Capital Product Partners L.P., an international owner of ocean-going vessels, released its financial results for the first quarter ended March 31, 2022.
|Three-month periods ended March 31,|
|Revenues||$73.4 million||$38.1 million||93%|
|Expenses||$40.2 million||$24.2 million||66%|
|Net Income||$25.1 million||$10.9 million||130%|
|Net Income per common unit||$1.26||$0.57||121%|
|Average number of vessels1||21.0||15.2||38%|
- Announced common unit distribution of $0.15 for the first quarter of 2022.
- Operating Surplus2 and Operating Surplus after the quarterly allocation to the capital reserve for the first quarter of 2022 were $44.6 million and $13.5 million, respectively.
- Repurchased 89,345 of the Partnership’s common units, at an average cost of $15.67 per unit.
1 Average number of vessels is measured by aggregating the number of days each vessel was part of our fleet during the period and dividing such aggregate number by the number of calendar days in the period.
2 Operating surplus is a non-GAAP financial measure used by certain investors to measure the financial performance of the Partnership and other master limited partnerships. Please refer to Appendix A at the end of the press release for a reconciliation of this non-GAAP measure with net income.
Overview of First Quarter 2022 Results
Net income for the quarter ended March 31, 2022 was $25.1 million, compared with net income of $10.9 million for the first quarter of 2021. After taking into account the interest attributable to the general partner, net income per common unit for the quarter ended March 31, 2022, was $1.26, compared to net income per common unit of $0.57 for the first quarter of 2021.
Total revenue was $73.4 million for the quarter ended March 31, 2022 compared to $38.1 million during the first quarter of 2021. The increase in revenue was primarily attributable to the net increase in the average number of vessels in our fleet by 38%. This was driven by the acquisition of three 5,100 Twenty-foot Equivalent Unit (“TEU”) containers in February 2021, which generated $4.1 million of total revenue during the first quarter of 2022, compared to $1.6 million during the period from February 2021 to the end of the first quarter of 2021 and by the acquisition of six Liquefied Natural Gas Carrier vessels (“LNG/Cs”) during the second half of 2021 contributing $37.6 million of total revenue in the first quarter of 2022, partly offset by the sale of the M/V ‘CMA CGM Magdalena’ in May 2021 and the sale of the M/V ‘Adonis’ in December 2021.
Total expenses for the quarter ended March 31, 2022 were $40.2 million, compared to $24.2 million in the first quarter of 2021. Voyage expenses for the quarter ended March 31, 2022 increased to $3.6 million, compared to $2.2 million in the first quarter of 2021, primarily due to the net increase in the average size of our fleet and the increase in the voyage expenses incurred by one of the vessels in our fleet employed under voyage charters, compared to the respective period in 2021. Total vessel operating expenses during the first quarter of 2022 amounted to $16.7 million, compared to $9.2 million during the first quarter of 2021. The increase in vessel operating expenses was mainly due to the net increase in the average size of our fleet following the acquisition of the three 5,100 TEU containers in February 2021 and the acquisition of six LNG/Cs during the second half of 2021. Total expenses for the first quarter of 2022 also included vessel depreciation and amortization of $18.4 million, compared to $11.1 million in the first quarter of 2021. The increase in depreciation and amortization during the first quarter of 2022 was mainly attributable to the net increase in the average size of our fleet. General and administrative expenses for the first quarter of 2022 amounted to $1.5 million as compared to $1.7 million in the first quarter of 2021.
Total other expense, net for the quarter ended March 31, 2022 was $8.0 million compared to $3.1 million for the first quarter of 2021. Total other expense, net includes interest expense and finance cost of $10.3 million for the first quarter of 2022, as compared to $3.4 million for the first quarter of 2021. The increase in interest expense and finance cost was attributable to the increase in the Partnership’s total outstanding indebtedness. Total other expenses, net include a foreign exchange gain from the translation of the €150.0 million Senior Unsecured Bond (the “Bond”) issued on the Athens Exchange in the fourth quarter of 2021 into US dollars as of March 31, 2022.
Capitalization of the Partnership
As of March 31, 2022, total cash amounted to $49.6 million. Total cash includes restricted cash of $10.6 million, which represents the minimum liquidity requirement under our financing arrangements and the Bond.
As of March 31, 2022, total partners’ capital amounted to $546.4 million, an increase of $20.9 million compared to $525.5 million as of December 31, 2021. The increase reflects net income for the quarter ended March 31, 2022 and the amortization associated with the equity incentive plan, partly offset by distributions declared and paid during the period in the total amount of $3.0 million and the repurchase of the Partnership’s common units for an aggregate amount of $1.4 million.
As of March 31, 2022, the Partnership’s total debt, gross of deferred financing charges, was $1,291.4 million, reflecting a decrease of $26.0 million compared to $1,317.4 million as of December 31, 2021. The decrease is attributable to the scheduled principal payments during the period of $22.5 million and the decrease by $3.5 million of the Bond translated into US dollars as of March 31, 2022.
Operating surplus for the quarter ended March 31, 2022 amounted to $44.6 million, compared to $37.9 million for the previous quarter ended December 31, 2021 and $24.5 million for the first quarter of 2021. We allocated $31.1 million to the capital reserve, in line with the previous quarter. Operating surplus for the quarter ended March 31, 2022, after the quarterly allocation to the capital reserve, was $13.5 million.
We continue to monitor the impact of COVID-19 on the Partnership’s financial condition and operations and on the container and LNG industry in general. While it is not always possible to distinguish incremental costs or off-hire associated with the impact of COVID-19 on our operations, we estimate that for the first quarter of 2022, incremental operating and/or voyage costs associated with COVID-19 were approximately $0.2 million.
The actual impact of the COVID-19 pandemic in the longer run, as well as the extent of any measures we take in response to the challenges presented by it, as described in our previous releases, will depend on how the pandemic will continue to develop, the continued distribution and effect of vaccines, the duration and extent of the restrictive measures that are associated with the pandemic and their further impact on global economy and trade. Currently, the container charter market is benefiting from the impact of COVID-19 on the global trade logistics chain (see also Market Commentary Update below).
Uncertainties caused by the Russo-Ukrainian War
The recent conflict between Russia and Ukraine may lead to further regional and international conflicts or armed action. It is possible that such conflict could disrupt supply chains and cause instability in the global economy. Additionally, the ongoing conflict could result in the imposition of further economic sanctions by the United States and the European Union against Russia. While much uncertainty remains regarding the global impact of the conflict in Ukraine, it is possible that such tensions could adversely affect our business, financial condition, results of operation and cash flows. Currently, the LNG/C market is expected to benefit in the medium to long run from the energy market disruption that the Russo-Ukraine war has created (see also Market Commentary Update below).
Mr. Jerry Kalogiratos, Chief Executive Officer of our General Partner, commented:
“We are pleased to see the Partnership’s improved profitability and cash flow generation compared to the same quarter last year, primarily as a result of the full financial impact of the six latest technology LNG carriers we acquired during the second half of 2021. Our decision to diversify our asset base into the LNG market has proven very timely, as the LNG charter market fundamentals, as well as LNG/C vessel values have been on the rise, in view of the turmoil in energy markets caused by the Russo-Ukraine war.”
“At the same time, we continue to return capital to our unitholders both through our quarterly unit distribution of 15 cents per quarter, as well as through our unit buyback program, while we stay on course for additional acquisitions, which we expect to be accretive to our distributable cash flow and will allow us to further grow our presence in the LNG and container markets.”
Unit Repurchase Program
On January 25, 2021, the Partnership’s Board of Directors (the “Board”) approved a unit repurchase program, providing the Partnership with authorization to repurchase up to $30.0 million of the Partnership’s common units, effective for a period of two years. As of March 31, 2022, the Partnership has repurchased 471,595 common units since the launching of the unit repurchase plan on February 19, 2021, at a total cost of $5.9 million or at an average price of $12.48 per unit, including 89,345 common units that were purchased during the first quarter of 2022 at an average price of $15.67 per unit.
Quarterly Common Unit Cash Distribution
On April 27, 2022, the Board declared a cash distribution of $0.15 per common unit for the first quarter of 2022 payable on May 12, 2022 to common unit holders of record on May 6, 2022.
Market Commentary Update
The containership market continued to climb to new highs in early 2022, with charter rates and freight rates remaining close to all-time highs amid strong trade volumes. With a 279% year-over-year increase by late March 2022, Clarkson’s time charter rate index stood at a record 434 points. Despite indices of typical freight rates having eased in recent weeks, they still stand at substantially higher levels compared to the 2020 average (up to 8 times more on key routes), while liner operators reported record financial results for 2021.
Analysts estimate that the container trade grew by 6.3% in 2021, in terms of TEU, on the back of strong consumer spending (especially in the US), with growth expected to ease to 3.0 % in 2022, followed by 2.6% in 2023, due to growing economic headwinds exacerbated by the Russo-Ukraine war, higher energy prices and an expected “normalisation” of logistics lines. The container vessel orderbook stands at 26.5% of the total fleet, compared to 22.9% at the end of the fourth quarter of 2021.
LNG Carrier Charter Market
The LNG charter market experienced a softer spot market in the first quarter of 2022 after a strong finish in the previous year. Easing conditions in the spot market come on the back of a shift in gas pricing dynamics, with a greater share of US cargoes heading to Europe compared to previous years, as the Russo-Ukraine war has caused Europe to reduce reliance upon Russian natural gas and compete for LNG imports. We expect that the LNG/C spot charter market will continue to remain sensitive to shifts in the balance of the US cargoes being exported to Europe and Asia during the remainder of 2022.
As of quarter end, the LNG fleet orderbook stood at 33% of the total fleet with 37 new orders placed within the quarter. Simultaneously, the current price of a newbuilding vessel has increased to more than $225.0 million with very few slots on offer for 2025 onwards. An additional 37 vessels have been fixed on period charters at increasingly higher rates in the first quarter, while several on-going and upcoming multi-year charter tenders are expected to further absorb the available newbuild tonnage. Currently, analysts assess the one-year time charter market for a 2-stroke LNG/C at excess $140,000 per day, as period charter rates continue to climb on the back of a vast geopolitical sentiment shift and strong LNG demand fundamentals.