Dynagas sees 4Q profit drop

dynagas

Dynagas LNG Partners LP, an owner and operator of LNG carriers, announced its results (unaudited) for the three months and year ended December 31, 2015.

Three Months and Year Ended December 31, 2015 Highlights:

  • Adjusted Net Income (1) for the three months and year ended December 31, 2015 of $15.0 million and $60.9 million, respectively;
  • $49.3 million of reported cash as of December 31, 2015;
  • Completion of the dropdown of the 2013 built LNG Carrier Lena River from the Partnership’s Sponsor for $240.0 million;
  • Adjusted EBITDA (1) for the three months and year ended December 31, 2015 of $28.5 million and $113.2 million, respectively;
  • Distributable Cash Flow (1) during the three months and year ended December 31, 2015 of $18.0 million and $72.4 million, respectively;
  • Adjusted Earnings per common unit (1), after taking into account the Series A Preferred Units interest on the Partnership’s net income, for the three months and year ended December 31, 2015 of $0.38 and $1.63, respectively.
  • Cash distribution of $0.4225 per common unit and $0.5625 per preferred unit for the quarter.

(1) Adjusted Net Income, Distributable Cash Flow, Adjusted EBITDA, 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:

Completion of the acquisition of the LNG carrier Lena River: On December 21, 2015, the Partnership completed its third dropdown from Dynagas Holding Ltd, the sponsor of the Partnership (the “Sponsor”) and acquired 100% of the ownership interests in the entity that owns and operates the Lena River, a 2013 built 155,000 cubic meter (cbm) ice class LNG carrier, and the related time charter, for an aggregate purchase price of $240.0 million. The acquisition was funded with i) the net proceeds of an underwritten offering of 3,000,000 9.00% Series A Cumulative Perpetual Redeemable Preferred Units (the “Series A Preferred Units”), ii) approximately $126.3 million from the borrowings under a new $200 million senior term loan facility backed by a group of new to the Partnership lenders, with ABN Amro NV acting as agent, dated December 17, 2015 (the “$200 Million Term Loan Facility”), and iii) cash on hand. The Sponsor further provided a $35.0 million credit financing to the Partnership in connection with the Lena River acquisition, which was repaid early in 2016.

Following this acquisition and in view of the Partnership’s growth strategy, the Management of the Partnership intends to recommend to its Board of Directors (the “Board”) a further increase to the Partnership’s quarterly cash distribution per common and subordinated unit of between 4% to 6%, equaling a quarterly cash distribution per common and subordinated unit of between $0.4394 to $0.4479, which would become effective for the quarter ending March 31, 2016. Management can provide no assurance that if such recommendation is made, that it will be approved by the Board.

Lena River financing: On December 17, 2015, the Partnership entered into the $200 Million Term Loan Facility to partially fund the Lena River dropdown, discussed above. In connection with the closing of the Lena River acquisition, $133.3 million was drawn down under the $200 Million Term Loan Facility. The financing agreement has a five year maturity profile, and is split in two equal $100.0 million tranches, with each tranche being repayable in 20 consecutive quarterly installments of approximately $1.56 million each, and a balloon payment of $68.8 million at maturity. At year end, the Partnership had $66.7 million of undrawn committed funds under the $200 Million Term Loan Facility. These funds were fully drawn down early in 2016 and used to repay in full the $35.0 million credit financing provided by the Sponsor on the date the Lena River was acquired.

Quarterly Common and Subordinated Unit Cash Distribution: On January 19, 2016, the Partnership’s Board declared a quarterly cash distribution of $0.4225 per common and subordinated unit for the fourth quarter of 2015. This cash distribution was paid on February 12, 2016 to all unitholders of record as of February 5, 2016.

Series A Preferred Units Cash Distribution: On January 19, 2016, the Partnership’s Board also declared a cash distribution of $0.5625 per unit of its Series A Preferred Units (NYSE: DLNG PR A) for the fourth quarter of 2015. This cash distribution was also paid on February 12, 2016 to all unitholders of record as of February 5, 2016.

Management 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, 2015.

“The three month period ended December 31, 2015, has been another strong financial quarter for us. In comparison to the corresponding quarter ended December 31, 2014, this quarter has been slightly weaker due to a decrease in Adjusted EBITDA of 0.6%, mainly due to increased operating costs. The results for the year ended December 31, 2015 have been strong overall with a 33.6% increase in reported Adjusted EBITDA.

“During the financial year ended December 31, 2015, we achieved several of our goals in a challenging capital market.

“In July 2015, we raised capital by issuing the Series A Preferred Units. By raising additional bank financing, we were able to acquire the Lena River in December 2015. The Lena River is an ice classed LNG Carrier that is a sister vessel to the Yenisei River and Arctic Aurora, which are existing vessels in our fleet that are on charter with Gazprom Global LNG Limited and Statoil. As a result, we have doubled our fleet since our Initial Public Offering in November 2013.

“Our income is derived from contracted fixed charter rates that are unrelated to commodity prices. On January 21, 2016, we announced a cash distribution of $0.4225 per common and subordinated unit for the fourth quarter of 2015, which was paid on February 12, 2016, to all common and subordinated unitholders of record of February 5, 2016. Since our Initial Public Offering in November 2013, we have paid total cash distributions of $3.4071 per common and subordinated unit.

“In addition, on January 21, 2016, we also announced a cash distribution of $0.5625 per unit on our Series A Preferred Units for the fourth quarter of 2015, which was also paid on February 12, 2016 to all Series A Preferred unitholders of record as of February 5, 2016.

“In August 2015, our Sponsor entered into contracts for the construction of five 172,000 cubic meter ARC7 LNG carriers (the “Yamal Vessels”). The Yamal Vessels are expected to be delivered to the Sponsor as follows: two vessels in the fourth quarter of 2017 and three vessels in the first quarter of 2019. The Yamal Vessels, upon their delivery to our Sponsor, are contracted to be employed under long term charters to the Yamal LNG Project, an Arctic LNG project that requires ice class designated vessels. Our Sponsor has established a joint venture ownership in these vessels with Sinotrans LNG Shipping Limited and China LNG Shipping (Holdings) Limited who each owns 25.5% of the respective shipbuilding contracts. We believe the Yamal Vessels may be future fractional dropdown candidates for the Partnership in addition to four other vessels owned by our Sponsor, in which we have options to purchase pursuant to the omnibus agreement (the “Optional Vessels”). All four Optional Vessels owned by our Sponsor are also contracted to be employed under long term charters for the Yamal LNG Project from 2019 onward. We currently have no ownership interests in the Yamal Vessels or the Optional Vessels. The future dropdown of any of the Yamal Vessels or the Optional Vessels will be at the discretion of our Board of Directors and subject to, among other terms and conditions, the negotiation and execution of important documentation and the approval from our conflicts committee.

“With our fleet fully contracted through 2016 and 83% through 2017, and fleet wide average remaining contract duration of 3.8 years, we intend to pay particular focus on increasing contract coverage, distributions, and safe and efficient operations. I look forward to working with our team towards meeting our goals, which we believe will benefit our unitholders.”

Financial Results Overview:

Three Months Ended Year Ended
(U.S. dollars in thousands, except per unit data) December 31, 2015 (unaudited) December 31, 2014 (unaudited) December 31, 2015 (unaudited) December 31, 2014
Voyage Revenues $ 37,016 $ 36,375 $ 145,202 $ 107,088
Net Income $ 14,826 $ 15,320 $ 60,050 $ 50,561
Adjusted Net Income (1) $ 15,029 $ 15,664 $ 60,876 $ 52,626
Operating Income $ 22,068 $ 22,213 $ 88,092 $ 64,663
Adjusted EBITDA(1) $ 28,513 $ 28,697 $ 113,202 $ 84,751
Earnings per common unit $ 0.37 $ 0.43 $ 1.60 $ 1.58
Adjusted Earnings per common unit (1) $ 0.38 $ 0.44 $ 1.63 $ 1.64
Distributable Cash Flow(1) $ 18,035 $ 18,564 $ 72,365 $ 59,778

(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, 2015 and 2014 Financial Results

Adjusted Net Income for the three months ended December 31, 2015 was $15.0 million, compared to Adjusted Net Income of $15.7 million in the corresponding period in 2014, which represents a 4.1% decrease, mainly attributable to the increase in vessel operating expenses.

Adjusted EBITDA for the three months ended December 31, 2015 remaining relatively constant in the quarters (fourth quarter 2015 Adjusted EBITDA of $28.5 million, compared to fourth quarter 2014 Adjusted EBITDA of $28.7 million), the slight 0.6% decrease explained as discussed above.

The Partnership’s Distributable Cash Flow for the three-month period ended December 31, 2015 was $18.0 million, compared to $18.6 million in the corresponding period of 2014, which represents a decrease of $0.5 million, or 2.9%.

For the three-month period ended December 31, 2015, the Partnership reported adjusted Earnings per common basic and diluted unit of $0.38, after taking into account the Series A Preferred Units interest on the Partnership’s net profit. Adjusted Earnings per common is calculated on the basis of a weighted number of 20,505,000 basic and diluted common units outstanding during the period, 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 increased to $37.0 million for the three-month period ended December 31, 2015, compared to $36.4 million for the same period in 2014, due to the contribution to operations of the Lena River charter hire revenues for the days it was a part of the Partnership’s fleet in the period under review. As a result of the growth in the Partnership’s fleet, Available Days increased to 471.0 days during the three-month period ended December 31, 2015, compared to 460.0 days during the corresponding period of 2014.

Vessel operating expenses increased by $0.6 million to $6.2 million in the three-month period ended December 31, 2015, from $5.6 million for the same period in 2014, mainly due increased technical maintenance activities in the Partnership’s fleet and the ownership of the recently acquired Lena River.

The Partnership reported average daily hire gross of commissions on a cash basis (1) of approximately $78,900 per day per vessel in the three months ended December 31, 2015, compared to approximately $79,700 in the same period of 2014. During the three-month period ended December 31, 2015, the Partnership’s vessels operated at 98% utilization.

(1) Average daily hire gross of commissions on a cash basis represents voyage revenue on a cash basis, without taking into consideration the non-cash time charter amortization expense, 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.

Year Ended December 31, 2015 and 2014 Financial Results

Adjusted Net Income for the year ended December 31, 2015, was $60.9 million, compared to Adjusted Net Income of $52.6 million in the corresponding period in 2014, an increase of $8.3 million, or 15.7% that primarily reflects the operation for a full year of the two LNG carriers that the Partnership acquired from its Sponsor in the second and third quarters of 2014, the increase further underpinned by strong operational performance and 99% utilization across the Partnership’s fleet.

Adjusted EBITDA for the year ended December 31, 2015 was $113.2 million, compared to $84.8 million in the corresponding period of 2014, which represents an increase of $28.5 million, or 33.6%.

The Partnership’s Distributable Cash Flow for the year ended December 31, 2015 was $72.4 million, compared to $59.8 million in the corresponding period of 2014, which represents an increase of $12.6 million, or 21.0%.

For year ended December 31, 2015, the Partnership reported Adjusted Earnings per common basic and diluted unit of $1.63, after taking into account the Series A Preferred Units interest on the Partnership’s net profit. Adjusted Earnings per common unit is calculated on the basis of a weighted number of 20,505,000 Basic and diluted common units outstanding during the year, 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 increased to $145.2 million during the year ended December 31, 2015, compared to $107.1 million for the same period in 2014. This increase is the result of the growth in the Partnership’s fleet with the three LNG carriers that it acquired from its Sponsor, the Arctic Aurora and the Yenisei River in the second and third quarters of 2014 and the Lena River acquired late in 2015, all with long term contracts attached. As a result of this growth in the Partnership’s fleet, Available Days increased to 1,836.0 days during the year ended December 31, 2015, compared to 1,384.0 days during the corresponding period of 2014.

Vessel operating expenses increased by $6.4 million to $23.2 million in the year ended December 31, 2015, from $16.8 million for the same period in 2014. Operation of the Arctic Aurora, the Yenisei River and the Lena River accounted for $5.7 million of this increase and the remainder of the increase was due to slightly increased operational costs.

The Partnership’s overall financial performance during the year presented also reflects an increase of $12.6 million in the Partnership’s interest costs as a result of the increase in both the weighted average interest rate and weighted average outstanding indebtedness in the year ended December 31, 2015, as compared to the corresponding period of 2014.

The Partnership reported average daily hire gross of commissions on a cash basis (2) of approximately $79,000 per day per vessel in the year ended December 31, 2015, (or approximately $79,450 per day per vessel if ballast revenues are taken into account), compared to approximately $78,800 in the same period of 2014. During the year ended December 31, 2015, the Partnership’s vessels operated at 99% (3) utilization.

(2) Average daily hire gross of commissions on a cash basis represents voyage revenue on a cash basis, without taking into consideration the non-cash time charter amortization expense, divided by the Available Days in the Partnership’s fleet as described in Appendix B.

(3) Current year utilization does not reflect idle period on one of the Partnership’s fleet vessels, during part of which the Partnership received ballast bonus revenues and early redelivery compensation of approximately $0.9 million.

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 update

As of December 31, 2015, the Partnership reported cash of $49.3 million (including minimum cash liquidity requirements imposed by the Partnership’s lenders). Total indebtedness as of December 31, 2015 stood at $688.3 million, which includes the new financing arrangement that partially financed the Lena River acquisition. As of December 31, 2015, the Partnership had undrawn available commitments of $66.7 million under the $200 Million Term Loan Facility, which were fully drawn down early in 2016 and further significantly improved the Partnership’s liquidity position. Of these proceeds, $35.0 million was used to repay the credit financing provided by the Partnership’s Sponsor in connection with the Lena River acquisition.

The Partnership’s liquidity profile as of December 31, 2015, was further enhanced by the $30.0 million of borrowing capacity under the Partnership’s revolving credit facility with its Sponsor that is anytime available to the Partnership until November 2018.

During the year ended December 31, 2015, the Partnership generated net cash from operating activities of $96.9 million, compared to $76.4 million in the same period in 2014, predominantly driven from the excess cash flows that the Partnership’s first two acquired vessels (that were completed in the second and third quarters of 2014) contributed to the Partnership. This increase also reflected the positive effect of other operating assets and liabilities variations between the compared periods.

Time Charter Coverage

As of February 16, 2016, the Partnership had contracted employment for 100% of its total fleet Calendar Days through the end of 2016 and 83% of its fleet Calendar Days for 2017. Time charter coverage with regards to total fleet Calendar Days is calculated on the basis of the earliest estimated redelivery dates provided in the Partnership’s current time charter contracts.

As of February 16, 2016, following the Lena River acquisition which provided the Partnership with approximately $81.7 million of incremental fixed contracted revenues over its remaining minimum charter term, the Partnership’s contracted revenue backlog (4) increased to approximately $607.7 million with average remaining contract duration of 3.8 years.

(4) The Partnership calculates its contracted revenue backlog by multiplying the contractual daily hire rate by the minimum expected number of days committed under the contracts (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, shipyard and maintenance projects, downtime and other factors that result in lower revenues than the Partnership’s average contract backlog per day.

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