Dynagas LNG Partners posts lower profit in Q4

Procopiou _ Dynagas

Dynagas LNG Partners LP, an owner and operator of liquefied natural gas carriers, today announced its results for the three months and year ended December 31, 2017.

Highlights:

  • Net income during the three months and year ended December 31, 2017 of $5.6 million and $17.3 million, respectively;
  • Earnings per common unit for the three months and year ended December 31, 2017 of $0.11 and $0.27, respectively;
  • Adjusted Net Income(1) for the three months and year ended December 31, 2017 of $7.6 million and $33.7 million, respectively;
  • Adjusted Earnings per common unit (1) (2) for the three months and year ended December 31, 2017 of $0.16 and $0.74, respectively;
  • Distributable Cash Flow(1) during the three months and year ended December 31, 2017 of $11.8 million and $49.9 million, respectively;
  • Adjusted EBITDA(1) for the three months and year ended December 31, 2017 of $26.9 million and $107.5 million, respectively;
  • Reported cash of $67.5 million and available liquidity of $97.5 million each as of December 31, 2017;
  • Quarterly cash distribution of $0.4225 per common unit in respect of the fourth quarter of 2017 and $0.5625 per preferred unit in respect of the most recent period.

(1) Adjusted Net Income, Adjusted Earnings per common unit, Distributable Cash Flow and Adjusted EBITDA 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.

(2) Adjusted Earnings per common unit presentation excludes the Series A Preferred Units interest on the Partnership’s net income for the periods presented.

Recent Developments:

New long-term time charter contract for the Arctic Aurora: On December 20, 2017, the Partnership entered into a new three year charter agreement with Statoil ASA (“Statoil”) for the employment of the Arctic Aurora, its 2013-built, 155,000 cubic meter, tri-fuel diesel engine, ice class LNG carrier. This new charter for the Arctic Aurora is expected to commence in the third quarter of 2018 in direct continuation of the current charter with Statoil, following the vessel’s mandatory statutory class five-year special survey and dry-docking and has a firm period of about 3 years +/- 30 days. Statoil will have options to extend this charter by two consecutive 12-month periods at escalated rates.  

Quarterly Common and Subordinated Unit Cash Distribution: On January 4, 2018, the Partnership announced a quarterly cash distribution of $0.4225 per common unit in respect of the fourth quarter of 2017. This cash distribution was paid on January 18, 2018 to all common unitholders of record as of January 11, 2018.

Series A Preferred Units Cash Distribution: On January 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 November 12, 2017 to February 11, 2018, which was paid on February 12, 2018 to all unitholders of record as of February 5, 2018.

Optional Vessels purchase option deadline extension: On February 6, 2018, the Partnership agreed with its Sponsor to extend the deadline for exercising the purchase options relating to both the Clean Horizon  and the Clean Vision previously granted to the Partnership under the Omnibus Agreement retroactively from their initial expiration in July 2017 and January 2018, respectively, to December 31, 2018.

CEO Commentary:

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

“We are pleased to report our earnings for the three months and year ended December 31, 2017.

“Our reported earnings for the fourth quarter of 2017 were, as expected, below those of the fourth quarter of 2016 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 8 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 substantially to our contracted backlog, thereby enhancing significantly our revenue visibility.

“On January 18, 2018, we paid quarterly cash distribution of $0.4225 per common unit with respect to the fourth quarter of 2017. Since our initial public offering in November 2013, we have paid total cash distributions of $6.79 per common unit. In addition, on February 12, 2018, we paid a cash distribution of $0.5625 per unit on our Series A Preferred Units for the period from November 12, 2017 to February 11, 2018.

“Part of our strategy has been to enter into longer term charters for the employment of the vessels in our fleet. In general, based on the conditions of the charter market, long-term charters may be priced at day rates above or below shorter term charters. 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 10.4 years, we believe we have significant cash flow visibility. We expect to increase contract coverage going forward on the back of an improving LNG shipping market.

“Our revenues are derived from the employment of our vessels on fixed multi-year charter contracts. The revenues we earn under those charter contracts are earned on a fixed day rate basis and not linked in any way to commodity price fluctuations.

“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   Year Ended
(U.S. dollars in thousands, except per unit data) December
31, 2017

(unaudited)
December
31, 2016

(unaudited)
December
31, 2017

(unaudited)
December
31, 2016
Voyage Revenues $ 34,452 $ 41,385 $ 138,990 $ 169,851
Net Income $ 5,625 $ 15,475 $ 17,339 $ 66,854
Adjusted Net Income (1) $ 7,559 $ 17,368 $ 33,731 $ 74,145
Operating Income $ 17,424 $ 24,303 $ 63,944 $ 102,079
Adjusted EBITDA(1) $ 26,919 $ 33,893 $ 107,545 $ 139,531
Earnings per common unit $ 0.11 $ 0.39 $ 0.27 $ 1.69
Adjusted Earnings per common unit (1) $ 0.16 $ 0.44 $ 0.74 $ 1.90
Distributable Cash Flow (1) $ 11,793 $ 21,272 $ 49,922 $ 89,592

(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 December 31, 2017 and 2016 Financial Results

Net Income for the three months ended December 31, 2017 was $5.6 million as compared to Net Income of $15.5 million in the corresponding period of 2016, which represents a 63.7% decrease. The decrease, as further discussed below, was mainly attributable to (i) the decrease in operating revenues and (ii) the increased interest costs for servicing the Term Loan B (defined below).

Adjusted Net Income for the three months ended December 31, 2017 was $7.6 million as compared to Adjusted Net Income of $17.4 million in the corresponding period of 2016, which represents a 56.5% decrease.  The decrease in Adjusted Net Income, which excludes non-cash and non-recurring items, discussed above and further presented in Appendix B, was mainly due to the lower net revenues earned on certain of the Partnership’s LNG carriers and higher financing costs, as discussed in further detail below.

Adjusted EBITDA for the three months ended December 31, 2017 was $26.9 million compared to Adjusted EBITDA of $33.9 million for the corresponding period of 2016, which represents a decrease of 20.6% and was due to the factors discussed above.

The Partnership’s Distributable Cash Flow for the three-month period ended December 31, 2017 was $11.8 million, compared to $21.3 million in the corresponding period of 2016, which represents a decrease of $9.5 million, or 44.6%, which was due to the factors discussed above.

For the three-month period ended December 31, 2017, the Partnership reported Earnings per common unit and Adjusted Earnings per common unit, basic and diluted, of $0.11 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 $34.5 million for the three-month period ended December 31, 2017 as compared to $41.4 million for the same period of 2016, which represents a decrease of $6.9 million, or 16.8%.  This decrease was primarily due to the lower charter rate earned for the Clean Energy during the fourth quarter of 2017 in comparison to the corresponding quarter of 2016 and (ii) the charter hire reductions on the Yenisei River and the Lena River, with effect from November 2016.

Vessel operating expenses were $6.7 million in both the three-month periods ended December 31, 2017 and 2016, which corresponds to a daily rate of $12,192 in the three-month period ended December 31, 2017 and a daily rate of $12,149 in the same period of 2016.

Interest and finance costs were $11.8 million in the fourth quarter of 2017 as compared to $8.9 million in the fourth quarter of 2016, which represents an increase of $3.0 million, or 33.3%. As discussed above, this increase is due to the increase in the fourth quarter 2017 weighted average interest mainly as a result of the increased costs associated with the Term Loan B facility that the Partnership entered into on May 18, 2017.

The Partnership reported average daily hire gross of commissions(1)  of approximately $65,900 per day per vessel in the three months ended December 31, 2017, compared to approximately $78,250 per day per vessel in the same period of 2016. During the three-month period ended December 31, 2017, the Partnership’s vessels operated at 99.3% utilization compared to 100% utilization in the same period of 2016.

(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 December 31, 2017, the Partnership reported free cash of $67.5 million. Total indebtedness outstanding as of December 31, 2017 was $727.6 million (gross of unamortized deferred loan fees), which also includes the Partnership’s $250.0 million senior unsecured notes due October 2019. As of December 31, 2017, $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 December 31, 2017, the Partnership reported working capital surplus of $47.5 million (Q4 2016: $7.1 million) which is the result on the strengthening of the Partnership’s balance sheet following the Term Loan B refinancing.

During the three months ended December 31, 2017, the Partnership generated net cash from operating activities of $15.0 million as compared to $23.3 million in the same period of 2016, which represents a decrease of 8.3 million, or 35.7%. This decrease was attributable to the decrease in period net income due to the factors discussed above.

Vessel Employment

As of February 15, 2018, the Partnership had contracted time charter coverage(2) for 85% of its fleet estimated Available Days (as defined in Appendix B) for 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 (3) was approximately $1.49 billion, with an average remaining contract term of 10.4 years.

(2) Time charter coverage for the Partnership’s fleet is calculated by dividing the fleet contracted days on the basis of the earliest estimated delivery and redelivery dates prescribed in the Partnership’s current time charter contracts net of scheduled class survey repairs by the number of expected Available days during that period.

(3) The Partnership calculates its contracted revenue backlog by multiplying the contractual daily hire rate by the expected number of days committed under the contracts (assuming earliest delivery and redelivery and excluding options to extend), assuming full utilization. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods disclosed due to, for example, dry-docking and/or special survey downtime, maintenance projects, off-hire downtime and other factors that result in lower revenues than the Partnership’s average contract backlog per day. Certain time charter contracts that the Partnership recently entered into with Yamal Trade Pte. are subject to the satisfaction of important conditions, which, if not satisfied, or waived by the charterer, may result in their cancellation or amendment before or after the charter term commences and in such case the Partnership may not receive the contracted revenues thereunder.

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