Dynagas LNG quarterly profit misses estimates

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

Highlights:

  • Announced the refinancing of all of the Partnership’s existing secured bank debt with a new $480.0 million institutional senior secured Term Loan B that is expected to increase its net cash flow and that extends the maturity of its secured debt to 2023;
  • Net income of $12.9 million and Earnings per common unit (1) of $0.32 for the three months ended March 31, 2017;
  • Distributable Cash Flow (2) of $18.6 million during the three months ended March 31, 2017;
  • Adjusted Net Income (2) of $14.7 million, Adjusted Earnings per common unit (1) (2) of $0.37 and Adjusted EBITDA(2) of $31.3 million for the three months ended March 31, 2017;
  • $75.9 million of cash and $105.9 million of available liquidity as of March 31, 2017;
  • Quarterly cash distribution of $0.4225 per common unit and $0.5625 per preferred unit.

(1) Earnings per common unit and Adjusted Earnings per common unit presentation eliminate the effect of the Series A Preferred Units interest on the Partnership’s net income for the periods presented.

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

Recent Developments:

Quarterly Common Unit Cash Distribution: On April 12, 2017, the Partnership’s Board of Directors announced a quarterly cash distribution of $0.4225 per common unit in respect of the first quarter of 2017. This cash distribution was paid on April 28, 2017, to all common unitholders of record as of April 21, 2017.

Series A Preferred Units Cash Distribution: On April 21, 2017, 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, 2017 to May 11, 2017, which was paid on May 12, 2017, to all unitholders of record as of May 5, 2017.

$480.0 million Term Loan B: On May 18, 2017, the Partnership refinanced its existing secured commercial bank facilities with a new $480.0 million institutional senior secured term loan B due in 2023 (the “Term Loan B”). The Term Loan B provides for 0.25% quarterly amortization on principal and a bullet payment at maturity. The Term Loan B is secured by, among other things, the six LNG carriers in the Partnership’s fleet.

CEO Commentary:

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

“We are pleased to report our earnings for the financial quarter ended March 31, 2017.

“The earnings for the financial quarter ended March 31, 2017 were within our expectations. Part of our strategic plan has been to enter into longer term charters for the employment of the vessels in our fleet. In general, long-term charters are priced at day rates below shorter term charters. Our average remaining contract duration is now 10.5 years and our contracted backlog estimate is $1.52 billion, thereby providing us with significant cash flow visibility. 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 earnings for the first quarter of 2017 were, as expected, below those of the first quarter of 2016 following our decision to reduce the charter hire on two vessels, the Yenisei River and the Lena River, in the short to medium-term, with effect from November 2016, in exchange for a long term charter on the Clean Energy with a term from July 2018 through March 2026. These transactions were net accretive to our contracted backlog enhancing our revenue visibility.

“On May 18, 2017, we successfully closed a $480.0 million Term Loan B transaction. The net proceeds of the Term Loan B, which has a term of six years and is secured by, among other things, the six LNG carriers in our fleet, were used to repay in full our then outstanding secured indebtedness with our commercial bank lenders. This refinancing provides us with additional debt amortization flexibility and is expected to increase net cash flow and extends the maturity of our secured indebtedness from 2020/2021 to 2023.

“On April 28, 2017, we paid quarterly cash distribution of $0.4225 per common unit with respect to the first quarter of 2017. Since our initial public offering in November 2013, we have paid total cash distributions of $5.52 per common unit. Also, on May 12, 2017, we paid a cash distribution of $0.5625 per unit on our Series A Preferred Units for the period from February 12, 2017 to May 11, 2017.

“In April 2017, Clean Energy became available for employment, at which time we entered into two consecutive short-term charters to employ the vessel through the end of August 2017. Following the expiration of these charters, we expect to enter into additional charters for the Clean Energy prior to its delivery to Gazprom in July 2018.

“With our fleet 86% contracted through 2017 and 75% contracted through each of 2018 and 2019, and with an estimated fleet-wide average remaining contract duration of 10.5 years, believe we have significant cash flow visibility. Our intent is to seek additional contract coverage, particularly in 2017 and 2018, to manage our operating expenses and 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
(U.S. dollars in thousands, except per unit data) March 31, 2017 (unaudited) March 31, 2016 (unaudited)
Voyage Revenues $ 39,092 $ 42,741
Net Income $ 12,912 $ 17,135
Adjusted Net Income (1) $ 14,685 $ 18,928
Operating Income $ 21,893 $ 26,004
Adjusted EBITDA(1) $ 31,271 $ 35,178
Earnings per common unit $ 0.32 $ 0.43
Adjusted Earnings per common unit (1) $ 0.37 $ 0.48
Distributable Cash Flow (1) $ 18,634 $ 22,736

(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, 2017 and 2016 Financial Results

Net Income for the three months ended March 31, 2017 was $12.9 million, compared to Net Income of $17.1 million in the corresponding period of 2016, which represents a 24.6% decrease. Adjusted Net Income for the three months ended March 31, 2017 was $14.7 million, compared to Adjusted Net Income of $18.9 million in the corresponding period of 2016, which represents a 22.4% decrease. The decrease in both Net Income and Adjusted Net Income was mainly attributable to charter hire reductions on the Yenisei River and the Lena River, with effect from November 2016 and to unscheduled off-hire days for the Yenisei River and, to a lesser extent, attributable to scheduled expenditures of technical nature for the fleet vessels that will undergo their special survey and dry-dock repairs in 2017.

Adjusted EBITDA for the three months ended March 31, 2017 decreased by 11.1% across the quarters (first quarter 2017 Adjusted EBITDA of $31.3 million, compared to first quarter 2016 Adjusted EBITDA of $35.2 million) and was due to the factors outlined above.

The Partnership’s Distributable Cash Flow for the three-month period ended March 31, 2017 was $18.6 million, compared to $22.7 million in the corresponding period of 2016, which represents a decrease of $4.1 million, or 18.0%.

For the three-month period ended March 31, 2017, the Partnership reported Earnings per common unit and Adjusted Earnings per common unit basic and diluted of $0.32 and $0.37, respectively, after taking into account the Series A Preferred Units interest on the Partnership’s net profit. Earnings per common unit and Adjusted Earnings per common unit, basic and diluted are calculated on the basis of a weighted number of 31,660,500 units outstanding during the period (after taking into account the one-for-one basis conversion of the 14,985,000 subordinated units owned by Dynagas Holding Ltd., the Partnership’s Sponsor, into common units on January 23, 2017), 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 hereto.

Voyage revenues decreased to $39.1 million for the three-month period ended March 31, 2017, from $42.7 million for the same period of 2016. As discussed above, this decrease was primarily due to the Partnership’s agreement with the charterer of the Yenisei River and the Lena River to lower, with effect from November 2016, the charter hire rates of these vessels in return for entering into an eight year contact for the Clean Energy, with an estimated contract backlog of $132.7 million. This decrease was also, albeit to a lesser extent, driven by the unscheduled off-hire days for the Yenisei River (as opposed to no off-hire days in same quarter in 2016).

Vessel operating expenses increased to $6.7 million in the three-month period ended March 31, 2017, from $6.4 million for the same period of 2016. This increase is primarily attributable to technical maintenance expenditures associated with the Partnership’s three steam turbine vessels that will undergo their scheduled special survey and dry-dock in 2017.

The Partnership reported average daily hire gross of commissions(1) of approximately $76,700 per day per vessel in the three months ended March 31, 2017, compared to approximately $81,300 per day per vessel in the same period of 2016. During the three-month period ended March 31, 2017, the Partnership’s vessels operated at 99% utilization.

(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-to-period comparisons shown in this section are derived from the condensed financials presented below.

Liquidity/ Financing/ Cash Flow Coverage

As of March 31, 2017, the Partnership reported cash of $75.9 million (including the aggregate $25.0 million minimum cash liquidity requirements imposed by the Partnership’s lenders). The Partnership’s aggregate $25.0 million liquidity restrictions elapsed in May 2017, when its existing secured loans were refinanced with the Term Loan B, as discussed above. Total indebtedness outstanding as of March 31, 2017 was $714.4 million, which includes the Partnership’s $250.0 million senior unsecured notes due 2019.

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, 2017, the Partnership reported working capital surplus of $63.7 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 that closed in May 2017, as discussed above.

During the three months ended March 31, 2017, the Partnership generated net cash from operating activities of $18.2 million, compared to $23.6 million in the same period of 2016. This decrease was mainly attributable to decrease in period net income, due to the factors discussed above, and other negative working capital variations between the two periods.

Vessel Employment

As of June 8, 2017, the Partnership had contracted employment (2) for 86% of its fleet estimated Available Days for 2017, 75% of its fleet estimated Available Days for 2018 and 75% of its fleet estimated Available Days for 2019.

As of the same date, the Partnership’s contracted revenue backlog estimate (3) was approximately $1.52 billion, with average remaining contract duration of 10.5 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 shown in the table below 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 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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