remarks by discussing why we believe Atlas represents an excellent investment. I hope investors will come to see the clear competitive differentiation in our model, and the ability for its team to consistently deliver performance. We believe Atlas represents an excellent investment opportunity across all market cycles. Our business model is resilient and consistent with $11 billion of long-term gross contracted cash flows, and an average charter duration remaining of approximately 6.5 years. We have proven the power of our five key competencies to develop Atlas into an increasingly differentiated best-in-class business solution provider. Our financial position is strong with increasing liquidity and access to capital and our focus on delivering solutions for our customers will continue to drive quality growth. These are key investment attributes which are unique to Atlas and offer investors significant opportunity to partner with an industry leader. While 2020 was a very challenging year for all of us, the team at Atlas persevered has been mentioned and delivered excellent performance. I'm very honored to join the team and I look forward to continuing to build the business and stay in front of that competition. Operator, we would now like to open the line for questions. Thank you.

Our first question comes from the line of Randy Giveans with Jefferies. Your line is now open.

Gentlemen, how's it going?

Good. Thanks, Randy.

Good. So I guess first question, it's been a while since Seaspan or Atlas ordered numerous newbuildings. So I guess around that why so many maybe so quickly? And what kind of return should we expect on these time charters? Are they that much better than some secondhand acquisitions, or why it's the preference on newbuildings?

Hey, good morning, Randy. This has Bing. I will try to answer your question. Yes, I think you see the numbers of new order came quite intense over the past 3 months, but this has actually been working quite over a period of time with our global liner customers. This is really a situation where it's driven by the customer demand, okay? This is very different from what you have seen in the past, maybe a few cycles, where one is the -- driven by the German KG, where it's the tax driven, and then the other one was around 2013 where you have those PEs that come in, they saw that they're going to be able to bottom fishing the market. Those are primarily driven not by the demand side, rather is by the speculation. This time around, this -- these newbuilds are driven by the fundamental change in the container shipping market, where today our liner customers are very disciplined. That market is very consolidated. Liner companies are looking for quality of service, instead of prior -- they're looking for more of a market share. So the market fundamental is different. The -- these newbuilds were driven by our customers, and also these newbuild vessels, as we noted, they are all 12,000, 15,000 TEU and 24,000 TEU. These are the young, large, fuel efficient vessels that is very versatile, and they represent the best assets in this industry. So this time around, once again, I think it's very different. It seems to be very fast, but at the same time, really it's the market driven, and most importantly, all our 31 newbuilds are backed by long-term charter. So, this is a very important factor. And I think that that's something that we want to highlight. In terms of the return, as we said before, and we also highlight during our discussion earlier, is that we are very disciplined in terms of only grow with the quality and what that quality is -- two aspects. One is the quantitative, and the other one is qualitative. As we stated earlier, our criteria in terms of return is never changed. Just I mentioned before, an unlevered IRR basis, our returns very high single digits. And on the levered basis, on a normal leverage, I think it will be a very high teens, at least. So that's the kind of return we had before when we acquired those 15 secondhand vessels during 2020. And now we have these newbuilds. So the criteria actually is the same and with slight improvement. So we never compromise in terms of return. So this is why we're saying these are the quality growth. We are very excited. And the other part of this growth is, as David has mentioned earlier, is the diversification of our customer base and further enhance of our fleet composition. So from all these aspects, these are the very quality growth and we're very excited. We're able to partner with our global liner customers and have this kind of trust and opportunity to support their growth.

Got it. And then does that mean, no real appetite for kind of secondhand at these levels? Or is just the newbuild that much better?

Yes, once again, as you might be aware that also at the same time, I think about a week ago, we also acquired two 15,000 TEU secondhand vessels that's about 1-year old. And those are the vessels that’s also under the long-term contract with a customer. So you actually asking a very good question is that we actually are looking at -- we do not differentiate or discriminating, whether it's a newbuild, or secondhand, rather we are looking at our customer needs. We are looking at the returns, we're looking at the asset that how that fits into overall our -- that the fleet strategy, and how we're going to get the best assets that has the highest residual value. So that's the criteria, is just to name a few that how we decide to deploy the capital. And, again, looking forward, we will continue to evaluate those attractive investment opportunities as long as that brings that kind of return, enhance our fleet and meet our customer requirement. Again, all these growth is primarily driven by our customer, not driven by any speculation.

Right. Okay. And then lastly for me, you just mentioned kind of deploying capital. So on the financing side, what's the total CapEx for these 33 vessels? And how are you going to finance the acquisitions from a debt equity split? And then lastly, in terms of the dividend any plans for possibly growing it with the newbuild orders?

A good question. Thanks, Randy. I think I'd probably start answering that by saying that the balance sheet is very much managed in the same way as we manage our vessels. So very active management, continuous optimization through continuous innovation. So whenever we look at any of these transactions, a core part of the capital allocation process is to look at our long-term liquidity. And we also often have nonbinding term sheets associated with each of the deals that we look at. So it's not really an issue of how do we get the capital, it's how do we get the right capital and then how does it fit into our longer term capital structure to optimize both growth capacity, but also cost. So when we look at this newbuild program, we've got a range of different options. And I'd say there's a bottoms up view of how we sort of can finance those with the regular tools and instruments that we use. But then there's the top down layer as well, which is where we look at our longer term capital strategy, where we have to sort of think outside the box a bit. And we've demonstrated that in the past with some of the more innovative financings, and I think we're going to be continuing to look at how we can learn from other industries, other sectors, and how we optimize both debt and equity going forward. So at the moment, all of these newbuilds forecast into our cash flows. And that is keeping us well within our covenants that we have with all our existing financing partners, and we're very comfortable. So it's really around optimization rather than obtaining when we think of financing these vessels.

Okay. And in terms of total CapEx?

I don't have the number off the top my head at the moment, Randy. I think I can get it back to you, though.

Sounds good. I'll turn it over from there. Looking forward to the Investor Day. Thank you.

Thanks, Randy.

Thank you. Our next question comes from the line of Fadi Chamoun with BMO Capital Markets. Your line is now open.

Thank you. Good morning. First, maybe congratulations on really great results over the last few years. And my question is kind of a little bit of follow-up from the previous question. I wanted -- what would the pro forma leverage look like once you kind of have the 31 newbuild in 2 years into the cash flow?

Hi, Fadi. It's Graham. A very good question and something that we obviously spend a bit of time looking at as well as we model all of this out. At the sort of outturn of this on delivery, we're looking at just around 60%. We have an internal hurdle rate of 65, which relates to some of our covenants, but that's where it's at. And as Bing and I discussed, that's the forecast. So we know we are well within our covenant range on a forecast basis, but we've also got a few years of work to do on how we optimize that going forward.

Okay. Okay, and then given that the nature of these assets are on a larger ships with longer duration in terms of cash flow commitment from the customer, does it -- like, are you inclined to maybe use more leverage because there's more contracted revenues, or you're going to stick to your kind of goal of improving financial leverage in the next few years?

I think we'll definitely stick to the goal of improving our overall capital structure. And as we've mentioned a few times, getting to investment grade, that provides us with an additional debt and -- of capital for future growth and also improvement around cost. So at this stage there's no movement away from that direction.

Okay. And one follow-up on the JV conversation. I think you mentioned some opportunities in the maritime industry. Would that be the same vertical you're in today the container shipping or are there other opportunities in that JV to maybe expand outside of that in the maritime industry?

Yes. Good morning, Chamoun. This is Bing Chen. I will try to answer that question. Yes, the JV that we have formulated is with ZE Group, which is a -- maybe I can give you just a quick overview of who is the Zhejiang Energy Group. This is a holding company with over 20 years of history. It's similar to that of Costco in the energy business in China. This is a state-owned, integrated energy company. They’re many engaged in the power plant construction, power generation, natural gas development, power energy services, which includes the development, trading and transportation of petroleum, coal, natural gas and energy services, including environmental protection technologies. So this is a -- as I said, is a conglomerate that has a variety of the businesses. The entities that we're directly joint venture with is the T&D environmental protection company, and they actually focusing on areas of the air, water and waste substance, and also noise and other type of pollution control. The areas that -- because this is a service company within the ZE Group that as a power energy company, they need to have the environmental improvement services, and that's what this company is focusing on. So, that being the case, the areas that we can potentially cooperating with our JV partner through this JV venture, joint venture is in the maritime because they're engaged in the transportation through the maritime transportation of those natural gas, coal, petroleum, those are the areas that we could potentially cooperate in the power space because they have a track record of building the large and large scale and long-term power project, and that will be complimentary to what APRs fast power, global international experience versus what ZE today is primarily still domestic focused. And in the environmental areas, particularly in the maritime and also in the energy area, ZE, this joint -- the joint venture partner, they actually also provides the scrubber, manufacturing and installation services. And this is something that is immediately applicable to what the maritime cooperations. So there's a variety of areas that we could cooperate, both in terms of maritime and also in the energy space. And that's what we are very excited about to have such a very credible partner for us to jointly develop the business across these two platforms, both of the companies that we have and focus on developing the business.

That’s helpful. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Liam Burke with B. Riley. Your line is now open.

Yes. Thank you. Bing, you laid out in an earlier question on the IRR -- unlevered IRR on the projects, on the new acquisitions were more than acceptable to your hurdle rates. By definition, higher returns get competed away in the future. So how do we think about what you can do in future investment projects to maintain these types of returns?

Hey, good morning. As we said, we have been very disciplined. If we're looking at the past where we have been deploying the capital over the past 3 years, we actually have been very consistent in achieving this investment return. The only difference is that during the different cycles or different market conditions that we make in different types of investments. If you looking back about a year ago, we did not have any newbuilds, rather we focusing on the second half because we think that is a great time and opportunity where we can create those growth opportunities by closely working with our customers, understanding their needs, their challenges and be able to develop the solutions. And at the same time by making those capital allocation decisions to support our customers growth. So going forward, if you're looking at Atlas, I think broadly, today, we have two platforms. One is the maritime, the other one is the energy platform. If you're looking at about a year and a half ago -- a year ago, when we acquired APR and formulated Atlas Group, and I think there was a lot of concerns of -- in a market, that people are thinking that we are exiting the shipping business and focusing on energy business. But the reality is, I think just the opposite. And why is that is because of the market condition. And that is also exactly the reason why we created the Atlas platform, because that gave us the flexibility, and opportunity to best allocating the capital and consistently achieving the returns that we set ourselves for. So in the current market, I think the shipping and particularly in the container shipping market, that we see the great opportunity and that is why we were able to capture this opportunity within a very short period of time. It seems to be very fast. But on the other hand, it's only us who are able and capable to be able to execute in this short period of time, because we have the people, we have the platform, the integrated platform and also we have the partnerships with our shipyard with our financing partners, and also with our customers. So, looking at what we have done in the past and looking at our principles in terms of our people -- our people, our business model, and also the strong balance sheet that we have, we will continue to seek the right opportunity and create those opportunities through the creative partnerships that we have with our customers, whether it's in shipping, or whether it's in energy platform, that I'm confident that we have the right ingredients. We have the competencies as highlighted by our Chairman, David. With this competency, what I believe is, you call the secret sauce that we will be able to consistently find in those type of opportunities, create those opportunities and achieve the kind of return that we set out for, for ourselves.

Great. And Bing you've highlighted on the fleet side where your investment sweet spot would be in terms of vessel classes. You do have some smaller vessels in the fleet and the order book on those vessels are exceedingly lower down to zero. Would you be opportunistic on the other side of the equation and sell those assets and reinvestment -- reinvest them in assets that are more in line with your core desire of the larger vessels?

Yes, that's a great question. We actually -- we are in the business of managing the assets. So what you're talking about is something that we constantly evaluate, and this is the core capability of our business is to managing the assets and managing the risk. And to specifically to your question is, is that for those smaller vessels, as we shared earlier today about close to 79%, to be exact, our fleet about -- above 10,000 TEU. But then anything sub 10,000, which is about -- it's about 20%. Out of these 20%, we have the smallest vessel is the 2,500 and that's only 10 or 11 of them. And then we have the 4,500 and 5,500, 8,500 and 9,000 vessels. All these vessels are all under charter and most of them actually under long-term charter. So, these assets even though they're small, they're relatively older, but because of our partnership with our customers, because our reliable operations, all these vessels are on demand by our customer under the long-term contract. So at this point, they're generating part of this $11 billion of contracted cash flow. So they are working very well. We will continue to deploy them. At the same time, we also continue to evaluate if and when there's right opportunity, when these vessels come off to free for potential sales that we will consider that. But this is something definitely we will be evaluating constantly. And we also actually have a team called Asset Integrity Group, and they are the people knows exactly the residual value, the conditions of the vessel. So we're very actively managing them. And this is part of what we call the integrated platform. We manage the entire lifecycle of these assets and that's what we do and that's what we do the best.

Great. Thank you. Bing.

It's Graham here. I'd just like to circle back to Randy's question, if that's okay, just to clarify. I just wanted to double check that the my numbers included the two secondhand vessels. So the total CapEx commitment of the entire portfolio of 33 new vessels is just under $3.9 billion.

And we have $5.9 billion of contracted cash flow for this $3.7 billion in investments. So you can understand the return of the invested capital.

Thank you. Our next question comes from the line of Chris Wetherbee with Citi. Your line is now open.

Hey, thanks. Good morning. Maybe just sort of following up on that. Graham, do you have the 6 vessels that you announced yesterday, the CapEx associated with those?

Yes, I do. That's included in that number.

Can you break it out?

That's approximately $700 million for those.

Okay, got it. All right. That's helpful. And then, maybe a bigger picture question. I guess looking back to the APR acquisition, the question at the time was the relative size of that acquisition compared to the containership fleet and portfolio. And the relative small size of that. Flash forward more than a year, you've done -- you've made some significant strides in building out the containership portfolio, further minimizing the impact of APR on the total company. So when we think ahead, does it still makes sense to treat this as a portfolio company with investments across a range of asset classes, or because of this sort of overweight dynamic within the containership, does it really kind of minimize the impact of something you do unless it's something significantly more dramatic in terms of size and APR. So, it was a little curious, then. I guess, I feel like it might even be more curious now. So I'm kind of curious how you think about this going forward? Is this something that you'll be considering in terms of doing deals outside of containership, or we kind of all in now on containership?

This is David. Actually, Chris, I think it's an excellent question. I think the importance of the, if you will, portfolio effect, particularly, we're talking about these types of assets, and frankly, just when you think about it, energy assets aren't a lot different than ships in many ways. And the ships obviously move from place to place and power plants usually don't. But I think the importance of having the different platforms, on one hand, the shipping industry right now, the relationships that Seaspan has and that Bing and the team have created, we're in a very good part of that cycle. And the customer relationships and the demand for new vessels meeting changed environmental requirements, more efficient haul capabilities, et cetera, allow for that to be exploited right now. And the amazing thing is when you look at the background of contracted cash flows there, that carries the whole company on a substantial growth platform for the next 3 to 4 years, just by itself. Energy right now is in the kind of the downside of a cycle, if you will, there's an uncertain period COVID has caused a lot of reduction in electricity demand. And you're in the middle of a global environmental transition regarding CO2 from a power plant emissions capability. In my view and that's where I spent the bulk of my history, that's going to create enormous opportunity. But you have to wait for the right opportunity. If I think back at Mid American Energy, when we joined Berkshire in 2000, the company had about $10 billion in assets. Today, 21 years later, they're over $100 billion. And -- but that wasn't steady growth in each of the platforms, whether it was the pipeline platform, the U.S utility platform, the foreign utility platform or independent power, they all came in cycles and opportunistic cycles. And that's the important thing I think about this. So for the near-term, there's no question, Seaspan's growth will overwhelm Atlas' overall future. But the energy side will have its time. And there's going to be a digesting period at Seaspan as this new growth period shows up. I think one thing Bing touched on something about the difference in the past in the shipping industry in the future. I think it's important to take a minute and think back to how the container shipping industry has grown. And the difference that was made when the major liners decided to start looking at alliances very similar to the global airline industry and rationalize their capacity much more carefully and get much more efficient in the marketplace, that's really what's created the huge opportunity for Seaspan through the relationships that Peter and Bing and Torsten and have developed with our customers. It's much more efficient for them to operate with someone like us, who can consult to them an entire chain of ships for entire route, improve their environmental performance and efficiency, rather than dealing with a lot of one-offs. Now, we certainly have some capable competitors. But that dynamic is much more significant in the marketplace. And I think a lot of people have recognized. The energy still have similar characteristics. And there's, for my dollar, the best time to be involved in an industry is when there's a lot of change going on. And that typifies the energy field for the next 20 years. So today, no question Seaspan will overwhelm the current growth parts of Atlas. But I think we're all confident that the APR side will have its day, but we're not -- the one thing this team and the Board won't do is we're not going to do transactions just to look busy, or to look like we're doing something. When the right opportunities aren't there, we're going to pass on them. And Bing has done that this last year. There have been numerous significant opportunities that the rates return just weren't there. And we're not going to give away the quality of service that this organization has. We're also not going to mislead our customers that we can provide them the quality they want at those kinds of returns. It takes high performance staff and a very focused team to deliver the kind of performance. So discipline, I think in capital allocation is a critical thing. And hopefully that answers the question.

It's very helpful color. So I appreciate the detail and the answer. The follow-up that I have is do you envision a scenario at some point in the next 3 to 5 years where energy can be large enough as a portion of the portfolio to really move the needle in a public company. So set aside the idea of in the -- sort of a portfolio approach from a cash flow generation standpoint, but in terms of actually moving a public company.

I think the opportunities will be there because energy projects tend to be very large in scale, very long in duration. So I think the opportunities will be there. It's going to be up to us to execute on them. But yes, I -- it wouldn't shock me if 10 years from now, the two platforms had almost an equal balance of earnings and capital deployed, it'll be in different chunks. The energy side will typically largely come in larger projects, with much longer duration. But yes, I think the potential is there, but we're going to have to -- again, if the rate of returns aren't there, then we'll continue to grow APR at a very slower, steady pace. If the returns are there, we will be excited to accelerate their growth, but only if the capital dollar spent there is risk adjusted a better return than over at Seaspan.

Okay. That's helpful. Thank you very much.

You bet.

Thank you. Our last question comes from the line of Ken Hoexter with Bank of America. Your line is now open.

Hey, good morning, Dave, Bing and thanks for the great details -- and Graham. So you've been growing so rapidly on the container side. Just maybe a little bit of insight into what gives you the sign of peak of the market? What level of order book gets you concerned? And I guess I'm trying to dig into is the market just extremely tight right now given the need to catch up on the inventories and where we are and then once we recover, you could be in a scenario by '23 when these vessels start delivering that we're kind of now in a more of an overbuilt capacity. And you start seeing returns or reinvestment renewals start to decelerate.

Yes. Good morning, Ken. I will answer your question and my colleague, Peter will be also here, feel free to chime in. In terms of these newbuild right now, I think it's still as I said earlier, it's driven by the customer demand. If you're looking at the fundamentals of demand and supply, first of all, we're looking -- let's talk about the demand side. Demand side today, it's very disciplined, and disciplined in a sense that the market has gone through the paradigm shift in the sense that, if we are looking at today about eight, nine -- top eight, nine companies accounts for about 85%, 90% of the total market. So they're very much focusing on the quality of services versus before they're competing for the market share. On a demand side today, if we are looking at last year, even given the -- that the pandemic of the closed down, logistics limitation, everything. And also the year before 2019 was primarily a trade war rhetoric between U.S and China. I think for these 2 years, if you're looking at the demand side, the global container trade, container shipping, the volume last year was pretty much flat over 2019. And 2019 actually was growth over 2018. So the global trade and the demand is there. If you're looking at the forecast, in the next 2 to 3 years, I believe 2021 is supposed to be somewhere around 4% to 5%. '22 is about 3%, '23 about 2% according to the industry's forecast. The demand is there. On the other hand, the supply side, I think, as you know, the over the past at least 3 or 4, 5 years, the order book has been in the historical lows since I joined the industry about 3 years ago. And if you're looking at the -- with all these newbuilds today, I think that these newbuild today, first of all, they are filling in a segment, which is the 15K that is rather new because this is the most versatile in the sense that as I said earlier, the demand and also the size of the vessels both bringing -- both the advantage of the economic, environmental and technology advance to the entire container shipping fleet. So that is like any other asset class. These are the best new developed assets. And therefore that was driven of the -- these newbuild. Including the 24K, which is a new -- completely new class, the ultra large vessels that, I think for obvious reasons, because the cost per unit and for the specific trade routes between Asia and Europe, this is the best assets. So if you're looking at behind of these kind of supply, the supply increase for reason, because there's a justification for those supply, because there's a demand for them. So, in our opinion, I think this is a still a healthy development, because the industry by the way, also every year should also have a certain percentage of the vessel should be retired, because they need to be replaced tonnage. And in today's environment, I don't think that there's any replacement tonnage that's been scrapped because a very tight market. So, if we are looking at demand and supply fundamentals so far, we’ve seen this as a healthy development. And from our perspective with Seaspan's newbuild, as I said earlier, or all of these newbuilds have been backed by long-term contract by these top global liners. So therefore, this is not something that we will be exposed to any kind of a market fluctuation, whether it's up or down, rather that we have already have secured these long-term contract. And this is, again, is the differentiation of our business model. So from this perspective, I think -- we think that current development is still healthy, and as market continue to evolve, we will have to -- we are very disciplined and we are very closely monitoring the development and working very closely with our customers in understanding what their business needs are. Once again, every investment and newbuild is driven by the demand of our customers.

So Bing, would you say the less orders are taking share from the liners? Is that pretty steady in terms of their contribution? And then what are your thoughts about Seaspan within the market itself versus the other lessor peers?

Yes, I think if you’re looking at what we have been able to achieve over the past few months is a very good testament of, one, is Seaspan's capability today. I think we have the unique platform that allows us to be able to execute such a very complicated newbuild project with our customer in different technologies, different size within such a different -- within such a very short period of time. And this is one thing, as I joined the company about 3 years ago, I keep talking about Seaspan has the integrated platform. And this integrated platform comes in very, very handy in situation like this, which is why we are able to differentiate ourselves by providing the advice, the services to our customer, and that's why we are able to -- be able to in situation like this and quickly come to that kind of a decision and execution, working with multiple parties throughout this -- the value chain, as I mentioned, working with a customer in looking at the technology, looking at different type of a proportion system, for example, LNG versus conventional, whether it's 24,000 versus 15,000 different size of the ships, different proportions with different design with all the different features, because these vessels are even though they are 15,000, but they are different specs, with different features. So, therefore, this is something we are very proud that we have the people, we have the process, we have the system, and we have the partners that really is a solution driven to our customer. And that's what I said at the very beginning is that we are the solution provider to our customer. We don't just offer a vessel. So that's how we differentiate ourselves in the marketplace. And by the same token from our customers' perspective, as I also mentioned before, and you probably seen that our liner customer today are really looking for the quality of their services. For them to focusing on the quality of services, they need to have the quality of the partners that will be able to provide a variety of solutions, not just the vessel, but the reliability of this, the operations, the most up to date, I think industry trend and the development in terms of environmental, which is one thing that is very important, right? Today, what is the future? What is -- how do we have the lower emission, and things in that nature. And then the part is that how you're going to actually managing a project with a newbuild, which is very complicated process, that you need to have the team being able to supervise, executing and then comes to the financing. So from all these aspects, I think our customers are looking for a long-term partner that who has the scale and who has the flexibility and who has the quality of the service to support them to grow their business, and Seaspan is built exactly for that. And that's what we've been spending the past 3 years and really focusing on these areas, and that's why we come to the moment like this we were able to execute flawlessly. And that's something that our team has been very, very swift in delivering this type of service to our customer.

Okay. Maybe I was trying to get a more simple answer, a numerical answer. Do you think the liners are taking more share? I'm sorry, the lessors are taking more share from the liners. And then in that market, is Seaspan taking a larger share of the leasing market? Or are you saying the market right now, overall, is just growing rapidly and you're staying static on the share side?

I think that today based on the information that we have, I believe that Seaspan actually took a -- quite a significant share of this newbuild in the marketplace. I think, overall that in today's market, we team up with the leasing companies, for example. But I think at this point, we do take a large share of that newbuild. And overall, I think in terms of the numbers of the newbuild, I don't have the exact number. But I think there's another probably about 30 -- 20 -- 20 to 30 vessels either being financed by the liners themselves, or being financed by leasing companies or being financed by a few ship owners.

Okay. We would love to see that at the Analyst Day maybe a breakdown on kind of how the market is developing. And then just a follow-up on Chris and Fadi's question on the energy market. What's the goal of the joint venture? Are you contributing anything right now? Was there an initial investment? The forming of the joint venture mean, we're likely to hear something soon? Or was there something being planned that you needed local expertise, maybe just talk about that?

Yes, the joint venture is a joint venture that is going to be based in China, Hangzhou Special Trading Zone. The capital will be on core basis is going to be 50-50. We're going to be working with our joint venture partner in jointly developing opportunities in both maritime and energy projects as I mentioned. Some of those immediate projects, for example, in the shipping side, we are cooperating on for example, the scrubber projects where we have the needs and they can provide that service. And also looking at shipping in general, in looking at other type of shipping, transportation other than transportation -- other than containerships. On the energy side …

I understood your answer from Fadi. I just wanted to understand was there anything that's imminent in terms of the forming of the joint venture. Does that mean something is coming soon? And did you contribute anything upfront, just simply?

Yes, there are things for example, we are looking at some power projects together, because they're looking at some of the projects that we can jointly looking at those type of opportunities. But as a next step, we will have to -- right now we enter into the agreement, then we also have to formulate -- formally incorporate that joint venture that's going to take several months to formally create that joint venture. At the same time, we'll be jointly looking at opportunities in power and shipping space.

Okay. So nothing imminent. It takes a while to form the JV process. And then the thoughts on my last one, just on APR utilization. What's built into the outlook there? Any significant change in post Mexicali, the change in utilization for APR in '21?

Yes, the utilization is actually reflected in our 2021 financial forecast. And I think in terms of utilization, so far we have projected similar to that of 2020. At the same time team are working -- we’re strengthening our business development team. We're looking at different type of opportunities. The one thing that we want to be very much focused on is looking at the quality of those projects where we're going to be very selective engage in any type of projects. But anyway, to your question is the utilization due to the short-term nature? The utilization, it will not be the same as what we -- you've seen at the Seaspan, which we achieved over 99%. But for APR, the utilization will be in the range around, I would say 70% to 80%, that would be very high.

Thanks, Bing. Thanks for the time. Appreciate the answers.

You bet.

Thank you. There are no further questions at this time.

So thank you all very much. I appreciate you taking the time to join this call. And we look forward to see you all during our Investor Day conference, and that's going to be on the 23rd of March. So looking forward to seeing you all. Thank you all very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.