Safe Bulkers: Riding the Green Wave with a Modern Fleet and Prudent Capital Allocation (NYSE:SB) - SB-PD Stock Research Report

## Executive Summary / Key Takeaways * Safe Bulkers is strategically positioning itself within the drybulk shipping sector through aggressive fleet renewal and environmental upgrades, focusing on Phase 3 and dual-fuel vessels to gain a competitive edge in an increasingly regulated industry. * Despite a softer charter market in early 2025, the company maintains a robust financial position with ample liquidity, comfortable leverage (around 38%), and a significant contracted revenue backlog, providing stability amidst market volatility. * The company's commitment to shareholder returns is evident through consistent quarterly dividends of $0.05 per share and opportunistic share repurchase programs, balanced with capital allocation towards its newbuild program. * Technological differentiation, particularly with its young, Japanese-built, energy-efficient fleet and upcoming dual-fuel newbuilds, is a core competitive moat, enabling compliance with stringent environmental regulations and potentially driving superior operational performance. * Investors should monitor global trade dynamics, geopolitical stability, and the full implementation of new environmental regulations, which will significantly influence freight rates and the long-term value proposition of Safe Bulkers' modern fleet. ## The Shifting Tides of Drybulk Shipping: Safe Bulkers' Strategic Response The global marine drybulk transportation industry, a critical artery for commodities like coal, grain, and iron ore, is undergoing a profound transformation. Against this backdrop, Safe Bulkers, Inc., incorporated in 2007, leverages a "sterling 65-year track record" to navigate complex market dynamics and stringent environmental mandates. The company's core business involves transporting bulk cargoes along worldwide shipping routes for some of the largest users of these services. This foundational role places Safe Bulkers at the nexus of global trade and environmental responsibility. The broader drybulk fleet is projected to expand by approximately 2.8% annually in both 2025 and 2026, driven by stable new deliveries. However, this growth is tempered by an anticipated rise in recycling volumes, potentially doubling to 16,000 ships over the next decade, according to BIMCO projections. This trend is largely spurred by evolving market conditions and the recent MEPC 83 and Hong Kong Convention on recycling, which are pushing older, less efficient vessels out of service. Notably, only about 9% of the current drybulk order book is designed to use alternative fuels upon delivery, highlighting a significant gap that modern, environmentally compliant fleets can exploit. With roughly 25% of the existing global fleet exceeding 15 years of age, the stage is set for a competitive landscape increasingly defined by efficiency and environmental performance. In this environment, Safe Bulkers strategically positions itself against key competitors such as Star Bulk Carriers Corp. (TICKER:SBLK), Diana Shipping Inc. (TICKER:DSX), and Genco Shipping & Trading Limited (TICKER:GNK). While SBLK often demonstrates greater operational scale and GNK focuses on streamlined efficiency, Safe Bulkers distinguishes itself through its diversified fleet composition and a strong emphasis on operational reliability. The company's strategy of continuous fleet renewal and environmental upgrades is a direct response to these competitive pressures and the imperative of regulatory compliance. This approach aims to secure a competitive edge by offering a more sustainable and efficient transportation solution. ## Technological Edge: A Greener, More Competitive Fleet Safe Bulkers' core competitive advantage lies in its technologically advanced and environmentally compliant fleet. The company has aggressively pursued a fleet renewal strategy, focusing on "Phase 3" newbuilds and "eco-vessels" that boast superior design efficiencies. This commitment is evidenced by 12 Phase 3 vessels already in operation, all delivered since 2022, and 24 vessels having undergone environmental upgrades. The company proudly reported achieving zero vessels in the D and E carbon intensity (CII) rating for 2024, a testament to its proactive environmental stewardship. The tangible benefits of this technological differentiation are multifaceted. These modern vessels offer lower fuel consumption and reduced CO2 emissions, translating into lower operational costs and a reduced carbon footprint. This not only enhances profitability but also positions Safe Bulkers favorably for future carbon taxation and regulatory compliance. The company's fleet is predominantly Japanese-built, accounting for 80% compared to a global average of 40%, contributing to its superior design efficiencies and reliability. Looking ahead, Safe Bulkers has six more Phase 3 vessels on order, with two of these being dual-fuel methanol-capable, slated for delivery by the first quarter of 2027. These newbuilds were secured at prices "well below the prevailing market," further enhancing their long-term value proposition. The stated goal of these investments is to position Safe Bulkers favorably to compete within the global standard targets adopted by MEPC 83, which are expected to be ratified this autumn. These regulations, including a global fuel standard (GFS), will penalize excess fuel carbon intensity and broaden the scope of regional fuel regulations, substantially affecting vessel tradability from 2028 onwards. This strategic foresight in adopting alternative fuel capabilities and energy-efficient designs creates a significant competitive moat, ensuring the fleet remains commercially competitive and compliant with increasingly stringent greenhouse gas targets. For investors, this technological roadmap translates into enhanced market positioning, potential for higher charter rates, and a more resilient business model in a carbon-constrained world. ## Operational Excellence and Financial Resilience Safe Bulkers' operational strategy centers on maintaining a young, high-quality fleet. With an average fleet age of just 10.3 years, significantly below the global average of 12.6 years, the company benefits from enhanced reliability and lower maintenance requirements. The fleet comprises 47 vessels, including Panamax, Kamsarmax, Post-Panamax, and Capesize classes, offering diversified cargo handling capabilities. This operational profile is the result of a continuous fleet renewal strategy, involving the divestment of 14 older vessels and the acquisition of seven second-hand vessels, alongside the delivery of 11 Phase 3 newbuilds. Despite a softer charter market environment in the first half of 2025, Safe Bulkers has demonstrated financial resilience. For the second quarter of 2025, the company reported adjusted EBITDA of $25.5 million, a decrease from $41.8 million in the same period of 2024. Adjusted earnings per share stood at $0.01, down from $0.17 in Q2 2024. The average time charter equivalent (TCE) rate for Q2 2025 was $14,857, compared to $18,650 in Q2 2024, reflecting the weaker market. Daily vessel operating expenses increased by 6% to $6,607 in Q2 2025. Similarly, Q1 2025 saw adjusted EBITDA of $29.4 million and adjusted EPS of $0.05, down from $64.3 million and $0.20, respectively, in Q1 2024, with an average TCE of $14,655. Looking back to 2024, the fourth quarter experienced a weaker charter market, resulting in adjusted EBITDA of $40.7 million (vs. $50.7 million in Q4 2023) and adjusted EPS of $0.15 (vs. $0.25 in Q4 2023). Net revenues for Q4 2024 decreased by 13% to $71.5 million, primarily due to lower charter hires and reduced earnings from scrubber-fitted vessels. In contrast, Q3 2024 showed stronger performance compared to the prior year, with adjusted EBITDA of $41.3 million (vs. $30.9 million in Q3 2023) and adjusted EPS of $0.16 (vs. $0.08 in Q3 2023), driven by an average TCE of $17,180. These fluctuations underscore the inherent volatility of the drybulk market, but also highlight the company's ability to generate positive results even in challenging periods.

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Safe Bulkers maintains a robust financial structure, characterized by ample liquidity and comfortable leverage. As of July 18, 2025, the company reported a healthy cash position of approximately $104 million, complemented by $240 million in available revolving credit facilities, totaling $315 million in combined liquidity and capital resources. Its consolidated leverage stood at a comfortable 38% in Q2 2025, with a low net debt per vessel of $9.1 million for its 10-year-old fleet. The company benefits from significant cash flow visibility, with $171 million in contracted revenue from non-cancelable spot and period time charter contracts as of Q2 2025. Notably, its Capesize vessels alone contributed a backlog topping $135 million in Q2 2025, with seven Capes currently period chartered at an average daily rate of $24,500 for almost two years.

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The company is committed to consistent shareholder returns, having declared its 15th consecutive quarterly dividend of $0.05 per common share, representing a 4.7% dividend yield. Since 2022, Safe Bulkers has returned $78.7 million in common dividends and $74.9 million through common share repurchases, including the completion of a 3 million share buyback program in Q1 2025. Management adopts an opportunistic approach to buybacks, initiating them when the stock is perceived as undervalued relative to its net asset value, but also exercising caution and slowing down or halting programs during weaker freight markets to preserve flexibility for its newbuild program.

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## Outlook, Guidance, and Risk Considerations Management anticipates a generally softer drybulk market in the near term for 2025, primarily due to supply growth potentially outpacing demand and ongoing geopolitical uncertainties. However, they foresee an improving freight rate market with an increasing focus on fleet decarbonization and energy-efficient newbuilds. The International Monetary Fund (IMF) projects global GDP growth of around 3% for 2025 and 2026, accompanied by a gradual control of inflationary pressures. BIMCO forecasts global drybulk demand to range from a slight fall to modest growth in 2025, followed by a stronger growth of 1.5% to 2.5% in 2026, with grains and minor bulks expected to be the best-performing sectors. India is projected to be a key growth driver, with a forecasted GDP increase of 6.4% in 2025 and 2026, fueled by its expanding domestic market and infrastructure investments. Conversely, China's slower growth, property market challenges, and shift towards renewables may temper demand for iron ore and coal.

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The implementation of new environmental regulations, particularly the global fuel standard adopted by MEPC 83, is expected to significantly impact vessel tradability from 2028 onwards. This regulatory shift is a central assumption in Safe Bulkers' strategy, as it penalizes carbon-intensive fuels and promotes the use of alternative fuels and energy-efficient Phase 3 vessels, thereby enhancing the competitiveness of their modern fleet. The company's investment in dual-fuel methanol vessels directly addresses this evolving landscape. However, several risks could materially impact Safe Bulkers' performance. The combination of trade wars, tariffs, and persisting geopolitical tensions elevates policy uncertainty and poses a considerable downside risk for global growth and against inflation. Rising fears of "higher for longer" interest rates from central banks could also lead to lower global investments. Changes in the demand for drybulk vessels, fluctuations in TCE rates, and volatility in fuel prices remain inherent risks in the shipping industry. Furthermore, disruptions of shipping routes due to political events and risks associated with vessel construction could affect operational timelines and costs. The global implementation of new fuel standards, while an opportunity for Safe Bulkers' modern fleet, also introduces regulatory complexity and potential challenges for older vessels in the broader market. ## Conclusion Safe Bulkers, Inc. presents a compelling investment thesis rooted in its proactive fleet modernization and commitment to environmental excellence within the cyclical drybulk shipping sector. By strategically investing in Phase 3 and dual-fuel vessels, the company is not merely upgrading its fleet but is actively building a competitive moat against an backdrop of increasingly stringent environmental regulations. This technological leadership, coupled with a young, Japanese-built fleet, positions Safe Bulkers to capitalize on the industry's shift towards decarbonization, potentially driving superior operational efficiency and sustained commercial competitiveness. While the drybulk market faces near-term headwinds from geopolitical uncertainties and supply-demand imbalances, Safe Bulkers' robust financial health, characterized by ample liquidity, comfortable leverage, and a substantial contracted revenue backlog, provides a strong foundation. The company's consistent shareholder returns, through dividends and opportunistic share repurchases, further underscore its commitment to long-term value creation. For discerning investors, Safe Bulkers offers exposure to a vital global industry with a clear strategic roadmap to thrive amidst evolving market dynamics and environmental imperatives. The success of its green fleet strategy and its ability to prudently manage capital will be critical determinants of its trajectory in the coming years.