GasLog Partners, an international owner and operator of liquefied natural gas carriers, reported its financial results for the three-month period ended June 30, 2018.
- Completed the acquisition of the GasLog Gibraltar from GasLog Ltd. (“GasLog”) for $207.0 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”). The acquisition was partially financed through the private issuance of $45.0 million of common units to GasLog.
- Announced new time charter for the GasLog Sydney for 18 months with a wholly owned subsidiary of Cheniere Energy, Inc. (“Cheniere”), scheduled to commence between September and December 2018.
- Completed the dry-docking of and installation of reliquefaction modules on the GasLog Santiago and the GasLog Sydney, thereby enhancing the commercial competitiveness of both vessels.
- Quarterly Revenues, Profit, Adjusted Profit(1) and EBITDA(1) of $76.9 million, $23.8 million, $22.8 million and $55.0 million, respectively.
- Partnership Performance Results for Revenues(2), Profit(2), Adjusted Profit(1)(2), EBITDA(1)(2) and Distributable cash flow(1) of $74.9 million, $22.9 million, $21.9 million, $53.3 million and $22.9 million, respectively.
- Cash distribution of $0.53 per common unit for the second quarter of 2018, unchanged from the first quarter of 2018 and 3.9% higher than the second quarter of 2017.
- Distribution coverage ratio(3) of 0.94x, or 1.18x adjusted distribution coverage ratio(4) to reflect the impact on revenues of the scheduled dry-dockings of the GasLog Santiago and the GasLog Sydney.
- 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 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.
- Partnership Performance Results represent the results attributable to GasLog Partners which are non-GAAP financial measures. 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.
- Distribution coverage ratio represents the ratio of Distributable cash flow to the cash distribution declared. 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.
- 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 $5.8 million negative impact on revenues of the scheduled dry-dockings of the GasLog Santiago and the GasLog Sydney. 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.
Mr. Andrew Orekar, Chief Executive Officer, commented: “In the second quarter, GasLog Partners continued to execute our strategy, completing the accretive acquisition of the GasLog Gibraltar and agreeing to a firm 18-month time charter plus two six-month options with Cheniere for the GasLog Sydney. This charter is the Partnership’s second agreement this year with a new, high-quality counterparty and increases our contracted days to 91% in both 2018 and 2019.
As previously communicated, the dry-dockings of the GasLog Sydney and the GasLog Santiago in the second quarter temporarily impacted our EBITDA and Distributable cash flow. As a result, we have elected to maintain our quarterly distribution at $0.53 per unit, or $2.12 per unit annualized. Adjusted for the impact of these scheduled dry-dockings, our distribution coverage ratio was 1.18x and in-line with our historical performance.
The outlook for LNG demand remains robust, underpinning a requirement for additional investment in liquefaction, regasification and shipping capacity. With current liquidity available to fund our next drop-down acquisition and the GasLog Shanghai exposed to the anticipated strength in spot LNG shipping rates, we are reiterating our year-on-year distribution growth guidance of 5% to 7% in 2018.”
New Charter Agreement
On June 18, 2018, GasLog Partners entered into a new time charter for the GasLog Sydney for 18 months with Cheniere Marketing International LLP, a wholly owned subsidiary of Cheniere, scheduled to commence between September and December 2018. The charterer has options to extend the charter for up to two consecutive periods of six months at escalating rates. The GasLog Sydney is a 155,000 cubic meter (“cbm”) tri-fuel diesel electric (“TFDE”) LNG carrier built in 2013 and currently on a multi-year time charter with a wholly owned subsidiary of Shell through September 2018. The vessel recently completed a scheduled dry-docking during which its commercial competitiveness was enhanced through the installation of a reliquefaction module.
Operations in the Cool Pool
On May 18, 2018, the GasLog Shanghai entered the Cool Pool, which was established by GasLog, Dynagas Ltd. and Golar LNG Ltd. (the “Cool Pool”) on October 1, 2015 to market their vessels operating in the LNG shipping spot market. The Cool Pool allows the participating owners to optimize the operation of the pool vessels through improved scheduling ability, cost efficiencies and common marketing. The objective of the Cool Pool is to serve the growing LNG market by providing customers with reliable, flexible, and innovative solutions to meet their increasingly complex shipping requirements. As of June 30, 2018, the Cool Pool consisted of 17 modern efficient TFDE LNG carriers in the 155-170,000 cbm range. The Cool Pool charters the vessels for periods up to one year in duration as agents for the owners, who each remain responsible for the technical and commercial operation of their vessels and performance of the contracts. During June and July 2018, Dynagas Ltd. removed its three vessels from the Cool Pool.
Pool revenues and Voyage expenses and commissions are recognized on a gross basis and are included under Revenues and Voyage expenses and commissions, respectively. Pool revenues represent time charter revenues earned by the GasLog Shanghai under her spot charter agreements in the Cool Pool. Voyage expenses and commissions represent the broker commissions of the aforementioned spot charter agreements and the bunkers consumed during the vessel’s unemployed periods. The Partnership’s adjustment for the net pool allocation is included under Net pool allocation and represents the adjustment of the net results generated by the GasLog Shanghai in accordance with the pool distribution formula. The formula takes into account gross revenues, voyage expenses and the number of days that each vessel participates in the pool.
Acquisition of the GasLog Gibraltar
On April 26, 2018, GasLog Partners acquired from GasLog 100% of the shares in the entity that owns and charters the GasLog Gibraltar. The GasLog Gibraltar is a 174,000 cbm TFDE LNG carrier built in 2016 and operated by GasLog since delivery. The vessel is currently on a multi-year time charter with a subsidiary of Shell through October 2023 and Shell has two consecutive extension options which, if exercised, would extend the charter for a period of either five or eight years.
The aggregate purchase price for the acquisition was $207.0 million, which included $1.0 million for positive net working capital balances transferred with the vessel. GasLog Partners financed the acquisition with cash on hand, including proceeds from the Series B Preference Units public offering in January 2018, $45.0 million of new privately placed common units issued to GasLog (1,858,975 common units at a price of $24.21 per unit) and the assumption of the GasLog Gibraltar‘s outstanding indebtedness of $143.6 million.
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.
Since the commencement of the ATM Programme through June 30, 2018, GasLog Partners has issued and received payment for a total of 2,738,425 common units, with cumulative gross proceeds of $62.9 million at a weighted average price of $22.97 per unit, representing a discount of 0.5% to the volume weighted average trading price of GasLog Partners’ common units on the days on which new common units were issued. In connection with the issuance of common units under the ATM Programme during this period, the Partnership also issued 55,887 general partner units to its general partner.
In the second quarter of 2018, GasLog Partners issued and received payment for an additional 1,020 common units at a weighted average price of $24.25 per unit for gross and net proceeds of $0.02 million. In connection with this issuance of common units, the Partnership also issued 21 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. As of June 30, 2018, the cumulative net proceeds from the ATM Programme and the issuance of general partner units were $63.4 million.
|IFRS Common Control Reported Results(1)|
|For the three months ended||% Change from|
|(All amounts expressed in thousands of U.S. dollars)||June 30,
- “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.
- 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.
The decrease in profit in the second quarter of 2018 as compared to the same period in 2017 is mainly attributable to decreased revenues due to two scheduled dry-dockings (with additional off-hire days required for the installation of a reliquefaction module on each vessel) and also due to the expiration of the time charter of the GasLog Shanghai and her entering the spot market in May 2018 and an increase in administrative fees, partially offset by a decrease in loss on derivatives.
The decrease in profit in the second quarter of 2018 as compared to the first quarter of 2018 is mainly attributable to decreased revenues due to two scheduled dry-dockings (with additional off-hire days required for the installation of a reliquefaction module on each vessel), partially offset by a decrease in loss on interest rate swaps.
|Partnership Performance Results(1)|
|For the three months ended||% Change from|
|(All amounts expressed in thousands of U.S. dollars)||June 30,
|Distributable cash flow(2)||23,254||27,462||22,915||(1%||)||(17%||)|
|Cash distributions declared||21,001||24,272||24,272||16%||0%|
- “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.
- 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.
The increase in profit for the second quarter of 2018 as compared to the same period in 2017 is mainly attributable to the profit from operations of the GasLog Greece, the GasLog Geneva, the Solarisand the GasLog Gibraltar, acquired by the Partnership on May 3, 2017, July 3, 2017, October 20, 2017 and April 26, 2018, respectively, and the decrease in mark-to-market loss on derivatives attributable to the Partnership, which were offset by the decreased revenues due to the two scheduled dry-dockings of the GasLog Santiago and the GasLog Sydney and the spot market exposure of the GasLog Shanghai, the increased financial costs and the increased administrative fees pursuant to the acquisitions of the aforementioned vessels.
The decrease in profit in the second quarter of 2018 as compared to the first quarter of 2018 is mainly attributable to decreased revenues due to two scheduled dry-dockings (with additional off-hire days required for the installation of a reliquefaction module on each vessel) and a decrease in gain on interest rate swaps, partially offset by the profit of the GasLog Gibraltar, which was acquired by the Partnership on April 26, 2018.
Preference Unit Distributions
On May 11, 2018, the board of directors of GasLog Partners approved and declared a distribution on the Series A Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series A Preference Units”) of $0.5390625 per preference unit and a distribution on the Series B Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series B Preference Units”) of $0.5125 per preference unit. The cash distributions were paid on June 15, 2018 to all unitholders of record as of June 8, 2018.
Common Unit Distribution
On July 25, 2018, the board of directors of GasLog Partners approved and declared a quarterly cash distribution of $0.53 per common unit for the quarter ended June 30, 2018. The cash distribution is payable on August 10, 2018 to all unitholders of record as of August 6, 2018.
Liquidity and Financing
As of June 30, 2018, we had $134.7 million of cash and cash equivalents, of which $52.1 million was held in current accounts and $82.6 million was held in time deposits with an original duration of less than three months. An amount of $13.0 million of time deposits with an original duration greater than three months was classified as short-term investments.
As of June 30, 2018, we had an aggregate of $1,184.4 million of indebtedness outstanding under our credit facilities, of which $85.0 million is repayable within one year. In addition, we had unused availability under our revolving credit facilities of $55.9 million.
On April 26, 2018, in connection with the acquisition of GAS-fourteen Ltd., the entity that owns the GasLog Gibraltar, the Partnership paid GasLog $19.0 million representing the $207.0 million aggregate purchase price, less the $45.0 million new privately placed common units issued to GasLog (1,858,975 common units at a price of $24.21 per unit) and the $143.6 million of outstanding indebtedness of the acquired entity assumed by GasLog Partners plus an adjustment of $0.6 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.
On May 23, 2018, the Partnership entered into a new interest rate swap agreement with GasLog with a notional value of $80.0 million, maturing in 2023. On the same date, the Partnership also entered into twelve forward foreign exchange contracts with GasLog with a notional value of €24.0 million and staggered maturities until mid-2019 to mitigate its foreign exchange transaction exposure in its operating expenses.
In total, the Partnership has entered into five interest rate swap agreements with GasLog at a notional value of $550.0 million in aggregate, maturing between 2020 and 2023. As a result of its hedging agreements, the Partnership has hedged 45.7% of its floating interest rate exposure on its outstanding debt as of June 30, 2018, at a weighted average interest rate of approximately 1.9% (excluding margin).
Following the completion of the scheduled dry-dockings of the GasLog Santiago and the GasLog Sydney, the GasLog Seattle is scheduled to commence her regular dry-docking in the fourth quarter of 2018.
As of June 30, 2018, our current assets totaled $161.0 million and current liabilities totaled $155.0 million, resulting in a positive working capital position of $6.0 million.
LNG Market Update and Outlook
Demand for natural gas and LNG remains robust, underpinned in the second quarter by significant increases in demand from major Asian consumers. According to Poten, LNG imports into China, South Korea and India during the first half of 2018 increased 50%, 14% and 10%, respectively, year-on-year, marginally offset by a 3% reduction in Japan’s LNG imports. In particular, the growth in China’s LNG demand is attributed to the secular driver of coal-to-gas switching, strong industrial demand and constrained domestic gas production. The backdrop for growth in global LNG demand remains favorable, with Wood Mackenzie estimating compound annual growth of 6% over the 2017-2023 period.
Wood Mackenzie estimates that during the second quarter of 2018 global LNG supply increased by 8% year-over-year, but declined 3% from the first quarter of 2018. The year-on-year increase was driven by the start-up of new liquefaction capacity in the United States (“US”), Russia and Australia, while the sequential decline is attributed to normal seasonal weakness in the spring shoulder months, supply disruptions from PNG LNG following an earthquake earlier this year, underperformance from projects in Algeria and Trinidad and unplanned downtime of facilities in the United Arab Emirates. These disruptions offset new liquefaction startups in the quarter which included Cameroon Floating LNG, Cove Point and Wheatstone LNG Train 2. In the second quarter of 2018, 75 cargoes were exported from the US, with around half of these cargoes delivered to Asia. Data from the second quarter of 2018 suggests that 1.91 vessels were required for each million tonnes of LNG exported from the US, compared to an average of 1.86 ships per million tonnes of LNG since the start-up of Sabine Pass.
Progress was made during the quarter on projects that underpin Wood Mackenzie’s 2018 LNG supply growth forecast of 9%. Commissioning cargoes were introduced to the Ichthys and Prelude facilities, while Yamal Train 2 (Russia) and Elba Island (US) are also expected onstream before year-end. A further 41 million tonnes per annum (“mtpa”) of new supply, or 13% growth, is expected in 2019, principally driven by additions in the US and the ramp-up of Ichthys and Prelude in Australia.
In May, Cheniere announced a final investment decision (“FID”) on Train 3 at the Corpus Christi Liquefaction Project, the first approval of a new liquefaction project since June 2017 and the first in the US since 2015. According to Wood Mackenzie and press reports, in the second quarter of 2018, 15 mtpa of long-term supply contracts were agreed or signed, bringing the total volume of long-term supply contracts concluded since the beginning of 2017 to 52 mtpa. Buyers include Asian and European utilities as well as portfolio suppliers and traders. Several recent offtake contracts for projects yet to reach FID have been for a duration of 20 years or more, giving these projects greater visibility on cashflows which may de-risk the financing required for FID. LNG Canada, which is targeting 24 mtpa of capacity in a phased approach and where Petronas took a 25% stake in May, may take FID later in 2018, while FID on the Golden Pass project (16 mtpa capacity) in the US may be taken in early 2019. Mozambique Area 1 LNG (13 mtpa capacity) and the Calcasieu Pass (10 mtpa capacity) project in the US have also made progress in the second quarter towards potential FIDs in 2019.
During the second quarter, Panama became the 42nd country to import LNG after commencing operations at its Costa Norte terminal. Plans have also progressed to import LNG into eastern Australia’s gas market to alleviate potential shortages in the future. Pakistan’s Ambassador to the US outlined plans in early July to import more gas from the US, claiming that the country is on its way to becoming “one of the world’s largest gas importers”. In May, Chinese gas distributor ENN was reportedly seeking a commissioning cargo for the country’s first privately owned LNG regasification terminal. The Zhoushan terminal has a planned capacity of 3 mtpa and is expected to come onstream in the coming months.
Headline daily spot TFDE LNG shipping rates as reported by Clarksons averaged $54,000 in the second quarter, compared to $34,000 in the second quarter of 2017. During the period, rates exhibited counter-seasonal strength, rising to $87,000 per day in late June from $38,000 per day in late April. This recent, sharp increase in headline spot rates was driven by increased vessel demand, as LNG suppliers sought to capitalize on the arbitrage between the Atlantic basin and Asian markets, which was widened by counter-seasonal strength in Asian LNG prices (as measured by the Platts Japan-Korea Marker (“JKM”) assessment). As a result, the number of spot fixtures rose to 110 during the second quarter of 2018, an all-time high and an increase over the 70 and 78 fixtures in the first quarter of 2018 and second quarter of 2017, respectively. Spot TFDE shipping rates have moderated in recent weeks, with a current Clarksons assessment of $75,000 per day, as softening Asia LNG prices have narrowed the near-term arbitrage opportunity. However, based on current JKM pricing, the arbitrage between the Atlantic and Pacific Basins is expected to remain open for the 2018/19 Northern Hemisphere winter, suggesting that the recent increase in LNG shipping rates could potentially be sustained throughout the remainder of 2018 and into early 2019.
According to Poten and press reports, 26 firm orders for LNG carriers have been made so far in 2018, of which three are GasLog vessels. The pace of firm newbuild orders has recently increased, as shipowners look to lock in attractive yard pricing against a positive backdrop for LNG vessel demand. However, even after taking into account the current orderbook, we believe that the LNG shipping market could be short of vessels as soon as 2019 based on current supply and demand projections. The earliest a newbuilding can now be delivered is 2021, which points towards a tighter market in 2019 and 2020, again underpinning the outlook for shipping rates. Based on our analysis and excluding the current orderbook, 28-56 additional vessels may be needed by 2022 to satisfy projected market growth, with this range increasing to 105-137 additional vessels by 2025.