GasLog Partners’ profit slips in Q3

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GasLog Partners LP, an international owner and operator of liquefied natural gas (LNG) carriers, reported its financial results for the three-month period ended September 30, 2019.

Highlights

-Quarterly IFRS (as defined below) Reported Results and Partnership Performance Results(2) for Revenues, Profit, Adjusted Profit(1) and EBITDA(1) of $96.5 million, $29.4 million, $31.9 million and $71.8 million, respectively.
-Highest-ever quarterly Partnership Performance Results(2) for Revenues, Adjusted Profit(1), EBITDA(1) and Distributable cash flow of $96.5 million, $31.9 million, $71.8 million and $34.3 million, respectively.
-Repurchased 508,908 of the Partnership’s common units under its unit repurchase programme of up to $25.0 million, authorized in January 2019, for $10.1 million during the third quarter of 2019 and a total amount of $20.0 million since inception.
-Cash distribution of $0.55 per common unit for the third quarter of 2019, unchanged from the second quarter of 2019 and 3.8% higher than the third quarter of 2018.
-Distribution coverage ratio(3) of 1.30x, or adjusted distribution coverage ratio(4) of 1.33x to reflect the impact on revenues of the scheduled dry-docking of the Solaris.

(1) Adjusted Profit and EBITDA are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with International Financial Reporting Standards (“IFRS”). For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.
(2) Partnership Performance Results represent the results attributable to GasLog Partners which are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with IFRS. For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit II at the end of this press release.
(3) Distribution coverage ratio represents the ratio of Distributable cash flow to the cash distribution declared. Distributable cash flow is a non-GAAP financial measure and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with IFRS. For the definition and reconciliation of Distributable cash flow to the most directly comparable financial measure calculated and presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.
(4) Adjusted distribution coverage ratio represents the ratio of Adjusted distributable cash flow to the cash distribution declared. Adjusted distributable cash flow is defined as Distributable cash flow after adjusting for the $0.8 million negative impact on revenues of the scheduled dry-docking of the Solaris. Distributable cash flow is a non-GAAP financial measure and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with IFRS. For the definition and reconciliation of Distributable cash flow to the most directly comparable financial measure calculated and presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.

CEO Statement

Mr. Andrew Orekar, Chief Executive Officer, commented: “I am pleased to announce a strong quarterly financial and operational performance by GasLog Partners, as demonstrated by our highest-ever quarterly Partnership Performance Results for Revenues, Adjusted Profit, EBITDA and Distributable cash flow, and the continued outstanding performance of our fleet in terms of safety and availability. The GasLog Shanghai, operating under a multi-year market-linked contract with a subsidiary of Gunvor Group Ltd. (“Gunvor”), delivered strong results, compared to vessels operating in the spot market, as a result of the 100% utilization guaranteed by the charter.

Our third quarter reflected a full quarter’s contribution from several strategic actions the Partnership has executed in the year to date, including the acquisition of the GasLog Glasgow, the elimination of GasLog Ltd.’s (“GasLog”) incentive distribution rights (“IDRs”), the new three-and-a-half-year charter with Gunvor for the GasLog Shanghai and, lastly, the repurchase of approximately 2% of our outstanding common units since authorizing our unit repurchase programme in January. I am also particularly pleased to report that, in September, the crew of one of our vessels (Methane Alison Victoria) was selected as “Crew of the Year” among all commercial shipping lines at the IHS Markit Safety at Sea 2019 Awards ceremony in recognition of our commitment to safety and operational excellence.

On the back of this performance, we are reiterating our distribution growth guidance of 2% to 4% for 2019, which considers our positive outlook for LNG shipping while also accounting for our one scheduled dry-docking and one steam turbine propulsion (“Steam”) vessel whose charter is scheduled to end in the fourth quarter of 2019.”

Methane Jane Elizabeth Nomination for New Charter

On March 22, 2018, GasLog Partners entered into a one-year time charter agreement with Trafigura Maritime Logistics PTE Ltd. (“Trafigura”) for a 145,000 cubic meter (“cbm”) Steam vessel (either the 2006-built Methane Jane Elizabeth or the 2007-built Methane Alison Victoria as nominated by the Partnership). The Partnership elected to nominate the Methane Jane Elizabeth to be employed under this time charter which is expected to commence in November 2019. The charterer has options to extend the charter for up to an additional four years at an escalating rate.

Unit Repurchase Programme

On January 29, 2019, the board of directors of GasLog Partners authorized a unit repurchase programme of up to $25.0 million covering the period from January 31, 2019 to December 31, 2021. Under the terms of the repurchase programme, GasLog Partners may repurchase common units from time to time, at its discretion, on the open market or in privately negotiated transactions. In the three months ended September 30, 2019, GasLog Partners repurchased and cancelled 508,908 of the Partnership’s common units at a weighted average price of $19.84 per common unit for a total amount of $10.1 million, including commissions. Since the authorization of the unit repurchase programme and through October 30, 2019, GasLog Partners has repurchased and cancelled a total of 985,259 units at a weighted average price of $20.31 per common unit for a total amount of $20.0 million, including commissions.

ATM Common Equity Offering Programme (“ATM Programme”)

On May 16, 2017, GasLog Partners commenced an ATM Programme under which the Partnership may, from time to time, raise equity through the issuance and sale of new common units having an aggregate offering price of up to $100.0 million in accordance with the terms of an equity distribution agreement entered into on the same date. Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC agreed to act as sales agents. On November 3, 2017, the size of the ATM Programme was increased to $144.0 million and UBS Securities LLC was included as a sales agent. On February 26, 2019, the size of the ATM Programme was further increased from $144.0 million to $250.0 million.

No issuances of common units were made under the ATM Programme in the first nine months of 2019. Since the commencement of the ATM Programme through October 30, 2019, GasLog Partners has issued and received payment for a total of 5,291,304 common units, with cumulative gross proceeds of $123.4 million at a weighted average price of $23.33 per unit and net proceeds of $121.2 million. In connection with the issuance of common units under the ATM Programme during this period, the Partnership also issued 107,987 general partner units to its general partner. The net proceeds from the issuance of the general partner units were $2.5 million.

Financial Summary

(1) “IFRS Common Control Reported Results” represent the results of GasLog Partners in accordance with IFRS. Such results include amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfer to GasLog Partners from GasLog, as the transfers of such vessels were accounted for as reorganizations of entities under common control for IFRS accounting purposes. The unaudited condensed consolidated financial statements of the Partnership accompanying this press release are prepared under IFRS on this basis.

(2) Adjusted Profit and EBITDA are non-GAAP financial measures. For the definitions and reconciliations of these measures to the most directly comparable financial measure presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.

There were 1,365 revenue operating days for the quarter ended September 30, 2019 as compared to 1,340 revenue operating days for the quarter ended June 30, 2019 and 1,335 revenue operating days for the quarter ended September 30, 2018.

The decrease in profit in the third quarter of 2019 as compared to the same period in 2018 is mainly attributable to a $4.5 million decrease in gain on derivatives (a loss of $2.4 million in the third quarter of 2019 compared to a gain of $2.1 million in the same period in 2018), partially offset by a decrease in financial costs of $0.9 million mainly due to decreased London Interbank Offered Rate (“LIBOR”) rates.

The increase in profit in the third quarter of 2019 as compared to the second quarter of 2019 is mainly attributable to a $5.9 million decrease in loss on derivatives and a $4.7 million increase in revenues, mainly attributable to the increased revenues of the GasLog Shanghai since commencing its charter to Gunvor in June 2019.

(1) “Partnership Performance Results” represent the results attributable to GasLog Partners. Such results are non-GAAP measures and exclude amounts related to vessels currently owned by the Partnership for the periods prior to their respective transfers to GasLog Partners from GasLog, as the Partnership is not entitled to the cash or results generated in the periods prior to such transfers. Such results are included in the GasLog Partners’ results in accordance with IFRS because the transfers of the vessel owning entities by GasLog to the Partnership represent reorganizations of entities under common control and the Partnership reflects such transfers retroactively under IFRS. GasLog Partners believes that these non-GAAP financial measures provide meaningful supplemental information to both management and investors regarding the financial and operating performance of the Partnership necessary to understand the underlying basis for the calculations of the quarterly distribution and earnings per unit, which similarly exclude the results of vessels prior to their transfers to the Partnership. These non-GAAP financial measures should not be viewed in isolation or as substitutes to the equivalent GAAP measures presented in accordance with IFRS, but should be used in conjunction with the most directly comparable IFRS Common Control Reported Results. For the definitions and reconciliations of these measurements to the most directly comparable financial measures presented in accordance with IFRS, please refer to Exhibit II at the end of this press release.

(2) Adjusted Profit, EBITDA and Distributable cash flow are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with IFRS. For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.

With respect to the Partnership Performance Results, there were 1,365 revenue operating days for the quarter ended September 30, 2019 compared to 1,340 revenue operating days for the quarter ended June 30, 2019 and 1,151 revenue operating days for the quarter ended September 30, 2018. The increase in revenue operating days compared to the same period in 2018 is mainly attributable to the drop-downs of the Methane Becki Anne on November 14, 2018 and the GasLog Glasgow on April 1, 2019.

The increase in profit in the third quarter of 2019 as compared to the same period in 2018 was mainly driven by the profits of the Methane Becki Anne and the GasLog Glasgow, acquired by the Partnership on November 14, 2018 and April 1, 2019, respectively, partially offset by a $4.5 million decrease in gain on derivatives attributable to the Partnership (a loss of $2.4 million in the third quarter of 2019 compared to a gain of $2.1 million in the same period in 2018).

The increase in profit in the third quarter of 2019 as compared to the second quarter of 2019 is mainly attributable to a $5.9 million decrease in loss on derivatives attributable to the Partnership and a $4.7 million increase in revenues, mainly attributable to the increased revenues of the GasLog Shanghai since the commencement of its charter to Gunvor in June 2019.

The decrease in total cash distributions declared in the third quarter of 2019 as compared to the second quarter of 2019 is attributable to the decrease in the number of outstanding common units due to the repurchases of common units by GasLog Partners during the third quarter of 2019.

Preference Unit Distributions

On July 24, 2019, the board of directors of GasLog Partners approved and declared a distribution on the 8.625% Series A Cumulative
Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series A Preference Units”) of $0.5390625 per preference unit, a distribution on the 8.200% Series B Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series B Preference Units”) of $0.5125 per preference unit and a distribution on the 8.500% Series C Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series C Preference Units”) of $0.53125 per preference unit. The cash distributions were paid on September 16, 2019 to all unitholders of record as of September 9, 2019.

Common Unit Distribution

On October 29, 2019, the board of directors of GasLog Partners approved and declared a quarterly cash distribution of $0.55 per common unit for the quarter ended September 30, 2019. The cash distribution is payable on November 13, 2019 to all unitholders of record as of November 8, 2019.

Liquidity and Financing

As of September 30, 2019, we had $65.8 million of cash and cash equivalents, of which $11.4 million was held in current accounts and $54.4 million was held in time deposits with an original duration of less than three months. An additional amount of $9.0 million of time deposits with an original duration greater than three months was classified as short-term investments.

In the three months ended September 30, 2019, GasLog Partners repurchased and cancelled 508,908 common units at a weighted average price of $19.84 under its unit repurchase programme authorized in January 2019, for a total amount of $10.1 million, including commissions. Since the authorization of the unit repurchase programme and through October 30, 2019, GasLog Partners has repurchased and cancelled a total of 985,259 units at a weighted average price of $20.31 per common unit for a total amount of $20.0 million, including commissions. As of October 30, 2019, the unutilized portion of the unit repurchase programme was $5.0 million.

As of September 30, 2019, we had an aggregate of $1,370.9 million of borrowings outstanding under our credit facilities, of which $110.3 million is repayable within one year. In addition, as of September 30, 2019, we had unused availability under our revolving credit facilities of $58.0 million.

The Partnership has entered into six interest rate swap agreements with GasLog at a notional value of $625.0 million in aggregate, maturing between 2020 and 2024. As a result of its hedging agreements, the Partnership has hedged 44.9% of its floating interest rate exposure on its outstanding debt as of September 30, 2019, at a weighted average interest rate of approximately 2.1% (excluding margin).

Furthermore, the Partnership has in place nine forward foreign exchange contracts with GasLog with a notional value of €13.5 million and staggered maturities until June 2020 to mitigate its foreign exchange transaction exposure in its operating expenses.

As of September 30, 2019, our current assets totaled $87.8 million and current liabilities totaled $148.4 million, resulting in a negative working capital position of $60.6 million. Taking into account generally expected market conditions, we anticipate that cash flow generated from operations will be sufficient to fund our operations, including our working capital requirements, and to make the required principal and interest payments on our indebtedness during the next 12 months.

LNG Market Update and Outlook

According to Wood Mackenzie, global LNG supply totaled 90 million tonnes (“mt”) in the third quarter of 2019, a 2% increase from the second quarter and 11% growth year-on-year. During the third quarter, growth from new United States (“U.S.”) projects (Cameron, Corpus Christi Train 2 and Freeport) and the ramp-up of the Prelude project in Australia offset continued underperformance from plants in Indonesia and Malaysia and maintenance activities at PNG LNG, Sakhalin-2, Peru LNG and Sabine Pass. Compared to the third quarter, supply is expected to grow by 6%, to 95 mt, in the fourth quarter of 2019, principally reflecting a full quarter of production from the U.S. projects mentioned above, as well as initial production from the Elba Island facility. For 2019, Wood Mackenzie estimates annual LNG supply at 364 mt, which represents 12% growth over 2018. Supply is expected to grow by a further 7% in 2020 with the addition of further trains at the Cameron, Freeport and Yamal LNG (Russia) projects.

During the third quarter, the Calcasieu Pass project (10 million tonnes per annum, or “mtpa”) in the U.S. and Arctic LNG-2 reached a Final Investment Decision (“FID”). Arctic LNG-2, at 19.8 mtpa of nameplate capacity, is the single largest project sanction in the history of the LNG industry. Combined with projects approved earlier in the year, 2019 has set a record for LNG FIDs, totaling 63 mtpa year-to-date and surpassing the 2005 record of 46 mtpa. In addition, the 2.1 mtpa Woodfibre LNG project in Canada is expected to reach FID by the end of 2019, while ExxonMobil recently awarded engineering contracts for the 15.2 mtpa Rovuma LNG project ahead of an expected FID in 2020. In total, Wood Mackenzie expects 115 mtpa of new capacity to commence production between 2020 and 2024.

Global LNG demand was 87 mt in the third quarter of 2019, compared with 78 mt in the third quarter of 2018, an increase of 10%, according to Poten. European imports accounted for much of the growth, rising 8 mt year-over-year (or approximately 100%), while demand from Northeast Asia (Japan, China, South Korea and Taiwan) was approximately flat. For the twelve months ending September 30, 2019, LNG demand was 351 mt, compared with 308 mt for the twelve months ending September 30, 2018, an increase of 14%. Demand from Europe was particularly strong, growing by 36 mt (or 105%) while China’s demand growth was also noteworthy, rising 11 mt or 22%.

The global gas market remains well-supplied, given the combination of ample inventories following higher-than-average temperatures in the 2018/19 winter and LNG supply growth so far this year. This has resulted in further inventory builds, notably in Europe where storage is currently at 98% of capacity, according to Gas Infrastructure Europe, and sustained pressure on gas pricing, with European and U.K. gas prices recently touching their lowest levels since 2009. Similarly, Asian LNG prices are currently c.40% below 2018 levels. However, the combination of low gas prices and rising carbon prices have improved the competitiveness of gas as a fuel for power generation compared to coal, particularly in Europe. During the third quarter of 2019, gas-fired power generation in Europe increased 31% year-on-year, accounting for 21% of total power generation compared to 16% a year earlier, according to Bloomberg. Notably, Spain’s gas demand for power in September was up 128% year-on-year, as gas accounted for 27% of the power mix, with coal at just 2%, according to Spain’s national grid operator Enagás. A similar trend in the Netherlands has prompted German utility company RWE AG to re-commission a 1.1 gigawatt (“GW”) gas-fired power plant by 2020.

A deteriorating macroeconomic outlook, particularly in China, could present a near-term headwind for LNG demand by reducing natural gas consumption growth. However, the long-term fundamentals for gas and LNG demand growth remain very attractive, underpinned by continued energy demand growth and the significantly better emissions profile of gas versus coal. The most recent example of this was a proposal by the South Korean government to address air pollution by significantly reducing coal-fired power generation from December 2019 to March 2020. In addition, Wood Mackenzie recently forecast that Europe’s gas import dependency and call on LNG imports will continue to grow, due to falling domestic production in many countries and declining pipeline flows from North Africa and Central Asia, as well as potential limits on Russia’s share of European gas imports.

Headline spot rates for TFDE LNG carriers (“LNGCs”), as reported by Clarksons, averaged approximately $64,000 per day in the third quarter of 2019, a 31% increase over the second quarter of 2019 but below the $82,000 per day in the third quarter of 2018. Low gas pricing during the quarter kept the arbitrage window between the Atlantic and Pacific basins closed, resulting in reduced demand for spot fixtures and lower average voyage distances. According to Poten, there were 75 spot (single voyage and multi-month) fixtures in the third quarter of 2019, compared to 84 and 81 in the second quarter of 2019 and the third quarter of 2018, respectively. However, longer-term (over 181 days according to Poten) fixture activity remained healthy in the third quarter, totaling 24 fixtures compared to 19 and 12 fixtures in the second quarter of 2019 and the third quarter of 2018, respectively. Furthermore, according to Poten data, there have been at least 178 spot fixtures (defined as up to six months in duration) for Steam vessels since the beginning of 2017, implying continuing demand for Steam vessels in the short-term charter market.

Clarksons currently assesses headline spot rates for TFDE and Steam LNG carriers at $140,000 per day and $100,000 per day, respectively. These figures represent significant increases of 128% and 138%, respectively, since mid-September, with prompt vessel availability falling as new supply projects such as Cameron and Freeport ramp up and as the market anticipates a seasonal increase in LNG commodity and vessel demand ahead of the Northern Hemisphere winter. As a result, prompt vessel availability, as reported by Poten, has declined in recent weeks to fewer than three vessels across all basins, the lowest levels since December 2018. With high gas inventories in Europe and Asia, charterers are either slow-steaming vessels and/or utilizing LNG carriers as floating storage until regasification capacity and winter demand and price signals emerge.

Poten currently estimates the one-year time charter rate for TFDE and Steam LNG carriers at $84,000 per day and $50,000 per day respectively, although the current term charter market for on-the-water ships, and Steams in particular, has limited liquidity for charters greater than one year. We continue to anticipate that the ongoing LNG shipping market tightening should persist through at least early 2021, which may result in further term charter opportunities for on-the-water vessels as their existing charters expire.

As of October 28, 2019, the LNG fleet and orderbook (excluding floating storage and regasification units (“FSRUs”)) and vessels with capacity below 100,000 cbm) stood at 507 and 110 vessels, respectively, as estimated by Poten, with the orderbook representing 22% of the on-the-water fleet, unchanged from the beginning of 2019. Out of the LNGCs in the current orderbook, 68, or 62%, are chartered on multi-year contracts. There have been 37 vessels ordered thus far in 2019, including 13 during the third quarter, compared to a total of 63 in 2018, suggesting that the pace of newbuild ordering continues to moderate.

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