GasLog Partners sees rise in profit

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GasLog Partners, an international owner and operator of liquefied natural gas (“LNG”) carriers, reported its financial results for the three-month period ended September 30, 2017.

Highlights

·         Completed the acquisition of the GasLog Geneva from GasLog Ltd. (“GasLog”) for $211.0 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
·         Announced and, post quarter-end, completed the acquisition of the Solaris from GasLog for $185.9 million, with attached multi-year charter to a subsidiary of Shell.
·         Quarterly Revenues, Profit, Adjusted Profit(1) and EBITDA(1) of $73.4 million, $25.4 million, $25.6 million and $53.7 million, respectively.
·         Highest-ever quarterly Partnership Performance(2) Results for Revenues, Profit, Adjusted Profit, EBITDA and Distributable cash flow (1) of $73.3 million, $25.3 million, $25.5 million, $53.5 million and $26.9 million, respectively.
·         Increased cash distribution of $0.5175 per common unit for the third quarter of 2017, 1.5% higher than the second quarter of 2017 and 8.3% higher than the third quarter of 2016.
·         Distribution coverage ratio(3) of 1.20x.

(1)        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 definition and reconciliation 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 represents the results attributable to GasLog Partners which are non-GAAP financial measures. For definition and reconciliation 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. For 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: “Following the successful acquisition of the GasLog Geneva, GasLog Partners delivered our highest-ever quarterly Partnership Performance Results for Revenues, EBITDA and Distributable cash flow, among other metrics. As a result of this strong performance, we are increasing our cash distribution for the fourth consecutive quarter to $0.5175 per unit, or $2.07 per unit annualized. With this increase, the Partnership has grown distributions per unit by 8.3% year-on-year and by 38% since our initial public offering (“IPO”), representing a 10% compound annual growth rate.

In the third quarter of 2017, we announced and, post quarter-end, closed the dropdown of the Solaris, our third LNG carrier acquisition of 2017 and our fourth acquisition in the last twelve months. The Solaris expands the Partnership’s fleet to 12 wholly owned LNG carriers and provides incremental visible cash flows for multiple years, helping to increase our future contracted days to approximately 90% for 2018 and 72% for 2019.

For 2018, we expect a year-on-year distribution growth of 5% to 7%. This guidance is supported by our three acquisitions completed to date in 2017, our dropdown pipeline and continued access to equity capital funding, while also reflecting the three scheduled vessel dry-dockings and three vessels coming off charter next year. While the recovery in spot rates to mid-cycle levels is taking longer than anticipated, the recent improvement in rates gives us confidence in a continuing market recovery.

We are pleased with this quarter’s operating performance and the continued growth of the Partnership’s cash flows and distributions.”

Acquisition of the GasLog Geneva

On July 3, 2017, GasLog Partners acquired from GasLog 100% of the shares in the entity that owns and charters the GasLog Geneva. The GasLog Geneva is a 174,000 cubic meter (“cbm”) tri-fuel diesel electric (“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 September 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 $211.0 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 public offering of 8.625% Series A Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series A Preference Units”) completed on May 15, 2017, and the assumption of the GasLog Geneva‘s outstanding indebtedness of $155.0 million.

Post Quarter-End Acquisition of the Solaris

On September 19, 2017, GasLog Partners entered into an agreement to acquire 100% of the shares in the entity that owns and charters to Shell the Solaris from GasLog. The Solaris is a 155,000 cbm TFDE LNG carrier built in 2014 and operated and managed by Shell since delivery. The vessel is currently on a multi-year time charter with a subsidiary of Shell through June 2021 and Shell has two consecutive 5-year extension options which, if exercised, would extend the charter for a period of either five or ten years.

The aggregate purchase price for the acquisition was $185.9 million, which includes $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 ongoing execution of our at-the-market common equity offering programme (“ATM Programme”) described below, and the assumption of the Solaris’ outstanding indebtedness of $116.5 million. The acquisition closed on October 20, 2017.

ATM Common Equity Offering 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 have agreed to act as sales agents. During the third quarter of 2017, GasLog Partners issued and received payment for 1,941,008 common units at a weighted average price of $22.96 per common unit for total gross proceeds of $44.6 million and net proceeds of $43.9 million, after broker commissions of $0.6 million and other expenses of $0.1 million. In connection with the issuance of common units under the ATM Programme during this period, the Partnership also issued 39,613 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest. The net proceeds from the issuance of the general partner units were $0.9 million.

Since the commencement of the ATM Programme through September 30, 2017, GasLog Partners has issued and received payment for a total of 2,351,885 common units, with cumulative gross proceeds of $53.9 million at a weighted average price of $22.91 per unit, representing a discount of 0.6% to the volume weighted average trading price of GasLog Partners’ common units on the days on which new common units were issued. Net proceeds for the same period amounted to $52.7 million.

In the period from October 1, 2017 through October 3, 2017, GasLog Partners issued and received payment for an additional 130,220 common units at a weighted average price of $23.26 per unit for gross proceeds of $3.03 million and net proceeds of $2.99 million, after broker commissions of $0.04 million. The issuance of these units fulfilled contractual commitments entered into on or before September 30, 2017. In connection with the issuance of common units during this subsequent period, the Partnership also issued 2,658 general partner units to its general partner in order for GasLog to retain its 2.0% general partner interest, the net proceeds of which were $0.1 million.

New Interest Rate Hedging Agreement

On July 12, 2017, the Partnership entered into a new interest rate swap agreement with GasLog with a notional value of $80.0 million, maturing in 2022. As a result of its hedging agreements, the Partnership has hedged 44.1% of its floating interest rate exposure on its outstanding debt as of September 30, 2017, at a weighted average interest rate of approximately 1.8% (excluding margin).

Chief Operating Officer Appointment

Following Graham Westgarth’s retirement from his position as Chief Operating Officer (“COO”), GasLog Partners and GasLog announced on August 21, 2017 that Richard Sadler was appointed as COO with an effective date of September 20, 2017.

 Financial Summary

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(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 was accounted for as a reorganization 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 definition and reconciliation 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 increase in profit in the third quarter of 2017 as compared to the second quarter of 2017 is mainly attributable to a decrease of $1.7 million in loss on interest rate swaps.

The increase in profit in the third quarter of 2017 as compared to the same period in 2016 is mainly attributable to an increase in profit from operations of $3.6 million, mainly due to the delivery of the GasLog Geneva on September 30, 2016 and a decrease of $1.6 million in loss on interest rate swaps.

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(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 transfer of the vessel owning entities by GasLog to the Partnership represents a reorganization 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 transfer 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 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 definition and reconciliation 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 in the third quarter of 2017 as compared to the second quarter of 2017 is mainly attributable to an increase of $6.0 million in profit from operations of the GasLog Greece and the GasLog Geneva, acquired by the Partnership on May 3, 2017 and July 3, 2017, respectively.

The increase in profit for the third quarter of 2017 as compared to the same period in 2016 is attributable to the $12.9 million profit from operations of the GasLog Seattle, the GasLog Greece and the GasLog Geneva, acquired by the Partnership on November 1, 2016, May 3, 2017 and July 3, 2017, respectively, which was partially offset by an increase of $5.4 million in net financial costs (comprising financial costs and loss on interest rate swaps, net of financial income), mainly resulting from the valuation of the interest rate swaps and the increased weighted average outstanding debt, and an increase of $0.7 million in general and administrative expenses, mainly resulting from the acquisitions of the GasLog Seattle, the GasLog Greece and the GasLog Geneva.

Cash Distribution

On September 15, 2017, the board of directors of GasLog Partners approved and declared a dividend on the Series A Preference Units of $0.71875 per preference unit. The cash distribution was paid on September 15, 2017, to all unitholders of record as of September 8, 2017.

On October 25, 2017, the board of directors of GasLog Partners approved and declared a quarterly cash distribution of $0.5175 per common unit for the quarter ended September 30, 2017. The cash distribution is payable on November 10, 2017 to all unitholders of record as of November 6, 2017.

Liquidity and Financing

As of September 30, 2017, we had $192.6 million of cash and cash equivalents, of which $78.0 million was held in current accounts and $114.6 million was held in time deposits.

As of September 30, 2017, we had an aggregate of $1,049.1 million of indebtedness outstanding under our credit facilities of which $96.1 million is repayable within one year. In addition, we had unused availability under our revolving credit facilities of $42.9 million.

On July 3, 2017, in connection with the acquisition of GAS-thirteen Ltd., the entity that owns the GasLog Geneva, the Partnership paid GasLog $54.9 million representing the difference between the $211.0 million aggregate purchase price and the $155.0 million of outstanding indebtedness of the acquired entity assumed by GasLog Partners, less an adjustment of $1.1 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.

On October 20, 2017, in connection with the acquisition of GAS-eight Ltd., the entity that owns the Solaris, the Partnership paid GasLog $70.6 million representing the difference between the $185.9 million aggregate purchase price and the $116.5 million of outstanding indebtedness of the acquired entity assumed by GasLog Partners less an adjustment of $1.2 million in order to maintain the agreed working capital position in the acquired entity of $1.0 million.

The Partnership has entered into four interest rate swap agreements with GasLog at a notional value of $470.0 million in aggregate, maturing between 2020 and 2022. As of September 30, 2017, the Partnership has hedged 44.1% of its floating interest rate exposure on its outstanding debt at a weighted average interest rate of approximately 1.8% (excluding margin).

As of September 30, 2017, our current assets totaled $199.9 million and current liabilities totaled $134.5 million, resulting in a positive working capital position of $65.4 million.

The GasLog Shanghai is expected to carry out a scheduled dry-docking during the fourth quarter of 2017. Furthermore, the GasLog Santiago, the GasLog Sydney and the GasLog Seattle are expected to carry out scheduled dry-dockings during the first, second and fourth quarters of 2018, respectively. In addition to the normal cost of the scheduled dry-dockings for which provisions are made through our dry-docking reserves in our Distributable cash flow calculations, we plan to make certain investments in two of the vessels with scheduled dry-dockings in 2018 with the aim of enhancing their operational performance at a total cost of approximately $28 million, which is expected to be capitalized as part of the respective vessel’s cost. Of the total cost of approximately $28 million, approximately $2 million has already been paid. As a result of the additional work required, we expect the dry-dockings for these two vessels to last somewhat longer than would normally be the case. The additional time required for such work is expected to be around 10 days but this is yet to be finally verified.

LNG Market Update and Outlook

During the quarter and post quarter end, there has been continued momentum in the start-up of new LNG liquefaction capacity with the fourth train at Sabine Pass in the U.S. shipping its first commissioning cargoes in August 2017. Sabine Pass has now shipped approximately 200 cargoes since start up in early 2016. Post quarter end, Chevron’s Wheatstone LNG project in Australia started production with the first LNG shipment expected in the coming weeks. Dominion’s Cove Point project in the U.S. and Novatek’s Yamal LNG project in Russia are both expected to start LNG production by the end of 2017 and ramp up exports into 2018. With the addition of these two projects, over 30 million tonnes per annum (“mtpa”) of new nameplate capacity will have been added in 2017, an increase of 11% over 2016, with the majority coming online in the second half of the year.

Looking longer term, final investment decisions (“FIDs”) for new liquefaction projects continue to be limited in the current environment, although a number of projects are making further progress towards FID in the U.S. and other regions. Tellurian has acquired natural gas reserves in northern Louisiana as future feedstock for their Driftwood LNG project and has also chartered an LNG vessel to trade short term LNG cargoes. In July 2017, Magnolia LNG secured $1.5 billion of conditional funding from Stonepeak, which is expected to fund a significant portion of the project’s future equity requirement. Also during the quarter, Next Decade merged with Harmony Merger Corp. to achieve a public listing on the Nasdaq and has a current market capitalisation of around $1 billion. In Mozambique, it has been reported that PTT of Thailand has committed to offtake from the Area 1 LNG project.

Demand for LNG in 2017 to date has continued to rise sharply, particularly in Asia and Europe, with material year-on-year increases in the world’s three largest import markets, Japan, South Korea and China, where imports have increased by 5%, 21% and 44% respectively. Rising Asian LNG demand into the Northern Hemisphere winter months has caused Asian LNG prices to rise, resulting in a reopening of both the U.S. – Asia and Europe – Asia gas price arbitrages. The same trend emerged during the 2016-2017 winter period, resulting in a greater number of U.S. cargoes travelling to Asia, which increased tonne mile demand and helped to drive LNG spot shipping rates higher.

Longer term demand for LNG is also emerging. In August 2017, Petronet announced that it had renegotiated its LNG supply agreement with ExxonMobil with new terms including an increase of 1 mtpa to be supplied from ExxonMobil’s global portfolio. In September 2017, it was reported that PTT had entered into a contract to acquire 2.6 mtpa for 20 years from the Area 1 LNG project in Mozambique. Also in September 2017, Petrobangla, the state-owned oil company of Bangladesh entered into a contract with Qatar to acquire 2.3 mtpa on average for a 15-year period.

A number of offtakers from LNG projects currently under development are yet to secure all of their shipping requirements and we are seeing an increased level of tender activity for both near-term and longer-term shipping requirements. These tenders for multi-month to multi-year periods are for both newbuild vessels and on-the-water vessels, with the latter being positive in terms of absorbing the recent oversupply in the spot market.

In the shorter term LNG shipping market, TFDE headline rates have continued to rise as we enter the Northern Hemisphere winter, with Clarksons currently quoting headline rates of $51,000, an increase of 70% from the 2017 low and approximately 55% higher than this time last year. Whilst the recovery in spot rates to mid-cycle levels is taking longer than anticipated, we have seen significantly more fixtures in 2017 compared to the same period in 2016, greater seasonality and consistently higher rates in 2017 than in 2016. This improvement in rates, coupled with no new vessel orders in the quarter and only eight in 2017 to date, gives us confidence in a continuing market recovery.

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