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GasLog Partners LP Common Units representing limited partnership interests
Q1 2023 Earnings Conference Call
4/27/2023
spk00: Good morning. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gas Log Partners first quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. As a reminder, this conference call is being recorded. On today's call are Paolo Inoizzi, Chief Executive Officer, and Achilles Tassouas, Chief Financial Officer. Robert Brindberg from Rosen Company will begin your conference.
spk03: Good morning or good afternoon, and thank you for joining the GasLog Partners first quarter 2023 earnings conference call. For your convenience, this webcast and presentation are available on the investor relations section of our website, www.gaslogmlp.com, where a replay will also be available. If you are participating via webcast, please note that the slide presentation is user-controlled, and we encourage you to advance through the presentation as you are prompted to. Please now turn to slide two of the presentation. Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to our first quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the appendix to the presentation. Paolo will begin today's call with a review of the partnership's first quarter highlights and market update, following which Achilles will walk you through the partnership's financials. With that, I will now turn it over to Paolo Anorzi, Chief CEO of Gaslight Partners.
spk02: Thank you, Rob, and welcome, everyone, to our first quarter conference call. Please turn to slide three for Gaslight Partners' first quarter highlights. I would like to begin by first providing an update on the partnership merger with Gaslok Ltd. As recently announced, the partnership has entered into a merger agreement with Gaslok Ltd. for a takeover price of $8.65 per common unit. Both the conflict committee and the partnership board have unanimously approved and determined, with the assistance of independent legal and finance evaluation, the transaction to be fair and in the best interest of the partnership, and the holders of common units unaffiliated with Gaslug Ltd. We expect the transaction to close in the third quarter of this year. Before continuing, I'd like to note that the transaction is still pending and we will not be taking any questions at the end of this presentation. In terms of company performance, the partnership fleet keeps delivering good results thanks to the actions taken in the strong market of 2022. Our exposure in the spot market in 2023 is marginal, with nearly 86% of days in fixed-term charters. This has protected short-term profitability from the persistent seasonal downturn witnessed in Quarter 1 since rates peaked in November 2022. The increased prevalence of short trips from the U.S. to Europe has impacted Tommel demand, Relats have disrupted both spot and term markets, and the seasonally high European inventories have reduced Europe's immediate need for LNG. We were pleased to receive the Option Renewal Declaration from Shell on the GasLock Geneva and kept taking advantage of a sustained sell-and-purchase market with the completion of the sell-and-leaseback transaction of the GasLock Sydney with new repurchase obligations attached to its five-year bearable charter. This matches well our disciplined capital allocation strategy and continued work towards our stated deleveraging targets. I will now pass on to Achilles, who will present the financial results of the partnership.
spk01: Thank you, Paolo. Turning to slide five and the partnership's financial results for the first quarter of 2023. Revenues for the first quarter were $99 million, a 15.9% increase from the first quarter of 2022. This was primarily due to a net increase in revenues from our term fixtures we entered into in 2022. This revenue increase was partially offset by an increase in revenues due to the off-chartered days of the scheduled dry docking of the Gasloft Shanghai and also the sale of the methane Shirley Elizabeth in the third quarter of 2022, which reduced our ownership days overall. Adjusted EBITDA was 76 million, an increase of approximately 15.4 million from the first quarter of 2022, primarily due to a year-over-year increase in revenues as mentioned earlier, and the decrease in vessel operating expenses, which I will describe in the next slide. Finally, our adjusted earnings were 62 cents per unit overall, Overall, we are pleased with our performance in this quarter as we continue to recharging our fleet at healthy rates with improved visibility on our 2023 cash flows. Turning to slide six and an outlook at our cost base. Operating expenses were decreased by 2.7 million, mostly due to a decrease in crew costs, relatively related to non-recurring costs associated with COVID-19 measures in 2022, as well as a favorable EURUSD exchange rate in the first quarter of 2023 compared to the same period in 2022. There was also a decrease in technical maintenance costs in relation to seasonally lower planned maintenance costs in Q1 2023. Overall, our daily operating expense per vessel were $12,640 per vessel in the first quarter. General and administrative expenses were $5.6 million in the first quarter of 2023, an increase of approximately $0.9 million from the first quarter of 2022. Daily general and administrative expenses increased to $4,482 per vessel per day in the first quarter of 2023, mainly due to transaction costs of 0.8 million incurred in the first quarter of 2023, comprising of legal and other professional fees. Our results were also impacted by an 8.6 million increase in interest expense due to an increase in the base interest rates, LIBOR or SOFO, compared to the first quarter of 2022, irrespective of the meaningful deleveraging achieved during the last 12 months. For 2023, we expect our unit operating expenses to average approximately $13,850 per vessel per day, with actual operating costs being sensitive on the foreign exchange fluctuations. Also, we have three remaining vessels that will undergo scheduled dry dockings in 2023, which will result in minimum 30 of higher revenue days per vessel, as well as a total estimated capex cost of $15.6 million, including costs for balance booster treatment systems, which is likely to increase due to more expensive European yachts elected to perform the dry dockings to match the commercial trading schedule of the respective vessels. Slide 7 illustrates the progress the partnership has made in its preference repurchasing program until today. Although we remain committed to repurchasing preference shares as part of our capital allocation strategy, No buybacks were conducted during the first quarter of 2023 due to the transaction blackout period. Once the blackout period is over, we intend to continue with the repurchase of preference units in the open market. So far, our progress, as outlined in previous quarters, has resulted in projected annualized savings of about $0.11 per unit by reducing preference unit distributions by approximately $5.7 million per annum. As of March 31, 2023, there is approximately 87 million in Series B preference units outstanding, which are redeemable any or all at par since mid-March 2023 at the Partnerships option. Finally, there is approximately 77 million in Series C preference units outstanding, redeemable in March 2024 at our option, as well as approximately 127 million Series A preference units outstanding redeemable in 2027 at our option. Finally, on March 15, 2023, the preference Series B units turned to floating at LIBOR plus a spread of 5.839% per annum, which has resulted in a significant cost increase. The Series B distribution for this three-month period was reset to 10.78% on an annualized basis, compared to the fixed coupon of 8.2% previously, and will reset every three months going forward based on the floating rate. Slide 8 shows the progress we have made towards our leveraged targets, which we first introduced in the third quarter of 2021. We have made good progress on these goals despite the impairment status we took in 2022 in connection with the book values of our steam vessels. During the first quarter of 2023, we repaid $32.1 million of debt and leases on scheduled amortization. In addition, we repaid $87.8 million of debt outstanding in relation to the sale and leaseback of the Gaslok Sydney, with the transaction also releasing approximately 49 million of incremental liquidity. As a result, our gross debt to total capitalization, one of the two leverage targets we have set, has been reduced from 52.7% as of the end of the first quarter of 2022 to 46.5% as of the end of this past quarter. Furthermore, our net debt to trailing 12 months EBITDA has been reduced from 4.3 times to 2.2 times, which is currently below our long-term target. Net debt to EBITDA has, of course, been positively impacted by the partnership's strong performance in the last quarters, as well as the significant increase in the cash and cash equivalents in our balances in relation to the vessel sales and the sale and leasebacks, and still remains available in our balances as of March 31, 2023. It is important to remember that our net debt to EBITDA will fluctuate based on the future operating results and the employment of cash in the execution of our capital allocation strategy. We expect to continue reducing our gross debt to capitalization with the scheduled retirement of approximately $116 million of scheduled debt and leased principal payments in aggregate in the next 12 months, as well as opportunistic preference shares repurchases. Reducing debt balances and repurchasing preference shares will further reduce the partnership's cash flow, all in break-even levels, which remains management's key focus. With that, I will turn it over to Paolo for the market outlook and closing remarks. Thank you, Achilles.
spk02: In slide 10, we focus on the developments in the commodity market. A warm winter and the lower Chinese demand were the saving grace for Europe in the fourth quarter, allowing significant reduction in demand for gas. The same dynamics have persisted in the first quarter of 2023, leading to unexpectedly high inventory levels, despite record low Russian pipeline imports, supported by continuing high flows of energy. Europe is expected to continue relying on energy for the foreseeable future, and we also expect China to come back to the market. The outlook for a new project continues to look fundamentally strong, although persistent delays, mostly to inflationary prices and cost of capital, might be affecting the expected startup of several U.S. projects. This dynamic could prolong the LNG supply deficit beyond 2027. In the next slide, you can see the impact of the dynamics we mentioned before add on the LNG shipping market. Rates peaked early November and have maintained a steady decline since. falling about 90% from peak levels as we enter the seasonally weak market. Although the term market remains relatively strong, it has been affected by this downturn in the spot market and the persistent presence of relets taking multi-year charter deals. In slide 12, we comment on the trend in the new building market. 2022 was a record year for LNG Caddy's orders with 169 confirmed orders and the order book comprising nearly half of the active trading fleets. The delivery schedule we are showing here does not include any tenders that might have been reserved but not yet confirmed. One such tender, which is expected to add to the already bloated order book, is the second Qatar tender. New vessels now being sold for close to $260 million with delivery dates in 2027 or later. Even in this context, about 12% of vessels in the order book remain uncommitted. In slide 13, you can see more details on our spot exposure per vessel for 2023. We are pleased to announce that Shell has declared their option to extend the charter of the Gas of Geneva for five years starting September of this year, adding about $122 million of EBITDA. Currently, our spot exposure stands at about 86% for the remainder of 2023, and our remaining exposure is mostly clustered towards the end of the year. Finally, with regard to the Venice Energy FSRU project, the partnership is waiting news on the FID from Venice Energy. Turning to slide 15, I would like to address the merger transaction in more details. The merger agreement and the transaction contemplated thereby were unanimously approved by the partnership board of directors, including the unanimous approve of the recommendation of the conflict committee and determined to be fair to and in the best interest of the partnership and the holder of common unit unaffiliated with Gaslok Ltd. The transaction remains subject to approval by a majority of the partnership common unit holders and a special meeting to be held in connection with the transaction. and the satisfaction of waiver of certain customary closing conditions. The transaction is expected to close by the third quarter of 2023. Upon completion of the merger, each outstanding common unit other than those common units valid by GasBlock LTD or its affiliate will be converted into the right to receive $5.37 per common unit in cash without interest. In addition, As soon as reasonably practical after receiving the union holder's approval of the merger, the Partnership Board will declare a special distribution of $3.28 per common unit. Please monitor our website over the next several weeks where detailed SEC filing and disclosure will be made regarding the transaction, which will include further information on the closing process and related tax treatments. Thank you, everyone, today for listening and for your continued interest in Gas Flow Partners. Stay safe, and if you have any questions, please contact our investor relationship team.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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