Capital Product Partners L.P.

Thank you for standing by, and welcome to the Capital Product Partners First Quarter 2024 Financial Results Conference Call. We have with us Mr. Jerry Calagiratos, Chief Executive Officer, Mr. Spiros Lourousis, Chief Commercial Officer, and Mr. Nikos Kalopoulos-Rakos, Chief Financial 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, you will need to press star 1 on your telephone and wait for your name to be announced. I must advise you this conference is being recorded today, April 30, 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, past 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 redelivery dates and charter rates, may also be forward-looking statements as such defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause these 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 conform to actual results or otherwise. We make no prediction or statement about the performance of our common unit. I would now like to hand over to your speaker today, Mr. Caligari. Please go ahead, sir.

Thank you, Paul, and thank you all for joining us today. As a reminder, we'll be referring to the supporting slides available on our website as we go through today's presentation. In the first quarter of 2024, we took delivery of the LNG carrier Axios II, the second delivery under our agreement to acquire 11 latest generation two-stroke LNG carriers. Moreover, we concluded the sale Furthermore, we announced the sale of three 10,000 EU containers and two Panamax container vessels. Turning to the partnership's financial performance, net income for the first quarter of 2024 was 33.9 million, or 17.5 million, excluding the gain on sale of vessels. Our Board of Directors has declared a cash distribution of 15 cents per common unit for the first quarter of 2024. The first quarter cash distribution will be paid on May 14th to common unit holders of record on May 7th. 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 7.3 years and a contracted revenue backlog of 2.8 billion. Turning to slide 3. Total revenue for the first quarter of 24 was 104.5 million compared to 81 million during the first quarter of 23. The increase in revenue was primarily attributable to the revenue contributed by the new building vessels we acquired between February 2023 and January 2024, partly offset by the sales of our sole Cape size vessel in the fourth quarter of last year and the two containers during the first quarter of this year. Total expenses for the first quarter of 24 were 54.9 million compared to 45.1 million in the first quarter of last year. Total vessel operating expenses during the first quarter of 24 amounted to 22.7 million compared to 19.3 million during the first quarter of 23, and were higher mainly due to the net increase in the average size of our fleet. Total expenses for the first quarter of 24 also include vessel depreciation amortization of 24 million compared to 19.2 million in the first quarter of last year. The increase in depreciation amortization during the first quarter of 24 was mainly attributable to the net increase in the average size of our fleet. General administrative expenses for the first quarter of this year increased to 4.4 million from 2.8 million in the same quarter last year, mainly attributable to certain one-off costs we recognized in connection to our equity incentive plan. Interest expense and finance costs increased to $34 million for the first quarter of 2024, compared to $23.7 million for the first quarter of last year. The increase was mainly attributable to the increase in the partnership's average indebtedness and the increase in the weighted average interest rate compared to the first quarter of 2023. Average interest rate for the quarter amounted to 7 percent. Partnerships recorded net income of 33.9 million, or 17.5 million, excluding the gain on sale of vessels for the quarter, compared to net income of 10 million in the same quarter of last year. Net income per common unit for the quarter was 61 cents, or 32 cents, excluding gain on vessel sales, compared to 49 cents per common unit in the first quarter of last year. On slide 4, you can see the details of our balances. As of the end of the first quarter, the partners' capital amounted to $1.204 billion, an increase of $29 million compared to $1.175 billion as of the end of 2023. The increase reflects net income for the first quarter of this year, other comprehensive income, and the amortization associated with the equity incentive plan of $2.6 million, partly offset by distributions declared unpaid during the period in a total amount of $8.3 million. Total debt increased by 156 million to 1,944,000,000, compared to 1,788,000,000 as of year-end 2023. The increase is attributable to the assumption of 190 million of bank debt and 92.6 million of seller's credit in connection with the acquisition of the LNG carrier Axios II in January of this year, partly offset by the 7.2 million decrease in the U.S. dollar equivalent of the Euro-denominated bonds issued by the partnership the scheduled principal payments for the period of 28.5 million, the early repayment in full of the facility we entered into to partly finance the acquisition of Akademos, and the partial prepayment of 52.8 million of the seller's credit we drew to partly finance the acquisition of LNG Carrier Axios II. Total costs of the end of the quarter amounted to 157.7 million, including restricted cash of 11.2 million, which represents the minimum liquidity requirement under our financing arrangements. On slide 5, you can find an update on the progress of container vessel sales. As mentioned earlier, during the first quarter of 2024, we successfully sold and delivered the containers Long Beach Express and Academos. In April 2024, we also completed the sale of the container vessels Athos, Athenian and Seattle Express. Finally, we expect to complete the sales of the Aristomenes and the Force Express in early May. From the sale of these seven container vessels, we expect net proceeds after debt repayment of approximately 182.5 million. So far, for the net proceeds of approximately 144 million received from the vessels delivered already to their new owners, we have used 92.6 million to repay in full the amount we drew under the seller's credit for the acquisition of the LNG carrier Axios II. Under the umbrella agreement and the provisions of the seller's credit, any sale proceeds net of debt repayment are applied first towards repayment of any balance outstanding under the facility. Moving to slide 6, the partnership's contracted revenue backlog stands at 2.8 billion with over 85% of contracted revenue coming from LNG vessels with a highly diversified and high-quality customer base of 10 charters. This is excluding the seven container vessels we have sold or agreed to sell. On slide 7, you can see the charter profile of our LNG fleet. We have a contracted backlog of 76 years at an average daily rate of 88,500, which could increase to 111 years if all options were to be exercised. I should stress that we have no open vessels between now and the first quarter of 2026. In total, we have four LNG carriers coming up for delivery from the shipyard and one being re-delivered from its shutters in the fourth quarter of 2026. In 2027, we have an additional two vessels being delivered from the seaport in the first quarter of the year, and potentially one additional vessel coming up for renewal in the fourth quarter of 2027, if its charters do not exercise certain options. These vessels are expected to be seeking employment when the new wave of about 170 MTPA of additional new liquefaction capacity is expected to come online between 2026 and 2028. We estimate that these projects alone, which have taken FID and export permits, will require between 190 and 220 additional vessels, with only 156 vessels due for delivery during that period. This is without taking into account the replacement of older technology vessels and the particular steam turbine vessels, which are expected to generate substantial incremental demand for two-stroke vessels like ours. Currently, we count only 31 vessels in the order book between now and 2028 that are not committed to a certain project, with CPLP controlling six or about 20% of these uncommitted vessels. On slide eight, you can see the charter expiration of the container fleet. Once all agreed sales are complete, we will have sold a total of seven container vessels, leaving us with a fleet of eight vessels. Our contracted backlog on the container fleet spans 32 years at a weighted average daily rate of 38,200 and could increase to 51 years if all options are exercised. We continue to seek to divest opportunistically from containers, provided we deem the sale price reasonable in view of the contracted cash flows, our market views, and our expectations with regard to residual value. And with this, I will pass on the floor to...

Thank you, Jerry. So, heading to slide nine, we review the LNG market. After a period of historically high rates, following the start of the Russian-Ukraine conflict, rates are normalizing towards favor levels. Warm weather and high gas prices Q1 2024, with the average one-year time charter chapter rate hovered around 76,000 per day. On the other hand, the three-year time charter stands today at $85,000 per day, while for longer periods, as for example for five years, rates are even higher, indicating that the market is pricing in an anticipated tightening from 2026 onwards. Geopolitical disruptions are key for the LNG carrier sector, and while we are yet to see any major upside movement for day rate, we expect high volatility later in the year. LNG carrier transit through the Panama Canal remains highly limited, with just four ships having transited since the start of February. At the same time, no LNG vessels have crossed the Suez Canal since January 16th. Overall, it is fair to say that the LNG shipping market appears more balanced for 2024 and 2025, with multiple new buildings being delivered and only incremental new LNG volumes coming online. Charter markets for two-stroke vessels are expected to remain generally healthy in 2024 and 2025 due to the attractive unit freight costs they offer compared to DFT and steam turbine vessels. as well as the environmental benefits they deliver to charterers, as EU ETS, CII and other regulations start to have an economic and reputational impact on LNG charterers. Global LNG imports remain strong at both basins, with China continuing to import at seasonal records. Overall, tonne miles have been higher in Q1 this year versus last year due to a closed Suez Canal and limited use of the Panama Canal. Total gas in storage also remains high, and with the recent mild climate conditions putting further downward pressure on gas demand, Europe has finished the winter period with near record levels of inventories. Russian gas supply to the EU is now at less than 2 million tons per month. Finally, the LNG fleet order book currently stands at approximately 50% of the total fleet, encompassing 332 vessels on order. Shipyards responding to heightened demand find themselves mostly fully booked throughout 2027. Appetite remains high for LNG carrier new builds, following elevated contracting activity across 2021 and 2023, with 44 new building orders being placed in Q1 2024. 35 orders were part of the second phase of ordering for the Qatar expansion, and with Qatar-related orders now complete, the pace of ordering for the remainder of the year is expected to be slower. Looking at liquefaction projects, in March next decade announced plans to take FID on a fourth train for Rio Grande LNG in the second half of 2024. The company took FID on phase one of the project last year, comprising three trains of 5.4 MTPA-8, which is currently expected to come online in 2027. And with this, I'll pass back to Jerry.