Capital Product Partners L.P.

Thank you for standing by and welcome to the Capital Product Partners Second Quarter 2024 Financial Results Conference Call. We have with us Mr. Jerry Caligaritos, Chief Executive Officer, and Mr. Brian Gallagher, Executive Vice President of Investor Relations. 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 stall 1 on your telephone and wait for your name to be announced. I must advise you this conference is being recorded today, August 2nd, 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 expectation regarding market fundamentals and employment of our vessels, including redelivery dates and charter rates, Maybe forward-looking statements 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 forecast 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, are changing our views or expectations 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 hand over to your speaker today, Mr. Caligaratos. Please go ahead, sir.

Thank you, Christine, 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. Today represents an important milestone and the start of a new chapter for the company. We have agreed to change the company's name to Capital Clean Energy Carriers Corp. reflecting our strategic pivot to the LNG and energy transition business, and to signify the conversion of the partnership to corporation with improved governance rights for unaffiliated shareholders, a transparent corporate structure, and alignment of shareholder interests. As a reminder, we announced in November 2023 partnership on the LNG and gas business, that we intend to also change our corporate structure from a partnership to a corporation. I'm very pleased to report that the general partner of CPLP and the special committee of our board, comprising independent directors, have agreed to the terms of the conversion, which entail the conversion of all common units to common shares, and the elimination of the general partner units and its incentive distribution rights. This includes also the elimination of the GP's existing management and consent rights, including its right to appoint three directors to our board and its veto rights over approval of mergers, consolidations, and other significant corporate transactions. Following the conversion, the board will consist of eight directors, a majority of which will be independent in accordance with NASDAQ rules. Until the holdings of Capital Maritime and its affiliates fall below 25% of the outstanding common shares, Capital Maritime will have the right to nominate three of the eight directors, two directors until its holdings fall below 15%, fall below 5%. In view of the above transaction, the GB units and associated incentive distribution rights outstanding immediately prior to the conversion will be converted to an aggregate 3.5 million common shares. We expect that the conversion to a corporation will allow the company to grow and broaden our investor appeal and investor base, and over time enhance liquidity including potential index participation. This is, of course, together with our unique business plan of putting together the largest U.S.-listed LNG and gas platform with an eye to energy transition as better described on slide four of the presentation. Once all our contracted vessels are delivered, our 36-vessel fleet will be among the youngest out there, with an average age of 2.3 years, and the ability to transport a number of different cargoes, including cleaner forms of hydrocarbons, such as LNG and LPG, but also service emerging energy transition trades, such as the transportation of liquid CO2 and low-carbon ammonia. Importantly, we have today 20 vessels in the water, including 12 latest-generation LNG carriers and eight legacy container vessels, all under medium- to long-term charters to first-class counterparties. Finally, our legacy container fleet provides excellent strategic and funding optionality, with eight vessels remaining and close to 180 million raised in net proceeds from sales in less than six months. On slide five, you can see an overview of our contracted cash flows. Our 12 LNG carriers on the water revenue backlog is considerable, totaling 2.4 billion, backed by a diverse range of blue-chip energy providers. This is complemented by an additional 400 million of contracted revenue from our container book. Overall, we have a remaining charted duration of 7.2 years, providing cash flow visibility and stability during this growth phase for the company. Moving on to the second quarter of 2024 and recent developments on slide 7, we announced during the quarter an important strategic investment in 10 new gas carriers for 756 million, with expected deliveries between the first quarter of 26 and the third quarter of 27. Six vessels are dual-fuel LPG, medium gas carriers, and four are the first-ever built liquid CO2 handy gas carriers, which can also transport LPG, ammonia, and other conventional cargoes. On the LNG side, we took delivery of the LNG carriers ASOS, Apostolos, and ACTORAS, in accordance with the partnership's transformative agreement to acquire 11 late-generation two-stroke LNG carriers. On the container side, we delivered to the new owners during the quarter the five container vessels we sold, recognizing a gain of 15.2 million. Our fleet in the water now consists of eight containers and 12 LNG carriers. Importantly, during the second quarter of 2024, we refinanced the LNG carrier Aristides I and released 54.8 million of additional liquidity, while we also approved the financing terms of the sale and leaseback for the LNG carriers AristoSwan and Aristaros. In addition, in the second quarter of 2024, we announced the appointment of Brian Gallagher as Executive Vice President for Investor Relations. Brian previously held the position of Head of Investor Relations at Euronav from 2014 until the end of 2023, and served on the Euronav Executive Management Board from 2016 onwards. Turning to the partnership's financial performance, net income for the second quarter of 24 was 34.2 million. Our board of directors has declared a cash distribution of 15 cents per common unit for the second quarter of 24. The second quarter cash distribution will be paid on August 12 to common unit holders of record on August 6. Turning to slide 8, total revenue for the second quarter of 24 was 97.7 million, compared to 88.5 million during the second quarter of 23. The increase in revenue was primarily attributable to the revenue contributed by the new building vessels that joined our fleet, partly offset by the container vessels stored during this period. Total expenses for the quarter were 48.3 million, compared to 50.6 million the second quarter of 23. Total vessel operating expenses amounted to 20.2 million compared to 23.5 million in the same quarter a year ago. The decrease was mainly due to the net decrease in the average number of vessels in our fleet. Total expenses for the quarter also include vessel depreciation and amortization of 22.6 million compared to 20.9 million in the same quarter of last year. The increase was mainly attributable to the higher depreciation expense due to the change in the composition of our fleet which now includes a higher number of LNG carriers. General and administrative expenses for the second quarter of this year increased to 3.3 million from 2.3 million the same quarter last year, mainly due to costs associated with the acquisition of the 11 LNG carriers. Furthermore, during the second quarter of 2024, we concluded the sale of five container vessels. Interest expense and finance costs increased to $31.4 million for the second quarter of 2024 from $25.5 million for the second 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 to 6.63% compared to 6.28% in the second quarter of 2023. The partnership recorded a net income of $34.2 million for the quarter compared to a net income of $7.4 million the same quarter of last year. Net income per common unit for the quarter was 62 cents compared to 36 cents per common unit in the second quarter of last year. On slide 9, you can see the details of our balance sheet. As of the end of the second quarter, the partners' capital amounted to 1.2 billion, an increase of 55.1 million compared to the end of 23. The increase reflects net income of 68.1 million for the first six months of 24, Other comprehensive income of 0.2 million relating to the net effect of the cross-currency swap agreement we designate as an accounting hedge are the amortization associated with the equity incentive plan of 3.5 million, partly offset by distributions declared unpaid during the period in the total amount of 16.7 million. Total debt increased by 809 million to 2.6 billion, compared to 1.8 billion as of year-end of 2023. The increase was driven primarily by the acquisition and the resumption of related indebtedness of four new LNG carriers since the beginning of the year and the refinancing of the LNGC Aristidis I, partly offset by the decrease in the U.S. dollar equivalent of the Euro-denominated bonds issued by CPLP Shipping Holdings. the scheduled principal payments for the period and the early debt repayment relating to three containers sold during the period, as well as the full repayment of the seller's credit withdrew to partly finance the acquisition of the LNG carrier Axios II. For more details relating to these transactions, please refer to our earnings release. Total cash, as of the end of the quarter, was 101.2 million, including restricted cash of 12.9 million, which represents the minimum liquidity requirement under our financing arrangements. On slide 10, we take a look at where we stand on the vessel deliveries, following our agreement to acquire 11 LNG carriers, which closed in December 2023. Since the closing of the agreement, we have taken delivery of five vessels, all of which are committed on term employment. The second quarter of 24, we took delivery of three LNG carriers, the ASOS, which commenced a 10-year time charter with Tokyo Gas, the ACTORAS, which commenced a seven-year bearable charter with Boni Gas Transport, and who also maintained an option to extend by an additional three years, and the Apostolos, which commenced a 10-and-a-half-year charter with Jera, the Japanese utility, who also maintained an option to extend by an additional three years. Turning to slide 11, we summarized the results of the debt optimization exercise we undertook in the second quarter of 24. For two LNG carriers, the Aristos One and the Aristarchus, we agreed to extend the maturity and reduce the financing cost and the amortization from their previous levels. For the LNGC Aristivis One, we refinanced the debt outstanding by entering into a new senior secured loan facility, releasing additional liquidity of 54.8 million, reducing the financing cost and pushing the maturity out by more than three years. Overall, our debt anonymization efforts have resulted in longer amortization profiles, extended maturities, as well as in the reduction of our weighted average margin or floating rate debt to 194 basis points as of June 30th from 236 basis points a year ago. Turning to the next slide, we'll review our container fleet and strategy. As we all know, the partnership has committed to divest from its remaining container vessels. As already discussed, since the closing of the LNG transaction in December 23, we have sold seven container vessels and have released around 180 million of liquidity. Of the remaining eight containers that are part of our fleet, five are debt-free and start to open for rechartering from the first quarter of 25 onwards, while the remaining three have debt and the remaining charter duration of 8.6 years. The current downturn in the container market, boosted by the trade disruption in the Red Sea, provides us with additional optionality as we continue to opportunistically evaluate the potential sale of each asset against its cash flow and residual value, compared also to other opportunities in the LNG and wider gas markets. Today, the gross chartered asset value of our container assets is estimated at approximately 630 to 650 million, implying a net asset value of our container fleet of approximately 330 to 350 million. Let us now turn to slide 13. As a result of our debt optimization efforts and recent container sales, we have improved significantly the debt maturity profile of the partnership, as shown by the blue circles, which signify our debt maturities as they stood at the end of the second half of 2023. Currently, our first material debt refinancing arises in October 2026, with a maturity of 150 million euro bond listed at the Athens Exchange. Now, turning to slide 14 and the acquisition of the 10 gas carriers we announced in June, these vessels are latest generation assets which can trade in the traditional gas business, such as LPG and ammonia, which have strong fundamentals of their own going forward and an attractive supply-demand picture, but at the same time provide us with unique optionality to the emerging trades of energy transition, such as the carriage of liquid CO2 and low-carbon ammonia. We expect that at the initial stages of development of these emerging trades, we will see handy and medium-sized gas carriers service these cargoes, and gradually as the trade expands and the infrastructure develops, we will see also larger vessels coming into play. Turning to slide 15, we review developments in the LNG charter market. Spot rates remain relatively steady from mid-January to the end of May. Since then, there has been a continued improvement as shipping availability for loadings out of the U.S. Gulf in July dwindled, leading to an increase in spot rates. The first week of July, spot rates for two-stroke vessels reached $90,000 per day. So far, fixing activity is well above the fixing activity at the same time in 2022 and 2023, and in line with 2021 fixing levels. Multi-month to one-year periods have firmed up throughout the quarter as players seek to cover winter demand. Term charter rates for one- to three-year periods are currently standing in the region of $85,000 per day. Longer-term charters are still priced at significant premium to shorter-term, as market tightening is expected from 2026 onwards. Global LNG imports continue to be robust across regions, with China maintaining near-seasonal record levels. Notably, imports to China have increased by approximately 24 percent year-on-year. LNG carrier transits by the Suez Canal remain at a minimum. Panama Canal use is also limited, and less than 3% of voyages from the U.S. to Asia are utilizing the Panama Canal. Therefore, voyages are long, and while traded LNG levels are lower than previous years, the long distances have pushed ton miles to historical highs. Naturally, this has increased the fleet utilization from last year's levels, but the early fleet additions have ensured that there is enough tonnage to handle the ton mile. Starting in 2025, LNG capacity additions are expected to accelerate from an average of 13 MTPA during 2020-2024. The capacity additions are projected to average 48 MTPA yearly during 2025-2028, reaching a peak of 70 MTPA in 2026. This accelerated growth underscores the strong demand and strategic importance of LNG. The U.S. and Qatar are said to be the primary drivers of its capacity expansion. Together, they will account for approximately 60% of the total capacity additions between 2025 and 2028, with the U.S. contributing around 40% and Qatar around 20%. Focus remains on the U.S. pause in non-FTA approvals recent judicial developments around this, as this is expected to affect liquefaction and shipping demand towards the end of the decade. More liquefaction project FIDs, both from the U.S. and other regions, mean that more LNG ships will be needed in 2028 onwards to cover demand from new projects and fleet replacement. The LNG fleet has expanded by 10 ships the second quarter of 24, with a total of 20 vessels delivered so far this year, with an order book to fleet ratio of close to 54% of the total fleet. New building prices for LNG carriers remain steady, currently at 260 million per vessel for the basic specification. Shipyard capacity is also constrained with no slots available for new builds in 2026 and limited availability in 2027. Overall, software fundamentals for 24 and seasonal trends have contributed to weaker charter rates, and generally 2024 is expected to be a softer year for LNG carrier earnings. However, the medium to long-term outlook remains positive, with trade volumes set to pick up sharply from 2025 onwards as the next major wave of liquefaction capacity begins to come online. I now turn to the final slide in our presentation, slide 16. You have a number of supporting slides available containing detailed data in our appendix, which we may refer to in the Q&A to follow shortly. However, to conclude, this has been one of the most important quarters in the company's history. The management and staff have worked hard in recent quarters to get us to this exciting position, and I thank them for their hard work. The conversion to C-Corp and the new name reflects the pivot towards gas and the development of an important and large-scale gas transportation growth platform. The new-named company of capital clean energy carriers will be the youngest and yet the largest energy transition gas shipping platform, supported by strong LNG market fundamentals, access to new technologies and opportunities from alternative gas carriers, and yet retaining optionality with the eight vessels remaining in our container fleet. We look forward to marketing our new investment case in the coming months and quarters and engaging with old and new investors. With that, I would like to hand it back to the operator for any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your lines in the question queue. You may press star 2 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. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Liam Burke with B Reilly. Please proceed with your question.