Capital Product Partners L.P.

Thank you for standing by and welcome to the Capital Product Partners First Quarter 2022 Financial Results Conference Call. We have with us Mr. Jerry Calogiratos, Chief Executive Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, please press star 1 on your telephone keyboard and wait for the automated message advising your line is open. I must advise you that this conference is being recorded today. The statements in today's conference call are not historical facts, including our expectation regarding cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities, our expectation or objectives regarding future distribution amounts, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including ready delivery dates and charter rates, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to confirm to actual results, or otherwise. We assume no responsibility for the accuracy and completeness of the forward-looking statements. We make no prediction or statement about the performance of our command units. I would now like to hand you over to your speaker today. Mr. Carlo Chiratos, please go ahead, sir.

Thank you, Sindhrant. Thank you all for joining us today. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation. The partnership's net income for the first quarter of 2022 was $25.1 million, compared with a net income of $10.9 million for the first quarter of 2021. Our Board of Directors has declared a cash distribution of $0.15 per common unit for the first quarter of 2022. The first quarter cash distribution will be paid on May 12 to common unit holders of record on May 6. The partnership's operating surplus for the first quarter was $44.6 million, or $13.5 million, after the quarterly allocation to the capital reserve. We recommenced acquiring units under our unit buyback program on February 14. For the quarter, we repurchased 89,345 of the partnership's common units at an average cost of $15.67 per unit. As of yesterday, and since the inception of our unit buyback program, we have acquired a total of 508,505 units at an average unit price of $12.78. Finally, the partnership's charter coverage for 2022 and for 2023 stands at 95% and 92%, respectively, with the remaining charter duration corresponding to 4.7 years. Now, turning to slide three, Revenues for the quarter were 73.4 million compared to 38.1 million during the first quarter of 2021. The increase was primarily attributable to the net increase in the average number of vessels in our fleet by 38%, following the acquisition of three Panamax containers in February 2021 and the acquisition of six LMG carriers during the second half of 2021, partly set off by the sale of the two 9,000-U container vessels in 2021. Total expenses for the quarter were 40.2 million compared to 24.2 million in the first quarter of 2021. Total vessel operating expenses during the quarter amounted to 16.7 million compared to 9.2 million during the first quarter of last year. The increase in vessel operating expenses was mainly due to the net increase in the average size of our fleet. 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 last year. The increase in depreciation and amortization was again mainly attributable to the net increase in the average size of our fleet. General administrative expenses for the quarter amounted to 1.5 million compared to 1.7 million in the first quarter of 2021. Interest expense and finance costs increased to 10.3 million from 3.4 million in the first quarter of 2021 due to the increase in the partnerships' total outstanding indebtedness. The partnerships recorded a net income of 25.1 million for the quarter, compared with a net income of 10.9 million for the first quarter of last year, representing an increase of 130 percent. On slide four, You can see the details of our operating surplus calculations that determine the distributions to our unit holders compared to the previous quarter. Operating surplus is a non-GAAP financial measure which is defined fully in our press release. We have generated approximately 44.6 billion in cash from operations for the quarter before accounting for the capital reserve. We allocated 31.1 million to the capital reserve in line with the previous quarter. After adjusting for the capital reserve, the adjusted operating surplus amounted to 13.5 million. For slide five, you can see the details of our balance sheet. As of the end of the first quarter, the partners' capital amounted to 546 million, an increase of 21 million compared to 525 million as of the end of last year. The increase reflects net income for the quarter 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 million, and the repurchase of the partnership's common units for an aggregate amount of 1.4 million. Total debt decreased by 26 million to 1.29 billion, compared to 1.32 billion as of year-end 2021. The decrease is attributable to the scheduled principal payments during the period of 22.5 million, and a decrease by 3.5 million of the Euro-denominated balance of the bonds translated into U.S. dollars as of quarter end. Total cash as of the end of the quarter amounted 49.6 million, including restricted cash of 10.6 million, which represents the minimum liquidity requirement under our financing arrangements. The next slide, slide six, provides an overview of the solid financial performance of the partnership during the quarter compared to the same period last year. with major financial metrics, including revenue, EBITDA, and operating surplus, having increased between 80% to 105%. This strong year-on-year growth is predominantly the result of the full impact of the partnership's financials of the six LNG acquisitions, which was completed in the fourth quarter of 2021. The six LNG carriers generated revenue of 37.6 billion during the quarter, which represents just above 50% of the partnership's total revenue for the three-month period. It is also worth highlighting that this growth is not market-driven, but mainly a result of the expansion of our asset base, with vessels that have long-term charters in place, thus ensuring that our improved financial performance is sustainable in the long run. Moving to slide seven, the partnership's remaining charter duration amounts to approximately 4.7 years, while charter coverage remains high throughout the next four years, thus providing our unit holders with increased cash flow visibility. Turning to slide 8 and the LNG charter market, during the first quarter of 2022, we experienced a weaker spot market due to the low ton-mile demand caused by the shift in gas pricing dynamics and the greater share of LNG cargoes heading to Europe. Europe has imported significantly more LNG in the first quarter of 2022 compared to the previous years. This is mainly sourced from the U.S., and as a percentage of total U.S. volumes, Europe's share has more than doubled since last year. In total, EU imports are expected to increase by 25% by the end of the year and reach 97 million tonnes per annum. European efforts to diversify away from Russian pipeline gas will continue to shape the global LNG markets, with a large share of US LNG expected to flow to Europe rather than Asia, while the LNG liquefaction project FID environment appears more positive in the coming years than previously anticipated. Overall, demand fundamentals for LNG shipping remains robust, as the expectations for global LNG trade have increased and volumes are projected to grow by 6.6% in 2022. In addition, the Russian-Ukraine war is expected to generate demand for LNG trade and investment in the wider sector in both the short and the long term, as the EU is planning to reduce its dependency on Russian gas. As a result of the improved market fundamentals and the need for energy security, which partly passes through LNG seaborne transportation. The period charter market has improved significantly, with numerous charters coming to the market to secure both prompt as well as forward donuts and decreasing levels, with five-year time charter deals being negotiated for delivery into 2023-2024 in the 85,000 to 95,000 per day region for a two-stroke vessel. The LNG fleet order book stands at 33% of the current fleet, with 37 new orders placed during the quarter utilizing almost all available shipyard slots up to 2026. As a result of the increased demand, the increased competition from other sectors, as well as inflationary pressures in raw materials and equipment, shipyards are continuing to increase prices, with the latest new building prices in Korean shipyards exceeding 225 million per vessel for a basic specification two-stroke ship. LNG commodity prices have remained high since the start of the year and have shown considerable volatility due to persistent uncertainty in the European gas markets. As we have previously discussed, the increased LNG commodity prices and the preference for large cargo sizes, as the LNG export market continues to expand, increasingly favors latest-generation two-stroke LNG carriers, such as the vessels owned by CPLP. On slide 9, we review the container market. The container ship charter market continued to climb to new highs in the first quarter of 2022, with charter rates reaching successive records and freight rates remaining close to all-time highs. The Clarkson Charter Rate Index reached an all-time high in March, with a three-year time charter rate for an eco-wide-beam 9,000-U container, like the Academos, standing at approximately $95,000 per day for a prompt vessel. The Academos is expected to come off its present charter by April 2023. In the box freight market, spot rates remained firm as the continuation of exceptional market conditions has reflected two key factors. Strong box rate and severe COVID-19 related logistical disruption, including port congestion, which has significantly reduced available capacity and driven major disruption upside to the market. Against this positive background, the supply of post-Panamax donuts for 2022 dates has become thin, with the delivery window moving towards 2023. At the same time, period fixtures for classic Panamax units were being concluded with laycans into the fourth quarter of 2022 and starting to stretch into the first quarter of 2023. It should be noted, however, that the freight and charter markets have been softer over the last few weeks, partly as a result of the staggered Easter holidays, but also due to the impact of the lockdown to China on factory output and port operations, as well as economic uncertainty stemming from the Russo-Ukraine war and the inflationary backdrop. In view of these developments, charter rates in some sizes have eased as of late, although they remain at exceptionally high levels. Chartering discussions continue to center around the situation in China and when restrictions may be lifted, as it seems that there is a significant amount of pent-up cargo already waiting to be processed by Cheney Sports, while return to full-scale production should support volumes going forward. The new building market remained very active. during the quarter, but contracting of new vessels was slightly lower compared to the first quarter of 2021. The order book has increased to 26.5% of the total fleet. Concurrently, no vessels were scrapped in the first three months of 2022, which comes as no surprise given the exceptional market conditions. As a result, fleet growth is expected at 3.5% in 2022, accelerating to 8.2% in 2023, while global container growth is expected to increase by 3% this year and 2.6 percent next year. As a final remark, the IMF has cut its global growth forecast for 2022 down to 3.6 from 4.4 percent published in January. In view of the conflict in Ukraine, a global economic slowdown could adversely affect the container market. Overall, however, the outlook for the container sector remains positive in the short to medium term, with logistical disruption likely to continue to provide support throughout the end of the year. Further ahead, an easing of the market conditions looks likely once congestion eventually starts to unwind, while an increase in the pace of lead growth is expected to exert material supply pressure in 2023 and 2024. Turning to slide 10, as previously discussed and following the acquisition of the six LNGs, we are now targeting a number of additional drop-downs. In the short term, our primary focus will be the vessels on which we have a right of first offer. This includes three 13,000 EU container vessels with delivery from the third quarter of 2022 onwards until May 2023, which have a 10-year firm time charter in place to Hapag-Lloyd, as well as three additional LNG carriers with delivery in 2023. The Asterix 1 is the first LNG carrier to be delivered and has secured time charter employment for a minimum of five years at a highly attractive rate. In addition to the above vessels, Capital Maritime has contracted three additional LNG carriers at Hyundai with delivery set for 2024. As the additional LNG vessels find deployment and subject to our ability to acquire these vessels, CPOP can potentially become one of the very few companies that control a fleet of up to 12 latest generation two-stroke LNG carriers with a unique portfolio of charters. As explained earlier, we anticipate that two-stroke LNG carriers, like the vessels we already own, and these potential drop-down candidates will benefit greatly from the LNG market fundamentals ahead. The total market value of the six LNG carriers and the three 13,000 EU containers is approximately 1.7 billion, thus giving us a strong growth pipeline for 2022 and beyond. As we continue to grow the partnership's asset base and its distributable cash flow, we will also seek to increase the amount we pay out to unit holders in the form of common unit distributions and unit buybacks, thus executing our stated strategy of continuing to grow the partnership's asset base and at the same time returning capital to our union holders. And with that, I'm happy to answer any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for the automated message advising your line is open. Please state your first and last name and company name before you ask your question. If you wish to cancel your request, please press Start 2. And we will now take our first question. Please go ahead. Your line is open.