Capital Product Partners L.P.

Thank you for standing by, and welcome to the Capital Product Partners 4th Quarter 2023 Financial Results Conference Call. We have with us today Mr. Jerry Calaratas, Chief Executive Officer, Mr. Spiros Lejosas, and Mr. Nikos Kalapaparasas, Chief Financial Officer of the company. At this time, all participants are on 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, you'll need to press star 1 on your telephone keypad and wait for your name to be announced. I must advise you this conference is being recorded February 2, 2024. The statements in today's conference call that are not historical facts, including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback 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 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 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 expectation to conform to actual results or otherwise. We make no prediction or statement about the performance of our common units. I would now like to turn the call over to your speaker today, Mr. Calruthis. Please go ahead, sir.

Thank you, Rob, 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. On November 13 of last year, we announced a strategic transaction for the partnership, which aims to transform CPLP into a leading LNG and energy transition-focused shipping corporation. We started executing on our business plan directly thereafter, by concluding a 500 million rights offering and successfully closed the agreement to acquire 11 latest generation two-stroke LNG carriers with deliveries from the fourth quarter of 2023 through to the first quarter of 2027. We also agreed to negotiate the conversion of the partnership from a limited partnership to a corporation with customary corporate governance provisions by June of this year. Finally, we also secured rights of first refusal on two very large ammonia carriers and two liquid CO2 carriers, currently on order by Capital Maritime. On closing of the transaction on December 21st, we took delivery of the first vessel under this agreement, the LNG carrier Amore Mio 1. And shortly thereafter, on January 2nd, we took delivery of the second vessel, the LNG carrier Axios 2. In addition, we also agreed to sell the 5,100 TEU container vessel, Long Beach Express, in line with our stated intention to divest gradually from our legacy container assets. Turning to the partnership's financial performance, net income for the fourth quarter of 2023 was $12.7 million, or $16.3 million, excluding a $3.5 million impairment associated with the sale of two of our vessels. Our board of directors has declared a cash distribution of 15 cents per common unit for the fourth quarter of 2023. The fourth quarter cash distribution will be paid on February 13th to common unit holders of record on February 6th. Finally, the partnership's current fleet charter coverage for 2024 and 2025 stands at 100% and 82%, respectively, with a remaining charter duration corresponding to 7.2 years and contract revenue backlog of 3.1 billion. Turning to slide four, total revenue for the fourth quarter of 2023 was 95.5 million compared to 79.9 million during the fourth quarter of 22. The increase in revenue was primarily attributable to the revenue contributed by the three new building containers and one new building LNG carrier we acquired between October 2022 and June 2023, as well as the LNG carrier Amore Mio 1 acquired in mid-December 2023 partly upset by the sale of our sole dry bulk vessel, the Cape Agamemnon, earlier in the quarter. Total expense for the fourth quarter of 2023 was $55.1 million, compared to $42.1 million for the fourth quarter of 2022. Total vessel operating expenses during the fourth quarter of 2023 in the average number of vessels in our fleet. Now, total expenses for the fourth quarter of 23 also include a non-cash impairment charge of 3.5 million that we recognized in connection with the sale of the Cape Agamemnon and the Long Beach Express, and a vessel depreciation and amortization of 22.2 million compared to 17 million in the fourth quarter of 22. The increase in depreciation and amortization during the fourth quarter of 23 was mainly attributable to the net increase in the average size of our fleet. General and administrative expenses for the fourth quarter of 23 increased to 5.7 million from 4 million, mainly due to the costs incurred in connection with the LNG transaction we closed in December 23. Interest expense and finance costs increased to 27.9 million for the fourth quarter, compared to 18.4 million for the fourth quarter of 22. The increase was mainly due to the partnership's average indebtedness and the increase in the weighted average interest rate to 6.6% from 5.4% in the fourth quarter of 22. Net income per common unit for the quarter was 48 cents, or 61 cents if we exclude the impairment, compared to $1.03 per common unit in the fourth quarter of last year. On slide five, you can see the details of our balance sheet. As of the end of the fourth quarter, the partners' capital amounted to 1,175,000,000, an increase of 536.5 million compared to 638.4 million as of the end of 22. The increase reflects net income for 23, other comprehensive income of 3.2 million relating to the net effect of the cross-currency swap agreement we designate as an accounting hedge, the amortization associated with the equity incentive plan of 3.8 million, and the net result from the issuance of common units in connection with the rights offering of 498.7 million, partly offset by distributions declared and paid during the period in a total amount of 12.2 million, and the cost of repurchasing our common units under our unit repurchase program for an aggregate amount of 4.1 million. Total debt increased by $488.6 million to $1.8 billion, compared to $1.3 billion as of year-end. The increase is driven primarily by the drawdown of $588.3 million to finance special acquisitions and the $10 million increase in the U.S. dollar equivalent of the Euro-denominated bonds, partly offset by the scheduled principal payments and the early repayment in full of one-hour facilities for a total of $109.8 million. Total cash as of quarter end amounted to $204.1 million, including restricted cash of $11.7 million, which represents the minimum liquidity requirement under financing arrangements. On slide 6, we provide an overview of the agreement for the acquisition of the 11 latest generation LNG carriers from Capital Maritime for a total price of $3.1 billion, which closed on December 21st. We remind you that the agreement included a 500 million rights offering and a price of $14.25, fully boxed off by Capital Maritime and a 220 million seller's credit. On closing of the agreement on December 21st, a total of 454.2 million was due to Capital Maritime by the partnership, broken down as follows. 141.7 million... being the equity part of the acquisition price for the Amore Mio I, on top of the lease financing that was in place and was taken over by the partnership. We took delivery of the Amore Mio I immediately, being the sole vessel in the water at the time of closing. In addition, another $174.4 million was due to Capital Maritime, representing 10% of the relevant acquisition price of the six initial vessels. We define as initial vessels the LNG carriers that we are going to take over and pay for the balance of purchase price the day that they are going to be delivered from the shipyard. This means that for these vessels we have no obligation until delivery. And finally, another 138.1 million was due for the four remaining vessels. We define as remaining vessels the entities we acquired on the day of closing in December, which are party to the sea-building contracts of the four remaining LNG carriers, and hence we took over their obligations under the respective contracts, including pre-delivery installments. Now, with regard to the rights offering, Capital Maritime purchased 34.6 million common units pursuant to the standby purchase agreement for an aggregate amount of 493.6 million, as the rights offering was not fully subscribed. As a result, the amount of 454.2 million due to Capital Maritime was netted against the 493.6 million due from Capital Maritime, resulting in a net cash inflow of 39.5 million that was paid from Capital Maritime to the partnership in cash. Then to slide 7, the LNG carrier Amore Mio 1 was successfully delivered on December 21st to the partnership and is on a three-year time charter with Qatar Energy and Trading. The charter is expected to generate about 162 million EBITDA from the delivery of the vessel to the partnership to the completion of the charter. Upon acquisition of the Amore Mio 1, we assumed indebtedness of 196.3 million in the form of a sale and leaseback financing. On slide 8, we review a delivery of the LNG carrier Axios II to the partnership, which took place on January 2nd. The vessel commenced an index-linked one-year time charter with a major commodity trader, which will be followed by a seven-year bearable charter with Pony Gas Transport Limited. Pony Gas Transport, or BGT, maintains an option to extend the charter by an additional three years. The bearable charter is expected to generate over the seven years approximately 250 million of EBITDA. The vessel acquisition was financed by netting 10% of the purchase price against the amount due from Capital Maritime and the standby purchase agreement, a new senior secured loan facility for an amount of 190 million, and a drawdown of 92.6 million under the seller's credit facility. On slide 9, we review our capital expenditure commitments in relation to the four remaining vessels under construction. Our 2024 CAPEX commitments amount to 1.2 billion with 101.1 million representing pre-delivery installments due to the shipyard and are expected to be paid within the first quarter of 2024. The remaining 1.1 million represents the balance due to CNPC upon delivery of each of the initial vessels. This amount includes a balance of 282.6 million due for Axios II, which was paid on January 2nd. Net of that, the remaining balance for 2024 is 801 million. We expect to finance this amount with approximately 720 million of senior debt, and the remainder with a drawdown under the seller's credit facility. The next year, with a significant capital expenditure, is 2026, when 863 million is due for pre-delivery and delivery installments due to the shipyard. This is expected to be funded through a combination of cash from the balance sheet, vessel financing, and drawdown under the seller's credit. We expect to have more details on the debt financing of these vessels closer to their respective deliveries. On slide 10, we review our current debt amortization profile, excluding maturities. This includes the expected net sale proceeds from Long Beach Express, which will go towards the repayment of the outstanding seller's credit balance. As you can see, We expect to reduce our debt levels by $335 million over the next three years without taking into account any additional cash proceeds from the sale of container vessels. At the same time, and as I mentioned earlier, we expect to incur approximately an additional $720 million of debt in 2024 in order to take delivery of the remaining three LNG carriers we will be acquiring this year. The incremental debt amortization of this $720 million is expected to be on average around $34 million on an annualized basis. Turning to slide 11, you can see our debt maturities split by year. It's important to highlight here that we do not have any material maturities until the year 2026, when our first 150 million euro bond becomes due. Moving to slide 12, the partnership's contracted revenue backlog now stands at 3.1 billion, with over 80% of contracted revenue coming from LNG assets, with a highly diversified and high-quality customer base of 11 charterers. On slide 13, you can see the charter profile of our LNG fleet. Our contracted backlog of 78 years could decrease to 113 years if all options were to be exercised. I should stress that we have no open vessels between now and the end of 2025. We do have four vessels coming up for delivery and one for renewal in 2026, and an additional two vessels for delivery and one for renewal if charter options are not exercised in 2027. These vessels are expected to be seeking employment with a new wave of about 170 MTPA of additional new liquefaction capacity are expected to come online in the period between 2026 and 2028. We estimate that these projects alone, which have taken FID and export permits, will require between 190 to 120 additional vessels, with only 156 vessels due for delivery during that period. On slide 14, we can see the charter expiration of the container fleet. The contracted backlog of 47 years could increase to 82 years with all options exercised. Since the announcement of our intention to divest from container vessels, we have seen significant inquiry for the sale of our vessels, given the quality of our fleet and the attractive charters in place. This is already culminating the sale of one of our older Panamax vessels. We will continue to seek to divest from additional container vessels in an opportunistic manner, Provided that we can achieve a reasonable sale price compared to the contracted and expected cash flows and our expectations with regard to residual value going forward. Turning to slide 15 and the overview of the LNG market, I will pass the floor to our Chief Commercial Officer, Spiros Louisis.

Thank you, Terry. Overall, the reduced focus on energy security, along with warm weather and full gas inventories, have resulted in a decline in gas prices in 2023. This, combined with prolonged availability throughout the year, has kept charter rates lower compared to previous years. Spot rates for a two-stroke vessel averaged $171,250 per day in Q4 2023, while the one-year time charter rate, as of the end of January 2024, stood at $75,000 per day. Notably, five-year time charter rates have exceeded those for shorter durations, reflecting anticipation of tightening conditions from 2026. On the longer term, 10-year rates exhibited an upward trend in 2023, influenced by increases in new building prices and interest rates, although this trend has moderated recently. Tartar markets for two-strokes are expected to remain generally healthy in 2024 and 2025. The preference for two-stroke vessels remains robust, as the benefits of higher carrying capacity and lower boil-off are still significant, even at lower gas prices. Rate differentials to older, less efficient donuts continue to increase, and we have now a split rate even for 138 to 145 K steam vessels, as the market recognizes a material difference for an additional few thousand cubic meters of carrying capacity and the impact of EXI regulations on vessel speed. The United States became the world's largest exporter in 2023, a position held by Qatar for the last few years, closely followed by Australia, while China reclaimed its position as the largest importer. In Europe, gas storage leverage reached historic highs, with several Asian importers having also reached full capacity. The focus on canals, heightened in 2023 and early this year, as reduced rainfall in Panama led to fewer transit slots through the canal. This could lead in additional demand for 4-5 LNG carriers per month from Q1 2024 until restrictions ease. Additionally, security concerns in the Red Sea have prompted vessels to avoid the Bab-Adman-Dab Strait and Suez Canal, choosing the Cape of Good Hope as such instead. Analysts expect that redirecting all LNG carriers via the Cape of Good Hope should create additional demand for LNG vessels. Finally, the LNG fleet order book currently starts at approximately 52% of the total fleet, encompassing 341 vessels on order. Shipyards responding to heightened demand find themselves fully booked through 2027. The new building price stands at more than $260 million per vessel for basic specification vessels. In 2023, there were 68 new orders, a decrease from the record-setting 185 ships ordered in 2022. More ordering is expected in order to meet the demand for anticipated liquefaction volumes in the years ahead. If liquefaction projects adhere to timelines and proposed projects secure final investment decisions, the demand for new builds is poised to outstrip current yard capacity until the decade's end.