GasLog Partners LP
Q2 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Jamie Buckland:]

Thanks very much. Good morning and thank you for joining us the GasLog Partners Second Quarter 2014 results call. As a reminder, this call webcast and presentation we’re using are available on the Investor Relations section of our website www.gaslogmlp.com where a replay is also available. As shown on page 2 of the presentation, many of our remarks many contain forward-looking statements. Let me refer you to our Q2 results press release and our recent prospectus filed with the SEC where you will find factors that could cause actual results to differ materially from those forward-looking statements. In addition, some of the remarks contain non-GAAP financial measures as defined by the SEC and the reconciliation of these is attached and annexed to the presentation. If we now turn to Slide 3, the overview of GasLog Partners, I will hand over to Andy Orekar, GasLog Partners’ Chief Executive.

[Andy Orekar:]

Thanks, Jamie. Good morning and thank you everyone for joining us for GasLog Partners second quarter earnings call, our first set of results as a publicly traded partnership. On today’s call, we’re joined by Simon Crowe, our Chief Financial Officer. I’ll provide a recap of our investment highlights and growth outlook and Simon will follow with a review of our quarterly financials. I’ll conclude with a brief outlook for the partnership and after that we’d be happy to take any questions you may have. On Slide 3, I would like to quickly review who we are and how we’re structured for those who may be new to the GasLog Partners story given our recent IPO. As you can see on the slide, our common units were listed on the New York Stock Exchange in May under the ticker GLOP. We currently have a market cap of approximately $700 million with 48.2% of our common units owned by the public and insiders and the remainder owned by around GasLog Limited. As many of you know, GasLog Limited is a leading independent owner, operator and manager of LNG carriers who went public in April 2012 under the ticker GLOG. GasLog Limited owns 49.8% of the partnership units of GasLog Partners, the 2% general partner interest and all of incentive distribution rights or IDRs. At the bottom of the slide, you can see three vessels comprising GasLog Partners’ wholly owned initial fleet, the GasLog Shanghai, GasLog Santiago, and GasLog Sydney, each of which have a capacity of 155,000 cubic meters and delivered in 2013. Turning now to Slide 4 of the presentation, I’d like to recap and reinforce the key messages we gave to the market when we publicly launched the partnership in May. First, we continue to believe that this is a very exciting industry, as natural gas liquefaction capacity is expected to increase significantly with large projects coming online in Australia, the U.S., East Africa and Canada. The LNG shipping sector will be a major benefactor of this increased activity, as demand for LNG carriers is expected to be considerably higher than the current on the water fleet. Shipping is a critical segment of the global LNG value chain and we expect both GasLog Partners and GasLog Limited to benefit from this period of liquefaction capacity growth. Secondly, we offer a highly secure cash flow profile as all of our fleet operates under long-term contracts to BG Group, one of the leading global players in the LNG industry with A credit ratings. Our contracts also offer operating expense escalation provisions and staggered maturities. With GasLog Limited as our sponsor, we have the backing of a leading LNG shipping company with the first class in-house technical and operational platform. In addition, this relationship provides us a significant and visible pipeline of growth, given our right of first refusal to acquire 12 option vessels currently owned by GasLog Limited, all of which are under contract for five years or more with leading industry players. Finally, we actively seek strategic and accretive acquisition to grow our business and drive long-term cash distribution growth for our unit holders. As we communicated during the IPO process, drop-downs from GasLog Limited and other acquisition opportunities are critical to our growth strategy. Our team is in ongoing dialogue around such transaction and we look forward to updating the market in due course when we have a specific transaction to announce. As discussed at the IPO, we are highly confident of delivering 10% to 15% annualized growth in LP distributions over the next several years. Turning now to Slide 5, we can see the different lengths of contract in place on each vessel at GasLog Limited and GasLog Partners. As of June 30, the average length of a contracts on GasLog Partners vessel is 4.1 years and if the option periods on those contracts are exercised that number increases to 12 years on average per vessel. In terms of the option vessels currently held at GasLog Limited all of these have contracts of between 5 and 10 years which makes them eligible for drop-down into the MLP as part of the omnibus agreement between the two companies. Eight of the option vessels are currently on the water with the other four delivering in 2016, giving us a highly visible pipeline growth. If we now turn to Slide 6, you can see the exiting MLP fleet, the 12 option vessels as well as the 10 additional vessels owned and ordered at GasLog Limited on the right-hand panel. These 10 vessels may also become eligible for drop-down over time. GasLog Limited exercised four options this year for vessels to deliver in 2017 which will further increase the size of the MLP pipeline of long-term charters placed against them. As previously mentioned, GasLog Limited is obligated to offer GasLog Partners any LNG shared or owned with contracts of five years or more. Turning now to Slide 7, from an operational standpoint, I've been very pleased with the performance of the business year-to-date. For our three MLP vessels, there has been 100% utilization on all of the ships since taking delivery in 2013 without a single day of off-hire. Many of you will have heard GasLog Limited talk extensively about safety and for GasLog Partners it also remains a number one priority. Early this month, GasLog Limited achieved 10 million man-hours without a lost time incident which we are extremely proud of and now we are all focused on getting to the next 10 million. We also have a take-the-lead initiative across the GasLog family which encourages all companies both offshore and onshore to prioritize safety companywide. So in summary, we have reliable ships which have been operating well on 2014 and our personnel across both companies are intensely focused on operational excellence. We believe this is crucial in delivering stable cash flow for our unit holders going forward. In addition, we are actively taking measures where possible to reduce the variability of GasLog Partners cash flow, including hedging the majority of our interest-rate exposure. With that, I will now turn over to Simon to take you through the financial highlights of the quarter.

[Simon Crowe:]

Thank you, Andy. Good morning and good afternoon, everyone. I have been very pleased with the progress that we've made since we launched GasLog Partners in New York almost three months ago. I'm delighted today to report on our first quarter results which are very much in line with the forecast we set out at the time of the IPO. This reflects well on the time and effort we spent preparing to launch the company. And we’ve been very pleased with the market reaction so far and the ongoing interest in the company. I will now take you through the financial highlights for the quarter and provide some commentary on 2014 as a whole, before handing back to Andy for the summary. Please now turn to Slide 8 and the highlights of the GasLog Partners Q2 results. We priced the IPO at top end of the $19 to $21 range on the evening of May 6 before listing the new units on the New York Stock Exchange on the following day. The IPO then formally closed on the May 12. We issued 9.66 million units raising approximately $203 million. For this quarter the distribution of approximately $0.20 has been pro-rated for the period from when the IPO closed up until the end of the quarter June 30. Gross up to the fourth full quarter, the distribution would be $0.375 or the equivalent of $1.50 for the full-year which is very much in line with the minimum quarterly distribution guidance that we gave at the time of the IPO. In total we will distribute a pro-rated cash distribution of $4.1 million. EBITDA and adjusted EBITDA are $15.8 million, a very similar for the quarter, as there was very little impact from foreign exchange gains or losses. Similarly EBITDA and adjusted EBITDA for the first six months of the year was approximately $32.1 million. Now turning to Slide 9. You can see that today’s results are very much in line with the 12 month forecast that we set out in the IP expected documents. It is worth noting that all numbers in the P&L are for the full three months ending June 30 2014 and unlike the cash distributions shown in the presentation, have not been pro-rated for the first – for the time that the MLP has been a publicly listed entity. Revenue for the quarter was $21 million and $42 million for the six months ending June 30. Both revenue and EBITDA numbers are in line or slightly ahead of our IPO guidance. On the balance sheet, I will just touch on a couple of the key numbers here. The vessels as the book value of the three ships in the MLP fleet, cash has increased over the last six months, following the receipt of $35 million of proceeds from the GasLog Partners IPO in May, resulting in an increase in total assets over the period. The decrease in loans over the six months is largely due to the pay down of debt on the three vessels at the time of the IPO. As many of you know, the typical leverage at GasLog Limited on one of our ships is about 70% loan-to-value, whereas at the MLP, when we drop vessels down, we would typically look to de-lever to near at the 50% level. $83 million of IPO proceeds were used to pay down debt as the ships dropped into the MLP. Turning to Slide 10, we can see cash available for distribution, adjusted EBITDA here of $8.1 million, the same figure you saw on the previous slide, pro-rated for the period from May 12 to June 30. After deductions for cash interest, dry-docking and replacement reserves, cash available for distribution is $4.7 million. Distributable cash flow of $4.1 million equates to a per unit cash distribution of approximately $0.20 for the pro-rated period, or $0.375 when gross up to the full year. This gave the coverage ratio of 1.13 times which is in line with what we communicate at the time of the IPO road show back in May. In conclusion, I am very pleased with the quarter and we remain on track to deliver the full cost set out at the time of the IPO. In the short to medium-term, we continue to be very well positioned to grow the partnership and distributions per unit overtime. And with that, I’ll now hand back to Andy to take you through the summary slide.

[Andy Orekar:]

Thanks, Simon. Please turn to Slide 11. To conclude, we believe the fundamentals of the LNG industry and the LNG shipping sub-sector are very robust with a significant increase in the liquefaction capacity and vessel demand expected in the coming years. GasLog Partners has delivered a strong first-quarter performance as a publicly traded partnership and I'm very pleased to announce our initial cash distribution all of which is in line with our guidance at the time of IPO. Finally, we’re very well-positioned to grow this cash distribution. We have the fair market value options to acquire 12 vessels from GasLog Limited many of which are on the water today and therefore already attractive acquisition target. In terms of financial capacity, our moderate debt levels and strong common unit trading performance give us significant flexibility to finance acquisitions and drive 10% to 15% annualized distribution growth for our common unit holders. That brings us to end of the presentation. Operator, could you please open the call for any questions?

[Operator:]

Thank you (Operator Instructions) Our first question will come from Jon Chappell with Evercore. Please go ahead, sir.

[Jon Chappell:]

Good morning, guys.

[Andy Orekar:]

Hi Jon.

[Jon Chappell:]

So not much new to talk, everything is pretty much straight down, fairly, just two quick questions for you. First, I recall on the IPO road show there was talk about potentially doing the first drop-down in an all cash or debt type function. Obviously the units have traded incredibly well. Is there change to the thought process about one, financing and then two, timing of drop-downs given the performance of the units?

[Andy Orekar:]

Jon, it’s Andy. I think, clearly we want to be very mindful of our balance sheet and the flexibility we have both today and going forward given how much of our strategy is based on the drop-down pipeline. So I think we’ll look to see what our options are at the time of that first drop-down and if the financing is available to us, in either both markets, we would proceed accordingly. I think clearly the equity has traded well, we’re very pleased with the performance where we have very strong access to the debt markets as well. So I think it'll be a moment in time discussion when we are ready for that first drop-down.

[Jon Chappell:]

Make sense. And then also along the same lines, obviously you have a very strong currency right now. Are there any other obviously huge pipeline of GasLog drop-downs but have you been approached by anyone else regarding potential consolidation in the industry through third-party acquisitions?

[Andy Orekar:]

Well, as you say we’re clearly in an interesting time in the industry. I think our strategy will include acquisitions outside the drop-down pipeline but those are much harder to control, the timing of it you know. So I guess I would say we’re pursuing both types of activities in parallel with an ability to certainly pursue the drop-downs with a more visible schedule to completion than we can with external parties. But both are important to us, and we’re looking at both of them all the time.

[Simon Crowe:]

And Jon, on the second of that, Simon here, I think maintaining that flexibility and funding sources, that the units have traded incredibly well, we’re very mindful of the need of the unit holders, and as Andy said, I think we’re very open to opportunities as and when they come, they come up, we clearly have a very well-defined pipeline growth. But we’re also very open to other third party opportunities. I think ultimately we’re very committed to this 10%, 15% growth in distribution, that's really what’s driving us forward and making us got focused on that going forward.

[Jon Chappell:]

Great. Okay, everything else pretty straightforward and transparent. Thanks for your time Andy and Simon.

[Simon Crowe:]

Thank you, Jon.

[Andy Orekar:]

Thank you.

[Operator:]

(Operator Instructions) We will now move to Christian Wetherbee with Citi.

[Seth Lowry:]

Good morning. This is Seth in for Chris. Congrats on the quarter. I concur it’s very straight away quarter to report. So I just have a couple general questions for you. If I could follow-up on the last question for the third party acquisition opportunity. Would that potentially be straightaway second-hand purchases or are you able to approach top end sellers in the market for potential sale-leasebacks without having a prior relationship? Just try to figure out if that has motivated sellers in the market and in what form those third-party acquisitions could potentially come in?

[Simon Crowe:]

Seth, good morning. It’s Simon here. We – as with GasLog Limited and the family of GasLog, remain very open to consolidation opportunities in the LNG market, whether they be sale leaseback, third party smaller players wishing to sell their assets, we clearly have – very fortunate to have currency into the both companies to transact on those, if they make with return criteria, the key areas of return criteria, beating and exceeding those criteria, beating the cost of capital, as you would expect, we don’t want to do deals for the sake of doing deals. GasLog Partners is relatively new, it’s just finding its way, the pipeline of growth is there from the parent. And we’re exploring and having conversations there when appropriate. But we want to do the right for the deals and deploy our capital in the right way, at the right time. As we’re ready to talk about anything meaningful we will obviously come to the market. My personal view is this -- this market is – there are opportunities – there will be opportunities for consolidation, but predicting that timing is very difficult. These things are often event driven and driven by things that’s out of one’s control. So the key is to focus on – to find growth pipeline and deliver on the 10% to 15%, but we remain acutely aware and open to dialogue and conversations and following lead which we do across the GasLog family of companies and remain open for business if you like.

[Andy Orekar:]

What I would add to that is that, there are certain types of assets that are of course more logical for GasLog Partners given our focus on LNG carriers under long-term contract. So there is -- when the two companies look at different opportunities, there is some that logically or more applicable to GasLog Limited and others that, that gets the partnerships more narrowly defined strategy which we strongly believe in. So it’s a bit of both but again it’s in addition to the drop-down fleet which we do believe this is highly attractive and visible as we just took you through.

[Operator:]

(Operator Instructions)

[Simon Crowe:]

Okay. I don’t think we have any more questions, Andy, do we?

[Operator:]

We will now take a question from Gregory Lewis with Credit Suisse.

[Gregory Lewis:]

I just had one quick question on the swap, on the 3 million charge on the swap. Was that all unrealized or is there a part of that is a realized charge on part that is unrealized?

[Simon Crowe:]

Yeah, on the swap, the 3 million, yes there is a part that is realized, we obviously hedged to the higher rate than the current interest rate. So the part of that – about $1 million of that’s realized, and then the rest is as you say unrealized. So there is a cost – real cost to us. But again our philosophy is to hedge and to fix our interest rate. We believe they are at all-time lows, so that’ the philosophy that we follow.

[Seth Lowry:]

Sure, that makes sense. That’s all I had.

[Simon Crowe:]

Thank you.

[Operator:]

(Operator Instructions)

[Simon Crowe:]

Okay, I don’t think we have any more questions. We have one more coming.

[Operator:]

We will now take question Luise (ph) with Credit Suisse. Please go ahead

[Unidentified Analyst:]

Yeah, thank you, good morning gentlemen. I just had one quick question on the swop on the 3 million charge on the swap, was that all unrealized or is there part of that, that is realized change in part that is unrealized.

[Simon Crowe:]

Yeah, on the swap is 3 million, yes it is profit that’s realized or if you hedge to the higher rate than the current interest rate, so the part of that I think about million dollars that’s realized and maybe rest is as you say unrealized. So there is a cost to real cost to – again I’ll fill up these to hedge and to fix our interest rate, so we believe that in on time it lays and that’s what the philosophy we follow.

[Unidentified Analyst:]

Okay, perfect, thank you.

[Simon Crowe:]

Thank you.

[Operator:]

(Operator Instructions) We have no further questions at this point.

[Simon Crowe:]

Okay. I think with that, we will call this conference to a close.

[Andy Orekar:]

Thank you very much for all for joining our first ever call as a publicly traded partnership and we look forward to speaking with you again next quarter.

[Simon Crowe:]

Thanks guys.