Capital Product Partners L.P., an international owner of ocean-going vessels, today released its financial results for the third quarter ended September 30, 2020.
Operating Surplus1 and Operating Surplus after the quarterly allocation to the capital reserve for the third quarter of 2020 was $21.0 million and $11.7 million respectively.
Announced common unit distribution of $0.10 for the third quarter of 2020.
We continue to monitor the impact of COVID-19 on the Partnership’s financial condition and operations and on the container industry in general (see also Market Commentary below). The actual impact of the COVID-19 pandemic in the longer run, as well as the efficacy of any measures we take in response to the challenges presented, as described in our previous releases, will depend on how the pandemic will continue to develop, the duration and extent of the restrictive measures that are associated with the pandemic and their further impact on global economy and trade.
Mr. Jerry Kalogiratos, Chief Executive Officer of our General Partner, commented:
“As aforementioned in our previous earnings releases, the COVID-19 pandemic and its adverse impact on human life, economic activity and logistical chains is a unique and unprecedented event with continuously and rapidly changing effects across a number of fronts. In this environment, we continue to prioritize the health and safety of our crews, as well as our onshore employees by designing and implementing together with our managers comprehensive measures and policies.”
“In view of this environment, we are pleased to have delivered on a strong quarterly performance compared to the same period of last year and to see charter rates for neo panamax vessels rebound from the lows experienced in the previous quarter. We have taken advantage of the rising rate environment to secure employment for one of our vessels and to further diversify our customer base.”
“Despite the rising rate environment, we note the increasing uncertainty around the adverse effects of the pandemic over the winter months and as such we remain cautious with regard to the medium to long term economic outlook. We intend to continue to deliver on our business model by securing longer term employment visibility for our vessels that come off charter and stagger charter expirations to mitigate re-chartering risk. As we secure increasing cash flow visibility and charter coverage, we intend to pursue accretive acquisitions on the back of our increasing liquidity position, while our board continues to assess our capital allocation strategy with a view to balancing growth with returning capital to our unitholders.”
As previously announced, the share-for-share transaction with DSS Holdings L.P. (the “DSS Transaction”), involving an aggregate repayment of debt in a principal amount of $146.5 million, the full redemption and retirement of our Class B Convertible Preferred Units at par value and the spin-off of our 25 crude and product tankers (the “Tanker Business”), was completed on March 27, 2019. Accordingly, we present our financial results for comparative periods, on a continuing operations basis, except where reference is made to discontinued operations.
Overview of Third Quarter 2020 Results
Net income from continuing operations for the quarter ended September 30, 2020 was $7.8 million, compared with net income from continuing operations of $3.4 million for the third quarter of 2019. After taking into account the interest attributable to the general partner, net income from continuing operations per common unit for the quarter ended September 30, 2020 was $0.41, compared to net income from continuing operations per common unit of $0.18 for the third quarter of 2019.
Total revenue was $35.5 million for the quarter ended September 30, 2020, compared to $26.4 million during the third quarter of 2019. The increase in revenue was primarily attributable to the increase in the size of our fleet following the acquisition of three 10,000 TEU containers in January 2020, partly set off by the decrease in the average daily charter rate earned by the vessels in our fleet.
Total expenses for the quarter ended September 30, 2020 were $23.8 million, compared to $19.3 million in the third quarter of 2019. Voyage expenses for the quarter ended September 30, 2020 increased to $1.9 million, compared to $0.7 million in the third quarter of 2019, as one of the vessels in our fleet was employed under a voyage charter compared to none during the respective period in 2019. Total vessel operating expenses during the third quarter of 2020 amounted to $9.5 million, compared to $9.8 million during the third quarter of 2019. The decrease in operating expenses was mainly due to expenses incurred during the third quarter of 2019 in connection with the passing of the special survey of the M/V Agamemnon partly offset in the third quarter of 2020, by the increase in the size of our fleet following the acquisition of the three 10,000 TEU container vessels in January 2020. Total expenses for the third quarter of 2020 also include vessel depreciation and amortization of $10.6 million, compared to $7.3 million in the third quarter of 2019. The increase in depreciation and amortization during the third quarter of 2020 was mainly attributable to the increase in the size of our fleet, the completion of the special surveys of eight of our vessels and the installation of scrubber systems in seven of our vessels during the second half of 2019 and the first half of 2020. General and administrative expenses for the third quarter of 2020 amounted to $1.8 million as compared to $1.5 million in the third quarter of 2019.
Total other expense, net for the quarter ended September 30, 2020 was $3.9 million compared to $3.7 million for the third quarter of 2019. Total other expense, net includes interest expense and finance costs of $3.5 million for the third quarter of 2020, as compared to $4.1 million in the third quarter of 2019. The decrease in interest expense and finance costs was mainly attributable to the decrease in the LIBOR weighted average interest rate compared to the third quarter of 2019 partly offset by the increase in the average long-term debt outstanding during the period.
Capitalization of the Partnership
As of September 30, 2020, total cash amounted to $47.7 million. Total cash includes restricted cash of $14.9 million in total representing the $7.0 million minimum liquidity requirement under our financing arrangements and the $7.9 million pledged to ICBC Financial Leasing Co. Ltd, which is expected to be released during the fourth quarter of 2020, following the commencement of M/V ‘Akadimos’ new employment.
As of September 30, 2020, total partners’ capital amounted to $416.2 million, an increase of $9.5 million compared to $406.7 million as of December 31, 2019. The increase reflects net income for the nine months ended September 30, 2020 and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the first nine months of 2020 in the total amount of $15.2 million.
As of September 30, 2020, the Partnership’s total debt was $389.0 million, reflecting an increase of $126.6 million compared to $262.4 million as of December 31, 2019. The increase is attributable to the term loan entered into with Hamburg Commercial Bank A.G., the sale and lease back transaction entered into with CMB Financial Leasing Co., Ltd in connection with the acquisition of three 10,000 TEU containers in January 2020 and the refinancing of three 9,000 TEU Container vessels which was completed in May 2020, partially offset by scheduled principal payments during the period.
Operating surplus from continuing operations for the quarter ended September 30, 2020 amounted to $21.0 million, compared to $25.5 million for the previous quarter ended June 30, 2020 and $12.7 million for the third quarter of 2019. We allocated $9.3 million to the capital reserve for third quarter in 2020, in line with the previous quarter. Operating surplus for the quarter ended September 30, 2020, after the quarterly allocation to the capital reserve was $11.7 million. Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please refer to Appendix A at the end of the press release for a reconciliation of this non-GAAP measure with net income.
Fleet Employment Update
During the quarter, the Partnership secured employment for the M/V ‘Adonis’ (115,600 mt dwt / 9,288 TEU, Eco-Flex, Wide Beam Containership built 2015, Daewoo-Mangalia Heavy Industries S.Α.) with Zim Integrated Shipping Services Ltd. for a period of 12 to 14 months at $33,500 gross per day. The charter commenced in late September 2020.
As a result, the Partnership’s charter coverage for the remainder of 2020 and for 2021 has increased to 91% and 86%, respectively while the remaining charter duration amounts to 4.5 years.
Quarterly Common Unit Cash Distribution
On October 21, 2020, the Board of Directors of the Partnership (the “Board”) declared a cash distribution of $0.10 per common unit for the third quarter of 2020 payable on November 10, 2020 to common unit holders of record on November 2, 2020.
Market Commentary Update
Overall, the container charter market experienced a strong rebound across all sizes during the third quarter of 2020. The operators’ stringent capacity management coupled with lower bunker prices have lifted liner profitability at or close to historical highs. As a result of this and the recovery in consumer demand, available tonnage in the market has been picked up by liner companies at increasing rates with the container idle fleet decreasing from 11.0% in May to less than 4.0% by the end of the third quarter 2020.
Analysts now expect demand contraction for the full year of 2020 at -4.1% in terms of demand for container vessels compared to the initial estimate of more than -10.0%. On the other hand, the expected recovery rate for 2021 has been revised downwards from 9.3% to 5.7%.
As the economic outlook, future developments with regard to the COVID-19 pandemic and the overall prospects for global containerized trade continue to remain uncertain, liner companies have to a large extent avoided committing to longer term charters. However, as charter rates increase, we expect to see an increase in the average duration of new charters with the aim of containing the rate of increase of charter rates going forward.
The container orderbook is estimated to be at historical lows and now stands at 303 units of 1.87 million TEU and 8.0% of the total worldwide container fleet. As of quarter end, slippage including cancellations of newbuilding container vessels stood at 29.0% in TEU compared to none at the end of the third quarter of 2019. Supply growth for 2020 has thus been revised downward to 1.8% from 3.1% at the beginning of the year.