Dynagas LNG Partners posts Q2 profit rise

Dynagas LNG Partners

Dynagas Partners, an owner and operator of liquefied natural gas (“LNG”) carriers, announced its results for the three and six months ended June 30, 2020.

Quarter Highlights:

  • Net income of $6.4 million and earnings per common unit of $0.10, after accounting for $3.4 million of non-cash market to market interest rate swap losses;
  • Adjusted Net Income(1) of $9.9 million and Adjusted Earnings per common unit of $0.20 excluding the non-cash mark to market interest rate swap losses;
  • Adjusted EBITDA(1) of $24.1 million;
  • 100% fleet utilization;
  • Declared and paid cash distribution of $0.5625 per unit on its Series A Preferred Units (NYSE: “DLNG PR A”) for the period from February 12, 2020 to May 11, 2020 and $0.546875 per unit on the Series B Preferred Units (NYSE: “DLNG PR B”) for the period from February 22, 2020 to May 21, 2020; and
  • Entered into a floating to fixed interest rate swap transaction effective from June 29, 2020 which provides for a fixed 3-month LIBOR rate of 0.41% based on notional values that reflect the amortization schedule of 100% of the Partnership’s debt outstanding under its $675 Million Credit Facility, until the $675 Million Credit Facility matures in September 2024.

Subsequent Events:

  • Declared a quarterly cash distribution of $0.5625 on the Series A Preferred Units for the period from May 12, 2020 to August 11, 2020, which was paid on August 12, 2020;
  • Declared a quarterly cash distribution of $0.546875 on the Series B Preferred Units for the period from May 22, 2020 to August 21, 2020, which was paid on August 24, 2020; and
  • In August 2020, the Partnership entered into an amended and restated ATM Sales Agreement (the “A&R Sales Agreement”), for the offer and sale of common units representing limited partnership interests, having an aggregate offering price of up to $30.0 million (the “Current ATM Program”). Upon entry into the A&R Sales Agreement, the Partnership terminated its prior at-the-market program established in July 2020 (the “Prior ATM Program”). At the time of such termination, $0.4 million of the Partnership’s common units out of an aggregate of $30.0 million of its common units were sold pursuant to the Prior ATM Program.

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

CEO Commentary:

We are pleased to report the results for the three months and six months ended June 30, 2020. All six LNG carriers in our fleet are operating under their respective long-term charters with international gas producers with an average remaining contract term of 8.1 years. The earliest contracted re-delivery date for our six LNG carriers is in the third quarter of 2021 (the Arctic Aurora), with the next carrier (the Clean Energy) becoming available for re-chartering in the first quarter of 2026 at the earliest.

For the second quarter of 2020, we reported Net Income of $6.4 million and Adjusted EBITDA of $24.1 million. This improved performance is attributable to an increase in voyage revenues and a decrease in interest and finance costs compared to the corresponding period in 2019, coupled with stable vessel operating expenses during this period.

Despite the ongoing operational challenges the industry is facing as a result of the COVID-19 outbreak, we are pleased to report 100% utilization for our fleet for the second quarter of 2020. The ongoing impact of the COVID-19 outbreak has been operationally manageable due to our manager’s COVID-19 response plan which has been implemented with the support of our seafarers, charterers and employees, for which we are grateful.

Pursuant to our general objective to manage the cost of debt, we made use of the historically low interest rate environment and entered into a floating to fixed interest rate swap transaction effective from June 29, 2020 until the existing $675.0 Million Credit Facility expires in 2024. The swap provides for a fixed 3-month LIBOR rate of 0.41% and an effective interest rate cost of 3.41% (including margin) applicable for notional amounts matching the full amount and period of our outstanding debt. This was a key development in the execution of our strategic plan as it de-risks our exposure to interest rate volatility while securing a low cost of debt until 2024.

Additionally, in August 2020 we entered into an “at the market” offering program, pursuant to which the Partnership may offer and sell up to $30 million of its common units. Going forward, we intend to continue our strategy of using our cash flow generation to deleverage our balance sheet, reinforce our liquidity and generate cash so as to build equity over time. This, we believe, will enhance our ability to pursue future growth initiatives.

Financial Results Overview:

  Three Months Ended   Six Months Ended
(U.S. dollars in thousands, except per unit data) June 30,
2020
(unaudited)
June 30,
2019
(unaudited)
    June 30,
2020
(unaudited)
  June 30,
2019
(unaudited)
Voyage revenues $ 33,913 $ 30,817 $ 68,384 $ 62,220
Net Income $ 6,427 $ 932 $ 13,394 $ 2,824
Adjusted Net Income (1) $ 9,885 $ 771 $ 16,958 $ 2,502
Operating income $ 16,157 $ 13,521 $ 31,869 $ 27,902
Adjusted EBITDA(1) $ 24,131 $ 20,875 $ 47,870 $ 42,591
Earnings/ (loss) per common unit $ 0.10 $ (0.06 ) $ 0.21 $ (0.08 )
Adjusted Earnings/ (loss) per common unit (1) $ 0.20 $ (0.06 ) $ 0.31 $ (0.09 )

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

Three Months Ended June 30, 2020 and 2019 Financial Results

Net Income for the three months ended June 30, 2020 was $6.4 million as compared to a Net Income of $0.9 million in the corresponding period of 2019, which represents an increase of $5.5 million, or 611.1%. This increase was mainly attributable to an increase in voyage revenues as well as a decrease in interest and finance costs compared to the corresponding period of 2019. The increase in net income was partially offset by a $3.4 million unrealised loss on the Partnership’s interest rate swap transaction recognised in this quarter (no derivative instruments in the corresponding quarter of 2019) further to the commencement of the Partnership’s interest rate swap transaction effective from June 29, 2020 (see further below).

Adjusted Net Income (which excludes non cash flow items including the above mentioned unrealized loss of $3.4 million on the interest rate swap transaction), for the three months ended June 30, 2020 was $9.9 million compared to $0.8 million in the corresponding period of 2019, representing a net increase of $9.1 million or 1,137.5%.

Voyage revenues for the three months ended June 30, 2020 were $33.9 million as compared to $30.8 million for the corresponding period of 2019, which represents an increase of $3.1 million, mainly as a result of the higher revenues earned on the Lena River following its delivery to its multi-year contract with Yamal Trade Pte (“Yamal”) in July 2019.

The Partnership reported average daily hire gross of commissions(1) of approximately $62,200 per day per vessel in the three-month period ended June 30, 2020, compared to approximately $55,100 per day per vessel in the corresponding period of 2019. During the three-month periods ended June 30, 2020 and 2019, the Partnership’s vessels operated at 100% and 94.4% utilization, respectively.

Vessel operating expenses were $6.9 million in both three-month periods ended June 30, 2020 and 2019, which corresponds to the same daily rate per vessel of $12,630.

Adjusted EBITDA for the three months ended June 30, 2020 was $24.1 million, as compared to $20.9 million for the corresponding period of 2019. The increase of $3.2 million, or 15.3%, was mainly due to the increase in revenues as explained above.

Interest and finance costs, net, were $6.3 million in the three months ended June 30, 2020 as compared to $12.5 million in the corresponding period of 2019, which represents a decrease of $6.2 million, or 49.6% due to the lower weighted average interest and the reduction in the average interest bearing debt as compared to the corresponding period of 2019.

On May 7, 2020, the Partnership entered into a floating to fixed interest rate swap transaction effective from June 29, 2020. It provides a fixed 3-month LIBOR rate of 0.41% based on notional values that reflect the amortization schedule of 100% of the Partnership’s debt outstanding under its $675 Million Credit Facility, until the $675 Million Credit Facility matures in September 2024. The Partnership recognized an unrealised loss on the derivative financial instrument of $3.4 million as of June 30, 2020.

For the three months ended June 30, 2020, the Partnership reported Earnings per common unit and Adjusted Earnings per common unit, basic and diluted, of $0.10 and $0.20 respectively, after taking into account the distributions relating to the Series A Preferred Units and the Series B Preferred Units on the Partnership’s Net income/Adjusted 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 common units outstanding during the period and in the case of Adjusted Earnings per common unit after reflecting the impact of the non-cash items presented in Appendix B of this press release.

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

Amounts relating to variations in period–on–period comparisons shown in this section are derived from the condensed financials presented below.

(1) Average daily hire gross of commissions represents voyage revenue excluding the non-cash time charter deferred revenue amortization, divided by the Available Days in the Partnership’s fleet as described in Appendix B.

Liquidity/ Financing/ Cash Flow Coverage

During the three months ended June 30, 2020, the Partnership generated net cash from operating activities of $8.1 million as compared to $7.0 million in the corresponding period of 2019, which represents an increase of $1.1 million, or 15.7%.

As of June 30, 2020, the Partnership reported total cash of $63.3 million (including $50.0 million of restricted cash). The Partnership’s outstanding indebtedness as of June 30, 2020 under the $675.0 Million Credit Facility amounted to $639.0 million, gross of unamortized deferred loan fees and including $48.0 million, which was repayable within one year.

As of June 30, 2020, the Partnership had unused availability of $30.0 million under its interest free $30.0 million revolving credit facility with its Sponsor, or the $30.0 Million Revolving Credit Facility, which was extended on November 14, 2018, and is available to the Partnership at any time until November 2023.

Vessel Employment

As of September 3, 2020, the Partnership had estimated contracted time charter coverage(1) for 100% of its fleet estimated Available Days (as defined in Appendix B) for 2020, 92% of its fleet estimated Available Days for 2021 and 83% of its fleet estimated Available Days for 2022.

As of the same date, the Partnership’s contracted revenue backlog estimate(2)(3) was $1.18 billion, with an average remaining contract term of 8.1 years.

(1) 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.

(2) The Partnership calculates its estimated 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.

(3) $0.16 billion of the revenue backlog estimate relates to the estimated portion of the hire contained in certain time charter contracts with Yamal which represents the operating expenses of the respective vessels and is subject to yearly adjustments on the basis of the actual operating costs incurred within each year. The actual amount of revenues earned in respect of such variable hire rate may therefore differ from the amounts included in the revenue backlog estimate due to the yearly variations in the respective vessels’ operating costs.

 

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