GasLog Partners LP

NYSE:GLOP

Earnings Call Transcript 2023-Q1

[Operator]

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 GasLog Partners First Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

On today's call are Paolo Enoizi, Chief Executive Officer; and Achilleas Tasioulas, Chief Financial Officer. Robert Brinberg from Rose & Company will begin your conference.

[Robert Brinberg, IR, Rose & Company]

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 2 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 Achilleas will walk you through the partnership's financials.

With that, I will now turn it over to Paolo Enoizi, CEO, GasLog Partners.

[Paolo Enoizi, Chief Executive Officer]

Thank you, Rob, and welcome, everyone, to our first quarter conference call. Please turn to Slide 3 for GasLog Partner's first quarter highlights. I would like to begin by first providing an update on the Partnership merger with GasLog Ltd. As recently announced, the Partnership has entered into a merger agreement with GasLog Ltd. for the take over 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 are affiliated with GasLog 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 ton-mile demand. Relents 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 GasLog Geneva and kept taking advantage of a sustained sale and purchase market with the completion of the sale and leaseback transaction of the GasLog Sydney with new repurchase application attached to its 5-year bareboat charter. This matches well our disciplined capital allocation strategy and continued work towards our stated deleveraging targets.

I will now pass on to Achilleas, who will present the financial results of the Partnership.

[Achilleas Tasioulas, Chief Financial Officer]

Thank you, Paolo. Turning to Slide 5 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 in 2022. This revenue increase was partially offset by increase in revenues due to the [off charter] days of the scheduled dry-docking of the GasLog Shanghai and also the sale of the Methane Shirley Elisabeth 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 $0.62 per unit. Overall, we are pleased with our performance in this quarter as we continue to rechartering our fleet at healthy rates with improved visibility on our 2023 cash flows.

Turning to Slide 6 and outlook at our cost base. Operating expenses were decreased by $2.7 million, mostly due to a decrease in crew costs, largely related to nonrecurring costs associated with COVID-19 measures in 2022 as well as a favorable USD exchange rate in the first quarter of 2023 compared to the same period in 2022. There is also a decrease in technical maintenance costs in relation to seasonally lower plant maintenance cost in quarter 1, 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 also, 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 3 remaining vessels that will undergo scheduled dry dockings in 2023, which will result in minimum 30 off-hire revenue days per vessel as well as a total estimated CapEx cost of $15.6 million including costs for ballast water treatment systems, which is likely to increase due to more expensive European gas elected to perform the dry dockings to match the commercial trading schedule of the respective vessels.

Slide 7 illustrates the progress the Partnership shares 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 at par since mid-March 2023 as the Partnership's option. Finally, there is approximately $77 million of 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 was -- which has resulted in a significant cost increase. The Series B distribution for the 3-month period was reset to 10.78% on an annualized basis compared to the fixed coupon of 8.2% previously and will be reset every 3 months going forward based on the floating rate.

Slide 8 shows the progress we have made towards our leverage target, which we first introduced in the third quarter of 2021. We have made good progress on these goals despite the impairment charges 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 GasLog Sydney with the transaction also releasing approximately $49 million of incremental liquidity. As a result, our gross debt to total capitalization, 1 of the 2 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 4.3x to 2.2x, 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 quarter as well as the significant increase in the cash and cash equivalents in our balance sheet in relation to the vessel sales and the sale and leasebacks and still remains available in our balance sheet 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 and 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 lease principal payments in aggregate in the next 12 months as well as opportunistic preference share repurchases. Reducing debt balances and repurchasing preference sales will further reduce the partnership's cash flow all in breakeven levels, which remains management's key focus.

With that, I will turn it over to Paolo for the market outlook and closing remarks.

[Paolo Enoizi, Chief Executive Officer]

Thank you, Achilleas. In Slide 10, we focus on the developments in the commodity market. A warm winter and the lower Chinese demand were the saving rate for Europe in the fourth quarter, allowing significant reduction in the demand for gas. The same dynamics that assisted in the first quarter of 2023, leading to unexpectedly high inventory levels despite record low Russian pipeline imports supported by continuing high flows of LNG. Europe is expected to continue relying on LNG for the foreseeable future, and we also expect China to come back to the market.

The outlook for new projects 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 dynamic we mentioned before and on the LNG shipping market. The rates peaked early in November and have maintained a steady decline since, falling about 90% from peak levels as we enter the seasonally weak market. Although shipping market remains relatively strong, it has been affected by this downturn in the spot market and the persistent presence of relents taking multiyear charter deals.

In Slide 12, we comment on the trend in the newbuilding market. 2022 was a record year for LNG carrier orders with 169 confirmed models and the order book comprising nearly half of the active trading fleet. The derivative chart 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 in the second Qatar tender. New vessels now being sold for close to $260 million with delivery days in 2027 or later. Even in this context, about 12% of vessels in the order book remains 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 GasLog Geneva for 5 years starting in 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 transactions contemplated thereby were unanimously approved by the Partnership Board of Directors including the unanimous approved on 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 and affiliated with GasLog Ltd.

The transaction remains subject to approval by a majority of the Partnership common unitholders, 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 unit held by GasLog Ltd. or its affiliates 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 received the unitholders' 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 a detailed SEC filings and disclosure would be made regarding the transaction, which will include further information on the closing process and related tax treatment.

Thank you, everyone, today for listening and for your continued interest in GasLog Partners. Stay safe. And if you have any questions, please contact our Investor Relationship team.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.