| | | | | Date | |
| | Wholly Owned Subsidiaries | Vessel Name | DWT | Delivered to Star Bulk | Year Built |
| 41 | ABM One Ltd | Star Eva | 106,659 | August 3, 2018 | 2012 |
| 42 | Star Vega LLC | Star Vega (1) | 98,648 | February 13, 2014 | 2011 |
| 43 | Star Sirius LLC | Star Sirius (1) | 98,648 | March 7, 2014 | 2011 |
| 44 | Majestic Shipping LLC | Madredeus | 98,648 | July 11, 2014 | 2011 |
| 45 | Nautical Shipping LLC | Amami | 98,648 | July 11, 2014 | 2011 |
| 46 | ABY II LLC | Star Aphrodite | 92,006 | August 3, 2018 | 2011 |
| 47 | Augustea Bulk Carrier Ltd | Star Piera | 91,952 | August 3, 2018 | 2010 |
| 48 | Augustea Bulk Carrier Ltd | Star Despoina | 91,945 | August 3, 2018 | 2010 |
| 49 | Star Trident I LLC | Star Kamila | 87,001 | September 3, 2014 | 2005 |
| 50 | Star Nor IV LLC | Star Electra | 83,494 | July 6, 2018 | 2011 |
| 51 | Star Alta I LLC | Star Angelina | 82,953 | December 5, 2014 | 2006 |
| 52 | Star Alta II LLC | Star Gwyneth | 82,703 | December 5, 2014 | 2006 |
| 53 | Star Nor VI LLC | Star Luna | 82,687 | July 6, 2018 | 2008 |
| 54 | Star Nor V LLC | Star Bianca | 82,672 | July 6, 2018 | 2008 |
| 55 | Star Trident XIX LLC | Star Maria | 82,578 | November 5, 2014 | 2007 |
| 56 | Grain Shipping LLC | Pendulum | 82,578 | July 11, 2014 | 2006 |
| 57 | Star Trident XII LLC | Star Markella | 82,574 | September 29, 2014 | 2007 |
| 58 | ABY Seven Ltd | Star Jeanette | 82,567 | August 3, 2018 | 2014 |
| 59 | Star Trident IX LLC | Star Danai | 82,554 | October 21, 2014 | 2006 |
| 60 | Star Sun I LLC | Star Elizabeth | 82,430 | May 25, 2021 | 2021 |
| 61 | Star Sun II LLC | Star Pavlina | 82,361 | June 16, 2021 | 2021 |
| 62 | Star Trident XI LLC | Star Georgia | 82,281 | October 14, 2014 | 2006 |
| 63 | Star Trident VIII LLC | Star Sophia | 82,252 | October 31, 2014 | 2007 |
| 64 | Star Trident XVI LLC | Star Mariella | 82,249 | September 19, 2014 | 2006 |
| 65 | Star Trident XIV LLC | Star Moira | 82,220 | November 19, 2014 | 2006 |
| 66 | Star Trident X LLC | Star Renee | 82,204 | December 18, 2014 | 2006 |
| 67 | Star Trident XV LLC | Star Jennifer | 82,192 | April 15, 2015 | 2006 |
| 68 | Star Trident XIII LLC | Star Laura | 82,192 | December 8, 2014 | 2006 |
| 69 | Star Nor VIII LLC | Star Mona | 82,188 | July 6, 2018 | 2012 |
| 70 | Star Trident II LLC | Star Nasia | 82,183 | August 29, 2014 | 2006 |
| 71 | Star Nor VII LLC | Star Astrid | 82,158 | July 6, 2018 | 2012 |
| 72 | Star Trident XVII LLC | Star Helena | 82,150 | December 29, 2014 | 2006 |
| 73 | Star Trident XVIII LLC | Star Nina | 82,145 | January 5, 2015 | 2006 |
| 74 | Waterfront Two Ltd | Star Alessia | 81,944 | August 3, 2018 | 2017 |
| 75 | Star Nor IX LLC | Star Calypso | 81,918 | July 6, 2018 | 2014 |
| 76 | Star Elpis LLC | Star Suzanna | 81,644 | May 15, 2017 | 2013 |
| 77 | Star Gaia LLC | Star Charis | 81,643 | March 22, 2017 | 2013 |
| 78 | Mineral Shipping LLC | Mercurial Virgo | 81,502 | July 11, 2014 | 2013 |
| 79 | Star Nor X LLC | Stardust | 81,502 | July 6, 2018 | 2011 |
| 80 | Star Nor XI LLC | Star Sky | 81,466 | July 6, 2018 | 2010 |
| 81 | Star Zeus VI LLC | Star Lambada (1) | 81,272 | March 16, 2021 | 2016 |
| 82 | Star Zeus I LLC | Star Capoeira (1) | 81,253 | March 16, 2021 | 2015 |
| 83 | Star Zeus II LLC | Star Carioca (1) | 81,199 | March 16, 2021 | 2015 |
| 84 | Star Zeus VII LLC | Star Macarena (1) | 81,198 | March 6, 2021 | 2016 |
| 85 | ABY III LLC | Star Lydia | 81,187 | August 3, 2018 | 2013 |
| 86 | ABY IV LLC | Star Nicole | 81,120 | August 3, 2018 | 2013 |
| 87 | ABY Three Ltd | Star Virginia | 81,061 | August 3, 2018 | 2015 |
| 88 | Star Nor XII LLC | Star Genesis | 80,705 | July 6, 2018 | 2010 |
| 89 | Star Nor XIII LLC | Star Flame | 80,448 | July 6, 2018 | 2011 |
| | | | | Date | |
| | Wholly Owned Subsidiaries | Vessel Name | DWT | Delivered to Star Bulk | Year Built |
| 90 | Star Trident III LLC | Star Iris | 76,390 | September 8, 2014 | 2004 |
| 91 | Star Trident XX LLC | Star Emily | 76,339 | September 16, 2014 | 2004 |
| 92 | Orion Maritime LLC | Idee Fixe (1) | 63,437 | March 25, 2015 | 2015 |
| 93 | Primavera Shipping LLC | Roberta (1) | 63,404 | March 31, 2015 | 2015 |
| 94 | Success Maritime LLC | Laura (1) | 63,377 | April 7, 2015 | 2015 |
| 95 | Star Zeus III LLC | Star Athena (1) | 63,371 | May 19, 2021 | 2015 |
| 96 | Ultra Shipping LLC | Kaley (1) | 63,261 | June 26, 2015 | 2015 |
| 97 | Blooming Navigation LLC | Kennadi (1) | 63,240 | January 8, 2016 | 2016 |
| 98 | Jasmine Shipping LLC | Mackenzie (1) | 63,204 | March 2, 2016 | 2016 |
| 99 | Star Lida I Shipping LLC | Star Apus (1) | 63,123 | July 16, 2019 | 2014 |
| 100 | Star Zeus V LLC | Star Bovarius (1) | 61,571 | March 16, 2021 | 2015 |
| 101 | Star Zeus IV LLC | Star Subaru (1) | 61,521 | March 16, 2021 | 2015 |
| 102 | Star Nor XV LLC | Star Wave | 61,491 | July 6, 2018 | 2017 |
| 103 | Star Challenger I LLC | Star Challenger (1) | 61,462 | December 12, 2013 | 2012 |
| 104 | Star Challenger II LLC | Star Fighter (1) | 61,455 | December 30, 2013 | 2013 |
| 105 | Aurelia Shipping LLC | Honey Badger (1) | 61,324 | February 27, 2015 | 2015 |
| 106 | Star Axe II LLC | Star Lutas (1) | 61,323 | January 6, 2016 | 2016 |
| 107 | Rainbow Maritime LLC | Wolverine (1) | 61,268 | February 27, 2015 | 2015 |
| 108 | Star Axe I LLC | Star Antares (1) | 61,234 | October 9, 2015 | 2015 |
| 109 | ABY Five Ltd | Star Monica | 60,935 | August 3, 2018 | 2015 |
| 110 | Star Asia I LLC | Star Aquarius | 60,873 | July 22, 2015 | 2015 |
| 111 | Star Asia II LLC | Star Pisces (1) | 60,873 | August 7, 2015 | 2015 |
| 112 | Star Nor XIV LLC | Star Glory | 58,680 | July 6, 2018 | 2012 |
| 113 | Star Lida XI Shipping LLC | Star Pyxis (1) | 56,615 | August 19, 2019 | 2013 |
| 114 | Star Lida VIII Shipping LLC | Star Hydrus (1) | 56,604 | August 8, 2019 | 2013 |
| 115 | Star Lida IX Shipping LLC | Star Cleo (1) | 56,582 | July 15, 2019 | 2013 |
| 116 | Star Trident VII LLC | Diva (1) | 56,582 | July 24, 2017 | 2011 |
| 117 | Star Lida VI Shipping LLC | Star Centaurus | 56,559 | September 18, 2019 | 2012 |
| 118 | Star Lida VII Shipping LLC | Star Hercules | 56,545 | July 16, 2019 | 2012 |
| 119 | Star Lida X Shipping LLC | Star Pegasus (1) | 56,540 | July 15, 2019 | 2013 |
| 120 | Star Lida III Shipping LLC | Star Cepheus (1) | 56,539 | July 16, 2019 | 2012 |
| 121 | Star Lida IV Shipping LLC | Star Columba (1) | 56,530 | July 23, 2019 | 2012 |
| 122 | Star Lida V Shipping LLC | Star Dorado (1) | 56,507 | July 16, 2019 | 2013 |
| 123 | Star Lida II Shipping LLC | Star Aquila | 56,506 | July 15, 2019 | 2012 |
| 124 | Star Regg III LLC | Star Bright | 55,783 | October 10, 2018 | 2010 |
| 125 | Glory Supra Shipping LLC | Strange Attractor | 55,715 | July 11, 2014 | 2006 |
| 126 | Star Omicron LLC | Star Omicron | 53,444 | April 17, 2008 | 2005 |
| 127 | Star Zeta LLC | Star Zeta | 52,994 | January 2, 2008 | 2003 |
| 128 | Star Theta LLC | Star Theta | 52,425 | December 6, 2007 | 2003 |
| | | Total dwt | 14,072,068 | |
|
________________
| (1) | Subject to a sale and leaseback financing transaction as further described in Note 6 to our consolidated financial statements included in the 2021 Annual report. |
Liquidity and Capital Resources
Our principal sources of funds have been cash flow from operations, equity offerings, borrowings under secured credit facilities, debt securities or bareboat lease financings and proceeds from vessel sales. Our principal uses of funds have been capital expenditures to establish, grow our fleet, maintain the quality of our dry bulk carriers and comply with international shipping standards, environmental laws and regulations, fund working capital requirements, make principal and interest payments on outstanding indebtedness and make dividend payments when approved by the Board of Directors.
Our short-term liquidity requirements include paying operating costs, funding working capital requirements and the short-term equity portion of the cost of vessel acquisitions and vessel upgrades, interest and principal payments on outstanding indebtedness and maintaining cash reserves to strengthen our position against adverse fluctuations in operating cash flows. Our primary source of short-term liquidity is cash generated from operating activities, available cash balances and portions of new debt and refinancings, as well as equity financings.
Our medium- and long-term liquidity requirements are funding the equity portion of any newbuilding vessel installments and secondhand vessel acquisitions, funding required payments under our vessel financing and other financing agreements and paying cash dividends when declared. Sources of funding for our medium- and long-term liquidity requirements include cash flows from operations, new debt and refinancings, or bareboat lease financings, sale and lease back arrangements, equity issuances and vessel sales. Please also refer to Note 14 to our unaudited interim condensed consolidated financial statements, included elsewhere herein, for developments that took place after March 31, 2022.
As of May 24, 2022, we had total cash of $445.6 million and $1,389.3 million of outstanding borrowings (including bareboat lease financing), after also repaying the outstanding amounts of $83.6 million under the lease agreements of the Eneti Acquisition Vessels and as further described in Note 14 to our unaudited interim condensed consolidated financial statements March 31, 2022, included elsewhere herein. In addition, following a number of interest rates swaps that we have entered into, we have converted a total of $810.5 million of such debt from floating to an average fixed rate of 45 bps with average maturity of 1.9 years.
Our debt agreements contain financial covenants and undertakings requiring us to maintain various ratios. A summary of these terms are included in Note 7 of the Company’s consolidated financial statements for the year ended December 31, 2021, included in the 2021 Annual Report.
We believe that our current cash balance, our operating cash flows to be generated over the short-term period and the amount of $100.0 million for which we have already received credit committee approval from a major European Bank as further described in Note 14 to our unaudited interim condensed consolidated financial statements March 31, 2022, included elsewhere herein, will be sufficient to meet our liquidity needs for the foreseeable future (and at least through the end of the second quarter of 2023), including funding the operations of our fleet, capital expenditure requirements including commitments for the installation of ballast water treatment systems (“BWTS”) and Energy Saving Devices (“ESD”) as further described in Note 11 to our unaudited interim condensed consolidated financial statements March 31, 2022, included elsewhere herein and any other present financial requirements. In addition, under the two At-the-Market offering programs we may sell and issue shares, having an aggregate remaining capacity of $130.2 million. We may seek additional indebtedness to finance future vessel acquisitions in order to maintain our cash position or to refinance our existing debt on more favorable terms. Our practice has been to fund the cash portion of the acquisition of dry bulk carriers using a combination of funds from operations and bank debt or lease financing secured by mortgages or title of ownership on our dry bulk carriers held by the relevant lenders, respectively. However we may also use the proceeds from potential equity or debt offerings to finance future vessel acquisitions. Our business is capital-intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer dry bulk carriers and the selective sale of older dry bulk carriers. These acquisitions will be principally subject to management’s expectation of future market conditions as well as our ability to acquire dry bulk carriers on favorable terms. However our ability to obtain bank or lease financing, to refinance our existing debt or to access the capital markets for offerings in the future, may be limited by our financial condition at the time of any such financing or offering, including the market value of our fleet, as well as by adverse market conditions resulting from, among other things, general economic conditions, weakness in the financial and equity markets and contingencies and uncertainties, that are beyond our control.
On March 11, 2020, the World Health Organization declared the 2019 Novel Coronavirus (“COVID -19”) outbreak a pandemic. In response to the outbreak, many countries, ports and organizations, including those where we conduct a large part of our operations, implemented measures to combat the outbreak, such as quarantines and travel restrictions, which resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets.
The recent reopening of the global economy and consequent increased demand across all key dry bulk commodities has positively affected our revenues. On the other hand, as a result of COVID-19 restrictions imposed since 2020, additional crew expenses were incurred.
There continues to be a high level of uncertainty relating to how the pandemic will evolve, including as a result of new COVID-19 variants, the availability of vaccines and their global deployment, the development of effective treatments, the imposition of effective public safety and other protective measures and the public's and government's responses to such measures. An increase in the severity or duration or a resurgence of the COVID-19 pandemic could have a material adverse effect on our business, results of operations, cash flows, financial condition, the carrying value of our assets, the fair values of our vessels, and our ability to pay dividends.
In addition, the geopolitical situation in Eastern Europe intensified in late February 2022, with the commencement of Russia’s military action against Ukraine. Political events and sanctions are continually changing and differ across the globe. Our vessels Star Pavlina, Star Helena and Star Laura are currently berthed in three different ports of Ukraine, safely manned with Ukrainian crew. All three vessels, under charterers’ instructions, had arrived to load various grain cargos, well ahead of the commencement of the war activities, but at the time of the invasion, the loading operations were suspended by the port authorities. We had been intensively exploring options with the charterers to navigate the vessels safely out of the ports but unfortunately the ports were shut down and safe passages were impossible. An estimate of any potential impact cannot be made at this point of time. However, we do not expect such impact, if any, to be material, because in addition to standard industry vessel risk insurance, war risk insurance is in place for all three vessels and the applicable war risk insurers have confirmed that they hold the vessels covered at their current position in Ukraine, which includes Hull and Machinery and Increased Value insurance, Detention and Diversion Cover and War loss of Hire for 180 days. Furthermore, and to the extent that a court or tribunal has not declared the frustration of the charterparties for the above three vessels, as frustration is by operation of law, we believe that the vessels remain on hire and hire continues payable under the charterparty clauses. The situation continues to be closely monitored by management to ensure that the interests of all our stakeholders are safeguarded.
Dividend Policy
In November 2019, our Board of Directors established a dividend policy, which was updated in May 2021, pursuant to which our Board of Directors intends to declare a dividend in each of February, May, August and November in an amount equal to (a) our Total Cash Balance minus (b) the product of (i) the Minimum Cash Balance per Vessel and (ii) the Number of Vessels.
“Total Cash Balance” means (a) the aggregate amount of cash on our balance sheet as of the last day of the quarter preceding the relevant dividend declaration date minus (b) any proceeds received by us, from vessel sales, or additional proceeds from vessel refinancing arrangements, or securities offerings in the last 12 months that have been earmarked for share repurchases, debt prepayment, vessel acquisitions and general corporate purposes.
“Minimum Cash Balance per Vessel” means $2.10 million for December 31, 2021 and thereafter.
“Number of Vessels” means the total number of vessels owned by us, or that are subject to sale and leaseback transactions and finance leases, as of the last day of the quarter preceding the relevant dividend declaration date.
As of March 31, 2022, we owned 128 vessels and our Total Cash Balance was $444.4 million. Taking into account the Minimum Cash Balance per Vessel of $2.10 million and deducting also the net proceeds of $4.3 million for the shares issued and sold under our effective at-the-market programs during the quarter, on May 24, 2022, pursuant to our dividend policy, our Board of Directors declared a quarterly cash dividend of $1.65 per share, payable on or about June 16, 2022 to all shareholders of record as of June 3, 2022. The ex-dividend date is expected to be June 2, 2022.
Since Star Bulk is a holding company with no material assets other than the shares of its subsidiaries through which it conducts its operations, Star Bulk’s ability to pay dividends will depend on its subsidiaries distributing their earnings and cash flow to it. Any future dividends declared will be at the discretion and remain subject to approval of our Board of Directors each quarter after its review of our financial condition and other factors, including but not limited to our earnings, the prevailing charter market conditions, capital requirements, limitations under our debt agreements and applicable provisions of Marshall Islands law, which generally prohibits the payment of dividends other than from operating surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividend. Star Bulk’s dividend policy and declaration and payment of dividends may be changed at any time and are subject to legally available funds and our Board of Directors’ determination that each declaration and payment is at the time in the best interests of Star Bulk and its shareholders after its review of our financial performance.
There can be no assurance that our Board of Directors will declare or pay any dividend in the future.
Other Recent Developments
Please refer to Note 14 to our unaudited interim condensed consolidated financial statements, included elsewhere herein, for developments that took place after March 31, 2022.
Operating Results
Factors Affecting Our Results of Operations
We deploy our vessels on a mix of short to medium time charters or voyage charters, contracts of affreightment or in dry bulk carrier pools, according to our assessment of market conditions. We adjust the mix of these charters to take advantage of the relatively stable cash flow and high utilization rates associated with medium to long-term time charters, or to profit from attractive spot charter rates during periods of strong charter market conditions, or to maintain employment flexibility that the spot market offers during periods of weak charter market conditions. The following table reflects certain operating data of our fleet, including our ownership days and TCE rates, which we believe are important measures for analyzing trends in our results of operations, for the periods indicated:
| | | Three-month period ended March 31, | |
| (TCE rates expressed in U.S. Dollars) | | 2021 | | | 2022 | |
Average number of vessels (1) | | | 119.3 | | | | 128.0 | |
Number of vessels (2) | | | 125 | | | | 128 | |
Average age of operational fleet (in years) (3) | | | 9.3 | | | | 10.1 | |
Ownership days (4) | | | 10,737 | | | | 11,520 | |
Available days (5) | | | 10,115 | | | | 11,126 | |
Charter-in days (6) | | | 175 | | | | 199 | |
Time Charter Equivalent Rate (TCE rate) (7) | | $ | 15,462 | | | $ | 27,405 | |
____________________
| (1) | Average number of vessels is the number of vessels that constituted our owned fleet for the relevant period, as measured by the sum of the number of days each operating vessel was a part of our owned fleet during the period divided by the number of calendar days in that period. |
| (2) | As of the last day of the periods reported. |
| (3) | Average age of our operational fleet is calculated as of the end of each period. |
| (4) | Ownership days are the total calendar days each vessel in the fleet was owned by us for the relevant period, including vessels subject to sale and leaseback transactions and finance leases. |
| (5) | Available days for the fleet are the Ownership days after subtracting off-hire days for major repairs, dry docking or special or intermediate surveys and for vessels’ improvements and upgrades. The available days for the first three months of 2022 and 2021 were also decreased by off-hire days relating to disruptions in connection with crew changes as a result of COVID-19. Available Days as presented above may not necessarily be comparable to Available Days of other companies due to differences in methods of calculation. |
| (6) | Charter-in days are the total days that we charter-in vessels not owned by us. |
| (7) | Time charter equivalent rate represents the weighted average daily TCE rates of our operating fleet (including owned fleet and fleet under charter-in arrangements). TCE rate is a measure of the average daily net revenue performance of our vessels. Our method of calculating TCE rate is determined by dividing (a) TCE Revenues, which consists of: voyage revenues (net of voyage expenses, charter-in hire expense, amortization of fair value of above/below market acquired time charter agreements, as well as adjusted for the impact of realized gain/(loss) on forward freight agreements (“FFAs”) and bunker swaps) by (b) Available days for the relevant time period. Available days do not include the Charter-in days as per the relevant definitions provided above. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions. In the calculation of TCE Revenues, we also include the realized gain/(loss) on FFAs and bunker swaps as we believe that this method better reflects the chartering result of our fleet and is more comparable to the method used by our peers. TCE Revenues and TCE rate, which are non-GAAP measures, provide additional meaningful information in conjunction with voyage revenues, the most directly comparable GAAP measure, because they assist our management in making decisions regarding the deployment and use of our vessels and because we believe that they provide useful information to investors regarding our financial performance. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types (i.e., voyage charters, time charters, bareboat charters and pool arrangements) under which its vessels may be employed between the periods. TCE Revenues and TCE rate, as presented above, may not necessarily be comparable to those of other companies due to differences in methods of calculation. |
The following table reflects the calculation of our TCE rates as discussed in footnote (7) above. The table presents reconciliation of TCE Revenues to voyage revenues as reflected in the unaudited interim condensed consolidated income statements.
| | | Three-month period ended March 31, | |
| (In thousands of U.S. Dollars, except as otherwise stated) | | 2021 | | | 2022 | |
Voyage revenues | | $ | 200,467 | | | $ | 360,883 | |
| Less: | | | | | | | | |
Voyage expenses | | | (40,052 | ) | | | (53,404 | ) |
Charter-in hire expenses | | | (2,943 | ) | | | (4,012 | ) |
Realized gain/(loss) on FFAs/bunker swaps | | | (891 | ) | | | 1,437 | |
Amortization of fair value of below/above market acquired time charter agreements, net | | | (187 | ) | | | - | |
| Time charter equivalent revenues | | $ | 156,394 | | | $ | 304,904 | |
Available days | | | 10,115 | | | | 11,126 | |
| Daily time charter equivalent rate ("TCE") | | $ | 15,462 | | | $ | 27,405 | |
Voyage Revenues
Voyage revenues are driven primarily by the number of vessels in our operating fleet, the duration of our charters, the number of charter-in days, the amount of daily charter hire or freight rates that our vessels earn under time and voyage charters, respectively, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the number of vessels chartered-in, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in dry dock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the seaborne transportation market.
Vessels operating on time charters for a certain period of time provide more predictable cash flows over that period of time, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable, but may enable us to capture increased profit margins during periods of improvements in charter rates, although we would be exposed to the risk of declining vessel rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters.
Voyage Expenses
Voyage expenses may include port and canal charges, agency fees, fuel (bunker) expenses and brokerage commissions payable to related and third parties. Voyage expenses are incurred for our owned and chartered-in vessels during voyage charters or when the vessel is unemployed. Bunker expenses, port and canal charges primarily increase in periods during which vessels are employed on voyage charters because these expenses are paid by the owners. Our voyage expenses primarily consist of bunkers cost, port expenses and commissions paid in connection with the chartering of our vessels.
Charter-in hire expenses
Charter-in hire expenses represent hire expenses for chartering-in third and related party vessels, either under time charters or voyage charters.
Vessel Operating Expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance and vessel registry, expenses relating to repairs and maintenance, the cost of spares and consumable stores, tonnage taxes, regulatory fees, vessel scrubbers and maintenance expenses of vessel scrubbers and BWTS, lubricants and other miscellaneous expenses. Other factors beyond our control, some of which may affect the shipping industry in general, including for instance, developments relating to market prices for crew wages, lubricants and insurance, may also cause these expenses to increase.
Dry Docking Expenses
Dry docking expenses relate to regularly scheduled intermediate survey or special survey dry docking necessary to preserve the quality of our vessels as well as to comply with international shipping standards and environmental laws and regulations. Dry docking expenses can vary according to the age of the vessel and its condition, the location where the dry docking takes place, shipyard availability and the number of days the vessel is under dry dock. We utilize the direct expense method, under which we expense all dry docking costs as incurred.
Depreciation
We depreciate our vessels on a straight-line basis over their estimated useful lives, which is determined to be 25 years from the date of their initial delivery from the shipyard. Depreciation is calculated based on a vessel’s cost less the estimated residual value.
General and Administrative Expenses
We incur general and administrative expenses, including our onshore personnel related expenses, directors’ and executives’ compensation, share based compensation, legal, consulting, audit and accounting expenses.
Management Fees
Management fees include fees paid to third parties as well as related parties providing certain procurement services to our fleet.
(Gain) / Loss on Forward Freight Agreements and Bunker Swaps, net
When deemed appropriate from a risk management perspective, we take positions in freight derivatives, including freight forward agreements (the “FFAs”) and freight options, with an objective to utilize those instruments as economic hedges that are highly effective in reducing the risk on specific vessels trading in the spot market and to take advantage of short term fluctuations in the market prices. Upon the settlement, if the contracted charter rate is less than the average of the rates, as reported by an identified index, for the specified route and time period, the seller of the FFA is required to pay the buyer the settlement sum, being an amount equal to the difference between the contracted rate and the settlement rate, multiplied by the number of days in the specified period covered by the FFA. Conversely, if the contracted rate is greater than the settlement rate, the buyer is required to pay the seller the settlement sum. Our FFAs are settled on a daily basis mainly through reputable exchanges such as London Clearing House (LCH) or Singapore Exchange (SGX) so as to limit our exposure in over-the-counter transactions. Customary requirements for trading in FFAs include the maintenance of initial and variation margins based on expected volatility, open position and mark to market of the contracts. The fair value of the FFAs or freight options is treated as asset or liability until they are settled. Any such settlements by us or settlements to us under FFAs or freight options, if any, are recorded under (Gain)/Loss on forward freight agreements and bunker swaps, net.
Also, when deemed appropriate from a risk management perspective, we enter into bunker swap contracts to manage our exposure to fluctuations of bunker prices associated with the consumption of bunkers by our vessels. Bunker swaps are agreements between two parties to exchange cash flows at a fixed price on bunkers, where volume, time period and price are agreed in advance. Our bunker swaps are settled through reputable clearing houses. Bunker price differentials paid or received under the swap agreements are recognized under (Gain)/Loss on forward freight agreements and bunker swaps, net.
The fair value of freight derivatives and bunker swaps is determined through Level 1 inputs of the fair value hierarchy (quoted prices from the applicable exchanges such as the London Clearing House (LCH) or the Singapore Exchange (SGX)). Our FFAs and bunker swaps do not qualify for hedge accounting and therefore unrealized gains or losses are recognized under (Gain)/Loss on forward freight agreements and bunker swaps, net.
Interest and Finance Costs
We incur interest expense and financing costs in connection with our outstanding indebtedness under our existing loan facilities (including sale and leaseback financing transactions). We also incur financing costs in connection with establishing those facilities, which are presented as a direct deduction from the carrying amount of the relevant debt liability and amortize them to interest and financing costs over the term of the underlying obligation using the effective interest method.
Interest Income
We earn interest income on our cash deposits with our lenders and other financial institutions.
Gain / (Loss) on interest rate swaps, net
We enter into interest rate swap transactions to manage interest costs and risk associated with changing interest rates with respect to our variable interest loans and credit facilities. Interest rate swaps are recorded in the balance sheet as either assets or liabilities, measured at their fair value (Level 2), with changes in such fair value recognized in earnings under (gain)/loss on interest rate swaps, net, unless specific hedge accounting criteria are met. When interest rate swaps are designated and qualify as cash flow hedges, the effective portion of the unrealized gains/losses from those swaps is recorded in Other Comprehensive Income / (Loss) while any ineffective portion is recorded as Gain/(loss) on interest rate swaps, net.
Results of Operations
The three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021
Voyage revenues net of Voyage expenses: Voyage revenues for the three months ended March 31, 2022 increased to $360.9 million from $200.5 million in the corresponding period in 2021. Time charter equivalent revenues (“TCE Revenues”) (as defined above) were $304.9 million compared to $156.4 million for the corresponding period in 2021, which is indicative of improved market conditions prevailing during the three month period ended March 31, 2022 compared to the corresponding period in 2021. As a result, the TCE rate for the first three months of 2022 was $27,405 compared to $15,462 for the corresponding period in 2021. Please refer to the table above for the calculation of the TCE Revenues and TCE and their reconciliation with Voyage Revenues, which is the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
Charter-in hire expenses: Charter-in hire expenses for the three months ended March 31, 2022 and 2021 were $4.0 million and $2.9 million, respectively. This increase is attributable to the increase in charter-in days to 199 in the first three months of 2022 from 175 in the corresponding period in 2021 as well as the increased charter-in rates prevailing during 2022.
Vessel operating expenses: For the three-months ended March 31, 2022 and 2021, vessel operating expenses were $57.5 million and $47.4 million, respectively, primarily driven by the increase in the average number of vessels in our fleet to 128.0 vessels in the first quarter of 2022 from 119.3 vessels for the respective quarter of 2021. Vessel operating expenses for the first quarter of 2022 included additional crew expenses related to the increased number and cost of crew changes performed during the period as a result of COVID-19 restrictions estimated to be $2.8 million. Vessel operating expenses for the first quarter of 2021 included COVID-19 related expenses estimated to be $1.3 million and pre-delivery and pre-joining expenses of $0.5 million. The overall increase was mainly driven by higher repair and maintenance costs due to the preventive maintenance program of our fleet during the applicable period, so as to ensure quality service to our clients and minimize off hire time.
Dry docking expenses: During the three month period ended March 31, 2022, we incurred $8.7 million dry docking expenses mainly attributable to eight of our vessels that completed their periodic dry docking surveys within such period. During the first three months of 2021, we incurred $12.2 million dry-docking expenses mainly attributable to 12 of our vessels that completed their periodic dry docking surveys within such period.
Depreciation: Depreciation expense increased to $38.5 million for the three month period ended March 31, 2022, compared to $36.2 million for the corresponding period in 2021. The increase was mainly driven by the increase in the average number of vessels in 2022 compared to 2021 to 128.0 from 119.3 vessels, respectively.
Management fees: Management fees remained almost unchanged for the three month period ended March 31, 2022 at $4.8 million compared to $4.7 million for the corresponding period of 2021 due to the fact that there was no significant change in the daily cost provided under management agreements in effect during the abovementioned periods.
General and administrative expenses: General and administrative expenses for the three month period ended March 31, 2022 were $8.8 million compared to $7.3 million in the corresponding period in 2021 primarily due to the increase in the stock based compensation expense to $1.2 million from $0.3 million and the average number of vessels in our fleet as discussed above.
(Gain)/Loss on forward freight agreements and bunker swaps, net: For the three month period ended March 31, 2022, we incurred a net loss on FFAs and bunker swaps of $2.6 million, consisting of an unrealized loss of $4.0 million and a realized gain of $1.4 million. For the three month period ended March 31, 2021, we incurred a net loss on FFAs and bunker swaps of $2.1 million, consisting of an unrealized loss of $1.2 million and realized loss of $0.9 million.
Interest and finance costs net of interest and other income/(loss): Interest and finance costs net of interest and other income/(loss) for the first three month periods of 2022 and 2021 were $11.8 million and $12.7 million, respectively. This decrease is primarily attributable to the decline in the average interest rate on our outstanding indebtedness, mainly driven by the refinancing of certain of our debt agreements and the redemption of our outstanding 8.30% Senior Notes in July 2021, as well as the decrease in our weighted average outstanding debt balance during the corresponding periods.
Cash Flows
Net cash provided by operating activities for the first three months of 2022 and 2021 was $229.2 million and $79.2 million, respectively. This increase was primarily driven by the higher charter rates due to the improved market conditions that prevailed in the first quarter of 2022 compared to the corresponding period in 2021 and the higher average number of vessels in 2022 compared to 2021 as described above, and the decrease in our interest payments due to refinancing of certain of our debt agreements as well as the decrease in our weighted average outstanding debt balance during the corresponding periods.
Net cash used in investing activities for the first three months of 2022 and 2021 was $ 4.8 million and $60.3 million, respectively. The decrease was primarily attributable to cash paid in 2021 in connection with the acquisition of vessels as opposed to no vessel acquisitions taking place in 2022 as well as to lower capital expenditures for vessel upgrades paid in 2022 compared to relevant payments in 2021.
Net cash used in financing activities for the first three months of 2022 was $253.2 million compared to net cash used in financing activities of $7.9 million in the first three months of 2021. This variation was primarily driven by the dividend payments of $204.8 million made in the first three months of 2022 compared to no dividend payments made in corresponding period in 2021, and the fact that during the first three months of 2022 we had no proceeds for new debt agreements, compared to $36.0 million of debt net proceeds in the first quarter 2021.
Significant Accounting Policies and Critical Accounting Estimates
For a description of our critical accounting estimates and all of our significant accounting policies, see Note 2 to our audited financial statements and “Item 5 - Operating and Financial Review and Prospects,” included in our 2021 Annual Report. There have been no material changes from the “Critical Accounting Estimates” previously disclosed in our 2021 Annual Report.
