Höegh LNG Partners Posts Increased Q1 Net Income

Hoegh-LNG-Partners

Höegh LNG Partners LP reported its financial results for the quarter ended March 31, 2021.

Highlights

• Continued measures to mitigate the risks from the COVID-19 pandemic and ensure health and safety of crews and staff, whose wellbeing is our highest priority
• No reported cases of COVID-19; 100% availability of FSRUs for the first quarter of 2021
• Reported total time charter revenues of $34.8 million for the first quarter of 2021 compared to $36.7 million of time charter revenues for the first quarter of 2020
• Generated operating income of $31.7 million, net income of $23.8 million and limited partners’ interest in net income of $20.0 million for the first quarter of 2021 compared to operating income of $13.4 million, net income of $5.5 million and limited partners’ interest in net income of $1.8 million for the first quarter of 2020
• Operating income, net income and limited partners’ interest in net income were impacted by unrealized gains on derivative instruments for the first quarter of 2021 compared with unrealized losses on derivative instruments for the first quarter of 2020 mainly on the Partnership’s share of equity in earnings (losses) of joint ventures
• Excluding the impact of unrealized gains (losses) on derivative instruments for the first quarter of 2021 and 2020 impacting the equity in earnings (losses) of joint ventures, operating income would have been $24.1 million for the three months ended March 31, 2021, a decrease of $1.1 million from $25.2 million for the three months ended March 31, 2020
• Generated Segment EBITDA1 of $34.5 million for the first quarter of 2021, a decrease of $1.6 million from $36.1 million for the first quarter of 2020
• On May 14, 2021, paid a $0.44 per unit distribution on common units with respect to the first quarter of 2021, equivalent to $1.76 per unit on an annualized basis
• On May 17, 2021, paid a distribution of $0.546875 per 8.75% Series A cumulative redeemable preferred unit (the “Series A preferred unit”), for the period commencing on February 15, 2021 to May 14, 2021

Sveinung Støhle, Chief Executive Officer stated: “In the first quarter of 2021, Höegh LNG Partners’ fleet of modern, full-size FSRUs once again achieved 100% availability, providing us with consistent cash flows and strong support for our quarterly distributions to unitholders. With more than eight years of average remaining charter cover and no vessels exposed to the charter market until at least 2025, Höegh LNG Partners is well positioned to continue providing stability and value for our unitholders over the long-term.”

Financial Results Overview

For the three months ended March 31, 2021, each of the Partnership’s FSRUs have had 100% availability due to the diligent efforts of the crew and staff to ensure all aspects of operations continued to function smoothly in spite of challenges as a result of the COVID-19 pandemic. The Partnership has mitigated the risk on an outbreak of COVID-19 on board its vessels by extending time between crew rotations on the vessels and developing mitigating actions for crew rotations. Management and administrative staffs have largely transitioned to working remotely from home to address the specific COVID-19 situation in the applicable geographic location. The Partnership has fulfilled its obligations under the time charter contracts and not experienced any off-hire for its FSRUs for three months ended March 31, 2021.

The Partnership reported net income for the three months ended March 31, 2021 of $23.8 million, an increase of $18.3 million from net income of $5.5 million for the three months ended March 31, 2020. Net income was impacted by unrealized gains on derivative instruments for the first quarter of 2021 compared with unrealized losses on derivative instruments for the first quarter of 2020, mainly on the Partnership’s share of equity in earnings (losses) of joint ventures.

Excluding the impact of all of the unrealized gains and losses on derivative instruments, net income for the three months ended March 31, 2021 would have been $16.2 million, a decrease of $1.1 million from $17.3 million for the three months ended March 31, 2020. Excluding the unrealized gains on derivative instruments, the decrease for the three months ended March 31, 2021 is primarily due to lower time charter revenues, higher operating expenses and a higher tax charge which were partially offset by higher equity in earnings of joint ventures and lower interest expense.

Preferred unitholders’ interest in net income was $3.9 million for the three months ended March 31, 2021, an increase of $0.2 million from $3.7 million for the three months ended March 31, 2020 due to additional Series A preferred units issued as part of the at-the-market (“ATM”) program. Limited partners’ interest in net income was $20.0 million for the three months ended March 31, 2021, an increase of $18.2 million from limited partners’ interest in net income of $1.8 million for the three months ended March 31, 2020. Excluding the impact of all of the unrealized gains and losses on derivative instruments, limited partners’ interest in net income for the three months ended March 31, 2021 would have been $12.3 million, a decrease of $1.4 million from $13.7 million for the three months ended March 31, 2020.

Equity in earnings of joint ventures for the three months ended March 31, 2021 was $11.1 million, an increase of $21.1 million from equity in losses of joint ventures of $10.0 million for the three months ended March 31, 2020. The joint ventures own the Neptune and the Cape Ann. Unrealized gains (losses) on derivative instruments in the joint ventures significantly impacted the equity in earnings (losses) of joint ventures for the three months ended March 31, 2021 and 2020. The joint ventures do not apply hedge accounting for interest rate swaps and all changes in fair value are included in equity in earnings (losses) of joint ventures. Excluding the unrealized gains and losses for the three months ended March 31, 2021 and 2020, the equity in earnings of joint ventures would have been $3.4 million for the three months ended March 31, 2021, an increase of $1.7 million compared to equity in earnings of joint ventures of $1.7 million for the three months ended March 31, 2020. The increase is primarily related to lower operating expenses and other financial expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Operating income for the three months ended March 31, 2021 was $31.7 million, an increase of $18.3 million from operating income of $13.4 million for the three months ended March 31, 2020. Excluding the unrealized gains and losses on derivative instruments impacting the equity in earnings (losses) of joint ventures for the three months ended March 31, 2021 and 2020, operating income would have been $24.1 million for the three months ended March 31, 2021, a decrease of $1.1 million from $25.2 million for the three months ended March 31, 2020.

Segment EBITDA1 was $34.5 million for the three months ended March 31, 2021, a decrease of $1.6 million from $36.1 million for the three months ended March 31, 2020.

Total operating expenses for the three months ended March 31, 2021 were $14.1 million, an increase of $0.9 million from $13.2 million for the three months ended March 31, 2020. The increase is principally due to higher vessel operating expenses and administrative expenses for the three months ended March 31, 2021 compared with the three months ended March 31, 2020.

Total financial expense, net for the three months ended March 31, 2021 was $6.2 million, a decrease of $0.8 million from $7.0 million for the three months ended March 31, 2020. Interest expense consists of the interest incurred, amortization and gain (loss) on cash flow hedges, commitment fees and amortization of debt issuance cost for the period. The decrease of interest expense in the first quarter of 2021 was principally due to the repayment of outstanding loan balances for the loan facilities related to the PGN FSRU Lampung (the “Lampung facility”) and the $385 million facility.

Financing and Liquidity

As of March 31, 2021, the Partnership had cash and cash equivalents of $27.1 million. As of May 27, 2021, the Partnership had an undrawn balance of $14.7 million on the $63 million revolving credit tranche of the $385 million facility and an undrawn balance of $60.8 million on the $85 million revolving credit facility with Höegh LNG, respectively. Current restricted cash for operating obligations of the PGN FSRU Lampung was $7.1 million and long-term restricted cash required under the Lampung facility was $12.0 million as of March 31, 2021.

As of March 31, 2021, the Partnership has no material commitments for capital expenditures. However, during the first quarter of 2021, part of the procedures for the on-water class renewal survey for the Höegh Grace were performed. No off-hire is expected during the second quarter of 2021. The remainder of the on-water class renewal survey is expected to be completed during the second quarter of 2021. Incurred expenditures of approximately $1.0 million has been included within prepaid expenses and other receivables as of March 31, 2021, in connection with the survey.

During the first quarter of 2021, the Partnership made quarterly repayments of $4.8 million on the Lampung facility, and $6.4 million on the $385 million facility.

The Partnership’s book value and outstanding principal of total long-term debt was $422.1 million and $428.5 million, respectively, as of March 31, 2021, including the Lampung facility, the $385 million facility and the $85 million revolving credit facility.

As of March 31, 2021, the Partnership’s total current liabilities exceeded total current assets by $22.1 million. This is partly a result of the current portion of long-term debt of $58.1 million being classified as current while restricted cash of $12.0 million associated with the Lampung facility is classified as long-term. The current portion of long-term debt reflects principal payments for the next twelve months which will be funded, for the most part, by future cash flows from operations, and the balloon payment on the commercial tranche of the Lampung facility that is due is October 2021. We expect to refinance the Lampung facility before the maturity date. The Partnership does not intend to maintain a cash balance to fund the next twelve months’ net liabilities.

Assuming the refinancing of the Lampung facility on a timely basis, the Partnership believes its current resources, including the undrawn balances under the $85 million revolving credit facility and the $63 million revolving credit tranche, are sufficient to meet the Partnership’s working capital requirements for its current business for the next twelve months.

As of March 31, 2021, the Partnership had outstanding interest rate swap agreements for a total notional amount of $324.2 million to hedge against the interest rate risks of its long-term debt under the Lampung facility and the $385 million facility. The Partnership applies hedge accounting for derivative instruments related to these facilities. The Partnership receives interest based on three-month US dollar LIBOR and pays fixed rates of 2.8% for the Lampung facility. The Partnership receives interest based on the three-month US dollar LIBOR and pays a fixed rate of an average of approximately 2.8% for the $385 million facility.

The Partnership’s share of the joint ventures is accounted for using the equity method. As a result, the Partnership’s share of the joint ventures’ cash, restricted cash, outstanding debt, interest rate swaps and other balance sheet items are reflected net on the lines “accumulated earnings in joint ventures” and “accumulated losses in joint ventures” on the consolidated balance sheet and are not included in the balance sheet figures disclosed above.

On February 12, 2021, the Partnership paid a distribution of $15.1 million, or $0.44 per common unit, with respect to the fourth quarter of 2020.

On February 16, 2021, the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commencing on November 15, 2020 to February 14, 2021.

On May 7, 2021, the Partnership drew $6.0 million on the $85 million revolving credit facility from Höegh LNG.

On May 14, 2021, the Partnership paid a distribution of $15.1 million, or $0.44 per common unit, with respect to the first quarter of 2021.

On May 17, 2021 the Partnership paid a distribution of $3.9 million, or $0.546875 per Series A preferred unit, for the period commencing on February 15, 2021 to May 14, 2021.

For the period from April 1, 2021 to May 27, 2021, no Series A preferred units or common units were sold under the Partnership’s ATM program. The Partnership sold 336,992 Series A preferred units and 52,603 common units under the ATM program in the first quarter of 2021.

Outlook

The Partnership believes its primary risk and exposure related to uncertainty of cash flows from its long-term time charter contracts is due to the credit risk associated with the individual charterers. Payments are due under time charter contracts regardless of the demand for the charterer’s gas output or the utilization of the FSRU. It is therefore possible that charterers may not make payments for time charter services in times of reduced demand. As of May 27, 2021, the Partnership has not experienced any reduced or non-payments for obligations under the Partnership’s time charter contracts. In addition, the Partnership has not provided concessions or made changes to the terms of payment for its customers. Höegh LNG has indemnified the Partnership for the joint ventures’ boil-off settlement, leased the Höegh Gallant under lease and maintenance agreement with a subsidiary of Höegh LNG (the “Subsequent Charter”) and provided the Partnership the $85 million revolving credit facility. Höegh LNG’s ability to make payments to the Partnership under the Subsequent Charter and funding requests under the $85 million revolving credit facility and any claims for indemnification may be affected by events beyond the control of Höegh LNG or the Partnership, including opportunities to obtain new employment for the Höegh Gallant and prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, Höegh LNG’s ability to meet its obligations to the Partnership may be impaired. If Höegh LNG is unable to meet its obligations to the Partnership under the Subsequent Charter or meet funding requests or indemnification obligations, the Partnership’s financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected.

If financial institutions providing the Partnership’s interest rate swaps or lenders under the revolving credit facility are unable to meet their obligations, the Partnership could experience a higher interest expense or be unable to obtain funding. If the Partnership’s charterers or lenders are unable to meet their obligations under their respective contracts or if the Partnership is unable to fulfill its obligations under time charters, its financial condition, results of operations and ability to make cash distributions to unitholders could be materially adversely affected.

Since implementing its prior ATM program in January 2018 until May 27, 2021, the Partnership has sold preferred units and common units for total net proceeds of $69.6 million which has supplemented the Partnership’s liquidity. In current market conditions, with lower unit prices, sales under the new ATM program are a less viable and more expensive option for accessing liquidity.

The Partnership has long term debt maturing in October 2021 when the commercial tranche of the Lampung facility becomes due and export credit tranche can be called if the commercial tranche is not refinanced. To address the liquidity needs, the Partnership is at an advanced stage of the process to refinance the Lampung facility. As of May 27, 2021, the loan documentation had been finalized and is now subject to satisfaction of closing conditions before drawdown. We currently expect the refinancing to be completed before the due date of the commercial tranche in October 2021. In addition, planning has commenced in relation to the refinancing of the Neptune Facility with its joint venture partner. Should the Partnership be unable to satisfy the conditions to close the new Lampung facility or to obtain refinancing for the Neptune Facility or its other debt maturities on a timely basis or at all, it may not have sufficient funds or other assets to satisfy all its obligations, which would have a material adverse effect on its business, results of operations, financial condition and ability to make distributions to unitholders.

The outbreak of Coronavirus (COVID-19) has negatively affected economic conditions in many parts of the world which may impact the Partnership’s operations and the operations of its customers and suppliers. Although the Partnership’s operations have not been materially affected by the Coronavirus outbreak to date, the ultimate length and severity of the COVID-19 outbreak and its potential impact on the Partnership’s operations and financial condition is uncertain at this time. Furthermore, should there be an outbreak of the COVID-19 on board one of the Partnership’s FSRUs or an inability to replace critical supplies or replacement parts due to disruptions to third-party suppliers, adequate crewing or supplies may not be available to fulfill the Partnership’s obligations under its time charter contracts. This could result in off-hire or warranty payments under performance guarantees which would reduce revenues for the impacted period. To date, the Partnership has mitigated the risk of an outbreak of the COVID-19 on board its vessels by extending time between crew rotations on the vessels and developing mitigating actions for crew rotations. As a result, the Partnership expects that it may incur somewhat higher crewing expenses to ensure appropriate mitigation actions are in place to minimize the risk of outbreaks. To date, the Partnership had not had service interruptions on the Partnership’s FSRUs. Management and administrative staffs have largely transitioned to working remotely from home to address the specific COVID-19 situation in the applicable geographic location. The Partnership has supported staffs by supplying needed internet boosters and office equipment to facilitate an effective work environment.

On March 8, 2021, Höegh LNG announced a recommended offer by Leif Höegh & Co. Ltd. (“LHC”) and funds managed by Morgan Stanley Infrastructure Partners (“MSIP”) through a 50/50 joint venture, Larus Holding Limited (“JVCo”), to acquire the remaining issued and outstanding shares of Höegh LNG not currently owned by LHC or its affiliates (the “Amalgamation”). The Amalgamation was approved by Höegh LNG’s shareholders and bondholders and closed on May 4, 2021. Höegh LNG is now wholly owned by JVCo, and the common shares of Höegh LNG will be delisted from the Oslo Stock Exchange. Following the consummation of the Amalgamation, some provisions of the omnibus agreement entered into in connection with the IPO (the “omnibus agreement”) terminated by their terms, including (i) the prohibition on Höegh LNG from acquiring, owning, operating or chartering any Five-Year Vessels (as defined in the omnibus agreement), (ii) the prohibition on us from acquiring, owning, operating or chartering any Non-Five-Year Vessels (as defined in the omnibus agreement), and (iii) the rights of first offer associated with those rights. As a consequence, following the consummation of the Amalgamation, Höegh LNG is not required to offer us Five-Year Vessels and is permitted to compete with us.

While Höegh LNG is under no obligation to offer FSRUs or other vessels to us, it has indicated that it remains focused on ways to further enhance the partnership between Höegh LNG and us and remains open to the opportunity to offer opportunities to us if market conditions warrant.

LEAVE A COMMENT

×

Comments are closed.