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spk03: financial results conference call. We have with us Mr. Jerry Gaviratos, 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 keypad, and you will wait for your name to be called to ask your question. I must advise you this conference is being recorded today. The statements in today's conference call that are not historical facts, including our expectations regarding cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities Capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including re-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 four 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 four looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We assume no responsibility for the accuracy and completeness of the four looking statements. We make no prediction or statement about the performance of our common units. I would now like to hand over to your speaker today, Mr. Carlos Ariatos.
spk00: Please go ahead, sir. Good afternoon, and 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. Since the end of the second quarter of 2022, we have completed a number of significant transactions for the partnerships including the successful issuance of €100 million senior unsecured bond, the completion of the sale of two of our older container vessels, as well as the acquisition of the first of four new building vessels we have agreed to acquire with long-term employment in place. Now, turning to the partnership's financial performance, net income for the third quarter of 2022 was €58.7 million, compared with a net income of €11.9 million for the third quarter of 2021. Our board of directors has declared a cash distribution of 15 cents per common unit for this quarter. And the third quarter cash distribution will be paid on November 10th to common unit holders of record on November 2nd. The partnerships operating surplus for the third quarter was 37.6 million or 7.8 million after the quarterly allocation to the capital reserve. During the third quarter of 2022, we purchased 102,085 of the partnership's common units under our unit buyback program at an average cost of $14.63 per unit. As of yesterday and since the inception of our program, we have acquired a total of 708,575 units at an average unit price of $13.36. Finally, the partnership's charter coverage for 2022 and 2023 stands at 95% and 92% respectively, with the remaining charter duration corresponding to seven years, that is, including the four new-built vessels we have agreed to acquire. Now, turning to slide three, revenue for the quarter was $71.9 million, compared to $43.1 million during the third quarter of 2021. The increase was primarily attributable to the net increase in the average number of vessels in our fleet by 17%, following the delivery of four LNG carriers during the fourth quarter of 2021, partly upset by the sale of the Adonis in December 2021 and of the two 8,000 EU container vessels in July of this year. Total expense for the quarter were 40.4 million compared to 27.8 million in the third quarter of 2021. Voyage expenses for the quarter increased to 4.4 million compared to 3 million in the third quarter of 2021, primarily due to the 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. Total vessel operating expenses during the quarter amounted to 17 million compared to 11.3 million during the third quarter of 2021. The increase in vessel operating expenses was mainly due to the net increase in the average size of our fleet. Total expenses for the third quarter of 2022 also included vessel depreciation and amortization of 16.2 million compared to 11 million in the third quarter of last year. The increase in depreciation and amortization was mainly attributable to the net increase in the size of our fleet, offset by lower amortization of deferred dry docking costs. General and administrative expenses for the quarter increased to 2.8 million compared to 2.6 million in the third quarter of 2021, mainly due to the increase in the amortization associated with our equity incentive plan. Interest expense and finance costs increased to 14.9 million from 3.6 million in the third quarter of 2021. The increase in interest expense and finance cost is attributable to the increase in the LIBOR-weighted average interest rate compared to the third quarter of 2021, and the increase in our total outstanding debt following the issue of the two bonds and the debt assumed following the acquisition of the four LNG carriers during the fourth quarter of 2021, partly offset by the scheduled principal payment during the period, debt prepayments relating to the vessel sales, and the full prepayment of two of our credit facilities of a total amount of 95.7 million during the third quarter of 2022. The partnership recorded net income of 58.7 million for the quarter, compared with a net income of 11.9 million for the third quarter of last year. Net income for the quarter includes a gain of 47.3 million from the sale of two of our vessels and a net loss of 5.2 million presented under other expenses relating to the cross-currency swap agreements associated with the issuance of our Euro-denominated bonds and an unrealized foreign exchange loss. Net income per common unit, excluding the gain of sale and the loss related to the impact of the and swap agreements was 83 cents for the third quarter of 2022, compared to 62 cents in the third quarter of last year. On slide 4, 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 37.6 million in cash from operations for the quarter before accounting for the capital reserve. We allocated 29.7 million to the capital reserve, a decrease of 1.4 million compared to the previous quarter due to the decreased debt amortization resulting after the debt repayments and the inclusion in the capital reserve of 3.5 million corresponding to an additional reserve for the bonds issued in July 2022. After deducting the capital reserve, the adjusted operating surplus amounted to 7.8 million. This is approximately 6.3 million less compared to the previous quarter, as a result of loss of revenue associated with the sale of two of our container vessels early in the quarter. The increased interest cost, as the weighted average interest cost for the quarter was 4.38% compared to 3.46% in the previous quarter. and due to the increased debt outstanding during the quarter between the issue of the bond in July and the prepayment of the two facilities in August, and 31 days unscheduled of hire associated with the Cape Agamemnon. Now, on slide five, you can see the details of our balance sheet. As of the end of the third quarter, the partners' capital amounted to 613 million, an increase of 88.3 million compared to 525.5 million as of the end of 2021. The increase reflects net income for the nine months and the amortization associated with the equity incentive plan, partly offset by distributions declared unpaid during the period in a total amount of 9.1 million, the repurchase of the partnership's common units for an aggregate amount of 4.4 million, and other comprehensive loss of 4.7 million. Total debt decreased by 126.5 million to 1.19 billion, compared to 1.32 billion as of year-end 2021. The decrease is attributable to scheduled principal payments during the period of 77.6 million, debt repayments of 28 million relating to the sale of Archimedes and Agamemnon, the repayment in full of our 2017 and 2020 credit funds, amount of 95.7 million, and a 26.5 million decrease in the U.S. dollar equivalent of the Euro-denominated bonds as of September 30th, partly offset by the issuance of 100 million euros in bonds in July 2022. It is important to note here that following the repayment in full of our 2017 and 2020 credit facilities, Seven of our vessels are unencumbered, which can be a significant liquidity lever for the partnership in the future. Total cash, as of the end of the quarter, amounted to 104.2 million, including restricted cash of 9.7 million, which represents the minimum liquidity requirement under financing arrangements. On slide six, we review the delivery of the Manzanillo Express, the first of three 13,000 EU eco-container vessels, which we have agreed to acquire, together with one latest technology LNG carrier. The vessel was successfully delivered from Hyundai on October 12th and commenced its 10-year charter with Hapacloid. The acquisition was funded through a combination of cash, approximately 505,200 common units with aggregate value of 7.5 million and 105 million drawn under a new loan facility. The new loan facility will be repaid in 24 Equal consecutive portal installments of 1.3 million, and the balloon payment of 73.1 million, payable together with final quarterly installment in October 2028. The facility bears interest at SOFR plus a margin of 2.15%. Moving to slide 7, and after the agreement with Chenier to extend the employment of two of our LNG vessels to 2031 at an increased rate, The partnership's contracted revenue backlog now stands at 1.95 billion, with over 63% of contracted revenue coming from LNG assets. Moreover, our customer base is well diversified across seven charters, with more than 83% of our revenues Turning to slide eight, the partnership's remaining charter duration amounts to approximately seven years, while charter coverage remains high throughout 2025, thus providing our unit holders with increased cash flow visibility. Turning to slide nine, you can see our debt maturities by year. As you can see, we have eliminated all maturities through 2025 and do not have any significant maturities before 2026. when our first 150 million euro bond becomes due. At the end of the quarter, floating rate debt accounted for 67% of the total. Based on current discussions with our lenders with regard to the financing of the new building vessels we have agreed to acquire, we expect fixed rate debt to account for more than 40% of our debt by the time we complete our acquisition program in the second quarter of 2022. Turning to slide 10, the LNG carrier charter market continues from strength to strength, with spot rates rising sharply in September. A major factor for the very strong freight market is the record high floating storage, as our gasification slots are scarce and traders are trying to position themselves for the winter cargoes. Despite initial estimates of 2.1% ton-mile demand growth for the year against LNG fleet capacity growth of 4.6%, The LNG carrier charter market has proved very resilient, supported by record gas prices and a push towards energy security. Term charter rates have moved continuously upwards throughout the third quarter, with the one-year term charter rates for a two-stroke vessel increasing from 160,000 per day at the start of the quarter to 230,000 per day by the end of the quarter. The same trend was seen for TFD vessels. However, the increase for steam turbine vessels was less marked as term fixing of older, less efficient vessels is less attractive given next year's high forecasted LNG price and upcoming environmental regulations. The LNG fleet order book stands at 42% of the total fleet with 50 new orders placed within the third quarter of 2022. 30 of the 50 orders are for the Qatar Northfield Expansion Project. At the same time, the price of a new building vessel has reached 245 million. The positive market sentiments in this year, driven by energy security concerns, especially in Europe, is expected to continue at least until the new wave of liquefaction plants become operational in 2026. On slide 11, we review the container market. Container rates have decreased amid demand headwinds, while easing congestion and market sentiment have put pressure on freight and charter rates. Clarkshire's time charter rate index decreased by 20 percent compared to the previous quarter, whereas the Shanghai containerized freight index fell by 22 percent in the same period. Despite both freight and charter rates easing somewhat, they still stand at higher than the 2021 year-on-year average. Trade is now expected to fall by 0.3% in 2022, compared to 4% growth forecast in the beginning of the year. Meanwhile, with supply-side growth expected to accelerate and congestion expected to continue to gradually unwind, markets should continue to soften, approaching more normalized levels next year. The container vessel order book stands at 27% of the total fleet, down 0.7% from the previous quarter. For the first time in years, the number of fully cellular container vessels scrapped in the first nine months of 2022 is zero, with the exception of two small units recorded as sold for recycling. Recent market trends, combined with the upcoming environmental regulations and policies, are expected to have moderating effects on future supply, as speed adjustments, energy saving devices, retrofit time, and increased recycling should affect older vessels. Slippage, including cancellations of new building container vessels, is expected to Now, turning to slide 12, as previously discussed, we have now exercised our right of first offer to acquire four vessels, one of which has been already delivered to the partnership earlier in October. We still retain the right of first offer on two more LNG carriers, currently under construction in Hyundai Heavy in South Korea, and delivering in late 2023. In addition, Capital Maritime has contracted an additional five LNG carriers and Hyundai Heavy, with deliveries set for 2024 and 2026. As these find employment in a currently strong charter market and subject to our ability to acquire these vessels, CPOP could be uniquely positioned to control a fleet of up to 14 latest generation LNG carriers with a unique portfolio of charters. Given the positive LNG market fundamentals ahead, we anticipate that two-stroke, later-generation LNG carriers like the ones we own and its potential drop-down candidates will constitute very attractive assets. With increased financial flexibility after the issuance of our second bond, the sale proceeds of our two oldest container vessels, seven unencumbered vessels, and with a strong cash flow generation, we expect that we expect from our fleet and acquisitions, we believe that CPLP is strategically positioned to take advantage of such growth opportunities while continuing to return capital to our unit holders through distributions and unit buybacks. And with that, I'm happy to answer any questions you may have.
spk03: And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And our first question comes from the line of Omar Nocta with Jefferies. Please proceed with your question. Thank you.
spk04: Hi, Jerry. Good afternoon. Thanks for the update. Just wanted to ask, you know, as you're split now basically between the container ship and LNG shipping segments, you've been able to secure long-term contracts really across both, both in having vessels on hand and then acquiring them with contracts. But just in terms of opportunities that are out there, whether from the ability to secure charters or maybe the ability to acquire ships with attractive or at attractive price levels, Where are you spending more of your time currently, and where do you see the opportunity? Is it in LNG? Obviously, you've outlined on slide 12, you know, the drop-down opportunities. Are the opportunities in LNG? But then also, how about in containers, given the pullback in asset values? How do those look?
spk00: I think as far as containers are concerned, the market seems to have stagnated. And we have seen now increased activity. It feels like, in terms of charter rates at least, we have seen a floor. It remains to be seen whether this is temporary or not. But I think this is a market that is very much still in flux. Overall, and when it comes to long-term, I think there is a very positive story for the LNG carriers that goes much beyond, of course, the current energy crisis in Europe. That was never the main story in the first place. The story really was increased demand for LNG, LNG also being a transition fuel, the increased liquefaction capacity that is from 2026 onwards. The increased demand that we were seeing, especially from the Far East, as China was moving away from coal. And I think what, you know, the... And, of course, we have now the added, if you want, ingredient of energy security, which is a new but very important and very potent element in this. So... You know, when you look at the LNG market, it's also well-suited for a business model. You have long-term fixtures, high-quality counterparties you can typically fix forward as LNG carriers are fixed in relation to projects mostly. So I think that it's a good fit, and not to say the least, it is also a good fit in the sense that we think these vessels, the latest technology, LNG carriers, are more future-proof. Of course, also, as you know, we have been divesting of the older container vessels. So this has been a very persistent, if you want, threat of our policy. But I think at this point, the LNG fundamentals and business structure looks more attractive to us. Containers, I think we still have to see where prices and rates stabilize.
spk04: picture uh... that that that makes sense and you know you speaking of energy we have seen that the reports that the capital maritime bill to secure you know to your contract on one of the new buildings at a very attractive very high rate you know it didn't just In terms of where CPLP stands, do you see the potential of acquiring, say, that one particular ship that was fixed for three years? Does that, you think, look attractive to make its way into the structure, or do you prefer to have a bit more longer-term contract before that happens?
spk00: I think that's an interesting discussion to be had. I don't think we are ready to have this discussion. We still have another three vessels to acquire until May 2023. And this vessel that has been reported in the press fix for three years is not delivered before October 2023. So there's a lot of things that can happen between now and then. Three years typically I would say is on the lower end that you would expect when you're looking at a brand new LNG vessel and the capex that comes with it. But it's also, I mean, what was reported in the press is also quite high rate. Let us see where we are over the next couple of quarters, whether there will be an add-on fixture on the back of this. And, of course, it all depends on what will be the price on offer. I think we still have some way to go, but if you ask me, sure, I think this is definitely, let's say, the direction that we want to be going with these type of assets in the LNG segment.
spk04: Okay, yeah, makes sense, and yeah, you still have plenty of time, and you still have a few shifts to bring on as well. Great, I'll turn it over.
spk03: Thank you, Omar. Our next question comes from the line of Liam Burke with B. Riley. Please proceed with your question. Thank you. Hi, Jerry.
spk02: How are you? Hi, Liam. I'm well. How are you? I'm fine. Thank you. You've got multiple uses of your capital, and you're effectively managing the addition of assets, buying back the shares, and then maintaining the unit payout. Do you see any shift in that strategy you're giving on how to adjust your allocation strategy?
spk00: I think as we have communicated in the past, once we complete the drop-downs, we will and we increase our distributable cash flow. You should also expect that we will continue and or quarterly distributions. As I said before, I think we want to see the acquisitions completed, as well as having a little more stable outlook with regard to interest rates before we revisit our capital allocation policy. But you should expect more news from us on this front, I think, next year. But overall, let's say, and subject to the decision of our board, we continue to intend to return to our unit holders about a fifth to a quarter of our free cash flow. And that will be in the form of quarterly distributions as well as unit buybacks. So I think in that way we can achieve balanced and solid total returns for our long-term unit holders. While effectively we continue to boost our earnings per unit and ensure the long-term viability and cash flow generation capacity of the partners. I think that's really the way that we see things. So to your point, let us wait closer to the transaction completion and I think we will again look at the capital allocation policy. Great, thank you.
spk02: And on your fleet renewal program, you've been rather deft in sort of increasing the value of the assets as well as reducing the average age of the fleet, increasing contracted cash flows. Are there any assets that you're looking at that may provide a source of cash for the renewal program, or are you happy with what you have now?
spk00: I think the one that stands out mostly is the one dry bulk vessel that we have, the Cape Agamemnon. So that vessel still trades spot. The dry bulk market, as you know, has been quite volatile, and especially the Cape size market. But we remain opportunistic about it. If we see a good exit point, that will be, I guess, the prime candidate. But also, you know, the container assets in general, especially the older assets, but opportunistically also the more modern ones, as we have done in the past, if we see something that makes sense or looks like better returns compared to what we can do in the charter market, especially given the use of capital we have, the alternative use of capital that we have, we will look at it. But the priority, I think, is more the Cape-sized vessel. Great. Thank you, Jerry. Thank you, Liam.
spk03: Our next question comes from the line of Benjamin Norland with Stifel. Please proceed with your question.
spk01: Hi, good morning and good afternoon. This is Michaela on for Ben. Thank you for taking our question. We just had a quick one. You know, the sponsor has been a leader in ordering new LNG vessels, and given the order book's pretty large at this point, could you provide any color on what gets them comfortable in ordering at this point? Is it maybe a need for slow speed two-stroke vessels or any other insights could be helpful? Thank you.
spk00: No, overall, that's actually a very good question. First of all, I mean, as we highlighted also in our prepared remarks, while there is... A fairly large order book, most of these vessels are committed on long-term projects. Very few of these vessels that you see currently in the order book do not have an existing commitment. So when you look, let's say, over the next couple of years, we're talking about a dozen ships that do not have employment currently. So that's one. Don't forget that a lot of the big driver of this order book is just one charter, Qatar Gas, on the back of their own expansion. The other main driver is, of course, the technology shift in propulsion and containment systems we have seen on the LNG side. And this is, if anything, has been amplified by the higher commodity price. Nowadays, that delta between the the delta between, let's say, two-stroke ships, TFTE ships and steam ships, has been ever-increasing as commodity price has been increasing due to the, of course, lower boil-off that the two-stroke units can offer, the lower bankers' bill, but also the larger side. So the unit freight economics... of two-stroke ships compared to older technologies really create effectively a three-tier market. Depending on the price of the commodity, the real differential in terms of unit freight costs can be more than $500,000 per day. Finally, there is the regulatory impact and the environmental impact, if you want. The regulatory impact, the more strict regulatory impact, means that with CEXI and CII, the older technologies, and especially steamships, will be impaired, potentially with speed reductions, and won't be able to compete. But also the carbon footprint of many of those ships is going to be a huge impairment going forward, especially if there's an introduction of market-based measures like the ones that are being discussed in Europe for the ETS or the IMO. And, of course, there's also the methane slip, which can be quite important and can further impair some of these older vessels. So all in all, when you look at the demand fundamentals, which I mentioned earlier, that is... new liquefaction capacity coming online, where the demand for LNG is located compared to the supply. Of course, the new concerns about energy security, and now Europe being a major importer of LNG, and so on and so forth, compared to the order book that is already committed for many of these projects, but definitely not for all. And, of course, the technology is and what it means going forward. I think this is what makes us, as well as the sponsor, quite bullish. And I think the proof is in the pudding, the kind of rates and returns that are being achieved. I mean, I think Omar referred to what was reported in the press for a three-year deal. These are record-high numbers, and we expect the market to remain quite strong going forward.
spk01: Great. Thank you so much. Appreciate the time.
spk03: And as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue. And it looks like we have reached the end of our question and answer session. Therefore, I will turn the call back over to Mr. Jerry Kaliogis for closing remarks. Thank you. Thank you all for joining us today. And this concludes today's conference, and you may disconnect your live at this time. Thank you, and have a good day.
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