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Dynagas LNG Partners LP Reports Lower First Quarter Results

Dynagas LNG Partners LP, an owner and operator of liquefied natural gas (“LNG”) carriers, yesterday announced its results for the three months ended March 31, 2018.

Highlights:

  • Net income of $4.8 million for the three months ended March 31, 2018;
  • Earnings per common unit of $0.09 for the three months ended March 31, 2018;
  • Adjusted Net Income(1) of $7.2 million for the three months ended March 31, 2018;
  • Adjusted Earnings per common unit(1) (2) of $0.16 for the three months ended March 31, 2018;
  • Distributable Cash Flow(1) of $11.3 million during the three months ended March 31, 2018;
  • Adjusted EBITDA(1) of $26.6 million for the three months ended March 31, 2018;
  • Reported cash of $61.4 million and available liquidity of $91.4 million as of March 31, 2018;
  • Quarterly cash distribution of $0.25 per common unit in respect of the first quarter of 2018 and $0.5625 per preferred unit in respect of the most recent period.

Recent Developments:

Optional Vessels purchase option deadline extension: On March 30, 2018, the Partnership agreed with its Sponsor to further extend the deadline for exercising the purchase options relating to both the Clean Ocean and the Clean Planet previously granted to the Partnership under the Omnibus Agreement from March 31, 2018 to December 31, 2018.

Reduction in and payment of quarterly common unit cash distribution: On April 18, 2018, the Partnership announced that, following a strategic review of its financial profile and distribution policy, its Board of Directors approved a reduction in the quarterly cash distribution on the Partnership’s common units to $0.25 per common unit from $0.4225 per common unit, or from $1.69 per common unit to $1.00 per common unit on an annualized basis. The cash distribution, at the reduced level, became effective upon the payment of the common units distribution with regards to the first quarter of 2018 which was paid on May 3, 2018, to all common unitholders of record as of April 26, 2018. The revised distribution level is expected to align the Partnership’s cash distributions with its capacity to generate cash flow in the long term, to strengthen its balance sheet and to improve its distribution coverage ratio (which is its distributable cash flow available for distribution in proportion to actual cash distributed).

Series A Preferred Units Cash Distribution: On April 24, 2018, the Partnership’s Board of Directors also announced a cash distribution of $0.5625 per unit of its Series A Preferred Units (NYSE:DLNG PR A) for the period from February 12, 2018 to May 11, 2018, which was paid on May 14, 2018 to all unitholders of record as of May 5, 2018.

Image: Dynagas LNG Partners LP.

CEO Commentary:

Tony Lauritzen, Chief Executive Officer of the Partnership, commented:

“We are pleased to report our earnings for the three months ended March 31, 2018.

“Our reported earnings for the first quarter of 2018 were, as expected, below those of the first quarter of 2017 and were impacted by the following: (i) the temporary employment of the Clean Energy on the spot market until July 2018, when the vessel will commence a time charter with Gazprom for a term of approximately eight years, and (ii) the longer term nature of our contracts following our decision to reduce the charter hire rate on two vessels, the Yenisei River and the Lena River, with effect from November 2016, in exchange for securing the long-term charter with Gazprom, mentioned above, for the employment of the Clean Energy. These transactions contributed to an increase in our contracted backlog, thereby enhancing our revenue visibility.

“On April 18, 2018, we announced a plan to reduce the quarterly distribution on the Partnership’s common units to $0.25 per common unit from $0.4225 per common unit, or from $1.69 per common unit to $1.00 per common unit on an annualized basis. The reduction took effect on May 3, 2018, upon the payment of the common unit distribution with respect to the first quarter of 2018 to common unitholders of record as of the close of business on April 26, 2018.

“This decision by our Board of Directors to reduce the level of the Partnership’s quarterly common unit distribution was necessary to align the Partnership’s distribution level with its capacity to generate cash flow in the long term. Despite the material increase in the Partnership’s estimated revenue contract backlog over the last two years, we have experienced a decrease in operating cash flow and a weakened distribution coverage ratio (which is our distributable cash flow available for distribution in proportion to actual cash distributed) following our shift to longer term charters for the employment of our LNG carriers, which provide us with greater cash flow visibility albeit at lower charter rates that provide attractive returns of capital. As the Partnership’s shorter duration time charter contracts at peak charter rates have expired or are approaching expiration, we have capitalized on our Manager’s operational track record and the versatility of the ice class designated LNG carriers in our Fleet to secure long term employment contracts. As of the date of this report, our estimated average remaining contract term is 10.2 years and our estimated contracted revenue backlog is approximately $1.5 billion, which highlights our ability to secure long-term contracts during periods when the LNG shipping market has been highly competitive.

“On May 3, 2018, we paid quarterly cash distribution of $0.25 per common unit with respect to the first quarter of 2018. Since our initial public offering in November 2013, we have paid total cash distributions of $7.04 per common unit. In addition, on May 14, 2018, we paid a cash distribution of $0.5625 per unit on our Series A Preferred Units for the period from February 12, 2018 to May 11, 2018.

“With our Fleet 85% contracted through 2018, 92% contracted through 2019 and 100% contracted through 2020, and with an estimated Fleet-wide average remaining contract duration of 10.2 years, we believe we have significant cash flow visibility.

“Our intent is to seek additional contract coverage, particularly in 2018, to manage our operating expenses and to continue the safe operation of our Fleet.

“We look forward to working towards meeting our goals, which we believe will continue to benefit our unitholders.”

Financial Results Overview:

 Three Months Ended
March 31,
 
(U.S. dollars in thousands, except per unit data) 2018
(unaudited)
2017
(unaudited)
Voyage Revenues $ 33,904 $ 39,092
Net Income $ 4,840 $ 12,912
Adjusted Net Income (1) $ 7,232 $ 14,905
Operating Income $ 16,806 $ 21,893
Adjusted EBITDA(1) $ 26,590 $ 31,271
Earnings per common unit $ 0.09 $ 0.32
Adjusted Earnings per common unit (1) $ 0.16 $ 0.37
Distributable Cash Flow(1) $ 11,286 $ 18,634

(1) Adjusted Net Income, Adjusted EBITDA, Adjusted Earnings per common unit and Distributable Cash Flow are not recognized measures under U.S. GAAP. Please refer to the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in Appendix B.

Three Months Ended March 31, 2018 and 2017 Financial Results

Net Income for the three months ended March 31, 2018 was $4.8 million as compared to Net Income of $12.9 million in the corresponding period of 2017, which represents a decrease of $8.1 million, or 62.5%. Adjusted Net Income for the three months ended March 31, 2018 was $7.2 million as compared to Adjusted Net Income of $14.9 million in the corresponding period of 2017, which represents a decrease of $7.7 million, or 51.5%. The decrease in both the Net Income and the Adjusted Net Income was mainly attributable to (i) the lower revenues earned for the Clean Energy which has been employed under a short-term charter during the first quarter of 2018, in comparison to the corresponding quarter of 2017 during which the vessel operated under a multiyear charter at a significantly higher charter rate and, (ii) the increased interest costs for servicing the Partnership’s secured debt, which was refinanced in May 2017.

Adjusted EBITDA for the three months ended March 31, 2018 was $26.6 million as compared to Adjusted EBITDA of $31.3 million for the corresponding period of 2017, which represents a decrease of $4.7 million, or 15.0%, and was mainly due to lower revenues earned in the period for the Clean Energy, as discussed above.

The Partnership’s Distributable Cash Flow for the three-month period ended March 31, 2018 was $11.3 million as compared to $18.6 million in the corresponding period of 2017, which represents a decrease of $7.3 million, or 39.4%, and was due to the factors outlined above.

For the three-month period ended March 31, 2018, the Partnership reported Earnings per common unit and Adjusted Earnings per common unit, basic and diluted, of $0.09 and $0.16, respectively, after taking into account the Series A Preferred Units interest on the Partnership’s net income. Earnings per common unit and Adjusted Earnings per common unit, basic and diluted are calculated on the basis of a weighted average number of 35,490,000 units outstanding during the period, in the case of Adjusted Earnings per common unit after reflecting the impact of the non-cash items presented in Appendix B.

Please refer to the definitions and reconciliation of these measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP in Appendix B.

Voyage revenues were $33.9 million for the three-month period ended March 31, 2018 as compared to $39.1 million for the same period of 2017, which represents a decrease of $5.2 million, or 13.3%. This decrease was predominantly driven by the lower revenues earned on the Clean Energy which has been trading in the short-term market since the third quarter of 2017, in comparison to the corresponding quarter of 2017 during which the vessel was fully utilized at significantly higher charter rate. In July 2018, the Clean Energy will be delivered to Gazprom to commence a charter with a term of approximately eight years.

Vessel operating expenses were $6.3 million, which corresponds to a daily rate of $11,741 for the three-month period ended March 31, 2018, as compared to $6.7 million, or a daily rate of $12,352 for the corresponding period of 2017. This decrease is primarily associated with crewing and technical efficiencies achieved during the first quarter of 2018 as compared to the corresponding period of 2017.

Interest and finance costs were $12.0 million in the first quarter of 2018 as compared to $8.9 million in the first quarter of 2017, which represents an increase of $3.2 million, or 35.5%. As discussed above, this increase is commensurate with the increase in the weighted average interest for the first quarter of 2018 mainly as a result of the increased costs associated with the $480.0 million institutional senior secured term loan B facility due in 2023 (the “Term Loan B”) which the Partnership entered into on May 18, 2017.

The Partnership reported average daily hire gross of commissions(1) of approximately $66,300 per day per vessel in the three months ended March 31, 2018, compared to approximately $76,700 per day per vessel in the same period of 2017. During the three-month period ended March 31, 2018, the Partnership’s vessels operated at 100% utilization compared to 99% utilization in the same period of 2017.

(1) Average daily hire gross of commissions represents voyage revenue without taking into consideration the non-cash time charter amortization expense and amortization of prepaid charter revenue, divided by the Available Days in the Partnership’s fleet as described in Appendix B.
Amounts relating to variations in period–on–period comparisons shown in this section are derived from the condensed financials presented below.

Liquidity/ Financing/ Cash Flow Coverage

As of March 31, 2018, the Partnership reported free cash of $61.4 million. Total indebtedness outstanding as of March 31, 2018 was $726.4 million (gross of unamortized deferred loan fees), which, apart from amounts outstanding under the Term Loan B, also includes the Partnership’s $250.0 million senior unsecured notes due October 2019. As of March 31, 2018, $4.8 million of the Partnership’s outstanding indebtedness was repayable within one year.

The Partnership’s liquidity profile is further enhanced by the $30.0 million of borrowing capacity under the Partnership’s revolving credit facility with its Sponsor, which is available to the Partnership at any time until November 2018 and remains available in its entirety as of the date of this release.

As of March 31, 2018, the Partnership reported working capital surplus of $44.2 million (Q4 2017: $47.5 million).

During the three months ended March 31, 2018, the Partnership generated net cash from operating activities of $11.9 million as compared to $18.2 million in the same period of 2017, which represents a decrease of $6.3 million, or 34.7%. This decrease was attributable to the decrease in period net income due to the factors discussed above.

Vessel Employment

As of May 16, 2018, the Partnership had estimated contracted time charter coverage for 85% of its fleet estimated Available Days (as defined in Appendix B) for the remaining 2018, 92% of its fleet estimated Available Days for 2019 and 100% of its fleet estimated Available Days for 2020.

As of the same date, the Partnership’s contracted revenue backlog estimate was approximately $1.46 billion, with an average remaining contract term of 10.2 years.

Full Report

Source: Dynagas LNG Partners LP

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