GasLog Partners LP
Q3 2016 Earnings Call Transcript

Published: 27 Oct 2016

[Operator:]

Good morning. My name is Nova and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners' Third Quarter 2016 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. As a reminder, this conference call is being recorded. Today's speakers are Andy Orekar, Chief Executive Officer; Simon Crowe, Chief Financial Officer; and to commence the call, Samaan Aziz, Investor Relations Manager. Mr. Aziz, you may begin your conference.

[Samaan Aziz:]

Good morning, thank you for joining GasLog Partners' third quarter 2016 earnings conference call. For your convenience, this call, webcast and presentation are available on the Investor Relations section of our website, www.gaslogmlp.com, where a replay will also be available. 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 third quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the appendix of this presentation. I will now hand it over to Andy Orekar, CEO of GasLog Partners.

[Andy Orekar:]

Thank you, Samaan. Good morning and thanks to everyone for joining GasLog Partners' third quarter earnings call. I'll begin today's call with our announced dropdown acquisition of GasLog Seattle and our highlights for the quarter. Our CFO, Simon Crowe, will follow with a review of our financial performance and strong balance sheets, and I'll conclude with the review of our growing dropdown pipeline and LNG market outlook. Following our presentation, we'd be very happy to take any questions you may have. This morning GasLog Partners and GasLog Limited announced an agreement for the partnership to acquire a 100% of the GasLog Seattle for an aggregate purchase price of $189 million, which includes $1 million from positive net working capital to be transferred with the vessel. We expect to finance the acquisition with cash-on-hand, included proceeds from our recent equity offerings and the assumption of GasLog Seattle's existing debt. The acquisition is expected to close in the fourth quarter of 2016. GasLog Seattle was a modern LNG carrier with PSVE propulsion and is chartered to shell through December of 2020. It will be the youngest vessel in the partnership suite and is expected to generate $20 million in EBITDA and $20 million in distributable cash flow per annum. This vessel acquisition extends our average remaining charter duration and it's consistent with GasLog Partners track record of delivering a 10% to 15% compounded annual growth and cash distribution since our IPO. Following closing of the acquisition we expect to recommend approximately 5% annualized increase in our cash distribution. Turning now to Slide 3, you can see our highlights for the quarter. In August we successfully completed a common equity offer raising total net proceeds of $54 million for the Partnership. This offering provides us with significant liquidity to fund today's announced acquisition. For the third quarter we generated $21.4 million of distributable cash flow, an increase of 8% from the second quarter and we declared a cash distribution of $0.478 per unit or just over a $1.91 on an annualized basis which represents a 1.25 times coverage ratio. This quarter we continue our strategy of utilizing excess cash flow to reduce debt resulting in over $14 million of debt repayment. Over the past 12 months we have reduced our total borrowings by nearly 10%, all while maintaining an attractive distribution payout and conservative coverage. Lastly on the commercial side, our GP sponsor GasLog Limited recently announced the seven-year time target to account [ph] and just last week announced the second seven-year time charter with Centrica in the UK. These new term charter increase GasLog Partners drop down pipeline for 13 vessels following today's announced acquisition. With that introduction I will now turn it over to Simon to take you through our financials.

[Simon Crowe:]

Thanks Andy and good morning and afternoon to everyone. I am pleased to report another strong quarter for the Partnership. Turning now to Slide 4 we have quarter-n-quarter increases in revenue, EBITDA and distributable cash flow primarily due to last quarters scheduled dry docking of the Methane Rita Andrea. Our consistent quarter-over-quarter cash flows reflect GasLog Partners stable multi-year charters. We were very pleased with the underlying performance of the business and we have consistently performed as per expectations. Turning now to Slide 5, you can see that we continue to outperform our 1.125 times target coverage ratio. Our coverage ratio for the third quarter was 1.25 times and our accumulative coverage ratio since IPO is 1.23 times which represents approximately $30 million of cash in excess of our distribution. This gives us additional flexibility when we consider options for growth and increasing the underlying distribution of the unit. Turning now to Slide 6, since Q3 2015 we have repaid approximately $70 million in debt. Total debt to total book cap was 51% down from 56% in Q3 2015. As with our health coverage ratio our debt repayment and conservative debt to cap ratio gives us flexibility in our structure to finance growth. I am very pleased we have been able to accelerate the debt reduction and improvement in the debt to cap ratios. Turning now to Slide 7, you can see at the end of the third quarter GasLog Partners had approximately $140 million of total available liquidity further enhancing our capital flexibility. This increase over last quarter was due to our recent equity offering and 4 week payment of our revolving credit facility. Net debt was 4 times EBITDA down from 4.6 times last quarter. So in summary it has been another strong quarter for the Partnership and I am delighted that we have announced to say the intention to dropdown the GasLog Seattle on the associated increase in distribution. We continue to enhance our balance sheet and significantly enhance our profile and we are well positioned to finance near term growth and are committed to our target of 10% to 15% CAGR for the unit distributions. And with that I will turn it back to Andy.

[Andy Orekar:]

Thank you, Simon. Turning now to Slide 8, in recent months our GP sponsors have two seven-year charters with Total and Centrica which commended in mid-2018 and second half of 2019 respectively. Both agree to the rates of our existing long term charters highlighting the resilience to term rate despite volatility in the spot market and continued customer demand for LNG shipping for multi-year contract. Most importantly for GasLog Partners these two additional charters could significantly increase our drop down pipeline, diversify our potential customer base and provide further visibility for the expected strong rate environment in 2018 and beyond. Now turning to Slide 9 and more details on our pipeline, following today's announcement GasLog Partners has the right to acquire 13 modern LNG carriers, each with a full charter ranging from 2020 to 2029 representing approximately $270 million in total annual EBITDA. So there are significant and visible growth still ahead of us and our GP sponsor has continued to contract with highly credit worthy energy super majors and utility rather than the LNG project level limiting any project specific exposure. Our extensive pipeline has differentiated GasLog Partners risk-reward profile as it will now provide the possibility of cash flow disruption at the MLP level. Turning to the Slide 10 and an update on the market for LNG supply. This slide reviews the liquefaction project that have already taken final investment decision and are scheduled to come online by 2020 totaling nearly 150 million tons of production capacity. In several recent announcement highlighting continued LNG supply growth which we believe is increased demand for LNG shipping. I will share a specific announcement started [indiscernible] facility. Oregon [ph] project restarted production at train one, engineered announcements potential completion at Sabine [ph] train two. In addition, BP announced final investment decision to expand its Tango [ph] project which will add a third train to the existing facility. And year-to-date we have seen significant increase of energy increase of LNG demand from China, India and a growing number of importers utilizing as such per use [ph]. We believe that the new LNG volume will create demand and additional shifts over and above those available in the market today. Turning to Slide 11 and I will review the outlook. On the left-hand panel here, you can see that we have grown distributable cash flow per unit at a 14% compounded annual growth rate since our IPO. This strong growth and cash flow is due to our consistent operating performance with virtually 100% uptime across our fleet, successful dropdown in acquisitions like the Seattle we have announced today, OpEx efficiency and meaningful debt repayment. Such growth and cash flow generation has enabled us to increase our distribution pay at a compound annual rate of 11% all of it came with our coverage ratio well in excess of our 1.125 times target. Turning to slide 12 and concluding with the look ahead, despite challenging MLP market conditions since 2014, GasLog Partners has consistently met the 10% to 15% distribution target we first provided at IPO. With stable cash load, a significant pipeline of multi-year charters and today's announcement of GasLog Seattle, we continued to target this growth rate and expect to increase our distribution in the near term. GasLog Ltd. commitment to the Partnership, providing us an extensive drop-down pipeline to maintain and grow our cash flow and we have a strong balance sheet, with substantial liquidity. Longer term continued progress and new liquefaction lines support positive demand outlook for LNG shipping and our GP sponsors recently added a new term charters at attractive daily rate. To sum up GasLog Partners continues to meet our current growth target and we remain well positioned to deliver predictable and growing cash distribution to our unit holders. That brings u to the end of today's prepared remarks. Operator could you now please open the call for any questions?

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Noah Parquette of JP Morgan.

[Noah Parquette:]

Thanks. Can you talk a little bit, a little more detail about the funding of the new vessel? How much debt will go with the ship? I think there is a $126 million before the re-financing, that's still what will happen?

[Andy Orekar:]

Sure, this is Andy. It will be about $122 million expected to be remaining on the vessel at closing and the balance will be funded with cash we have on balance sheet which as of third quarter is a $110 million.

[Noah Parquette:]

Okay. Can you talk a little bit about the matrix you guys use to arrive at that price of $189 million?

[Andy Orekar:]

Sure, I think you probably would imagine, we look at a multitude of valuation approaches from the kind of cash flow to multiple data to a more asset based analysis and in our view that value accurately captures a fair of market value of the ship and they would love to perform very accretive drop down, something we are quite pleased with. We are also sensitive to trading in the market today, recognizing there has been a great deal of volatility and the vessel we feel is quite consistent with our market valuation today for Partners unit that we recently raised so it kind of squared the circle on a number from.

[Noah Parquette:]

Okay. Can you talk a little bit about, it's a little further out, but how you use the junior portion of the facility that you have? With that currently due in 2018, is that a permanent part of your capital structure, what are your plans for that right now?

[Andy Orekar:]

It is a good question, this is the junior portion GLOP and GLOG actually and we are actively looking at ways to re-finance that. You know we have been very busy in the last 6-12 months, essentially doing the entire re-financing of our capital structure and GasLog so we remain very confident that there are opportunities to either pay that down through drop downs or other mechanisms or re-finance it in different capital markets as and when they become available to us. So there is a multitude of options available to us either the pay down to re-finance and we are working on all of those.

[Noah Parquette:]

Okay. Thanks guys.

[Operator:]

Our next question comes from the line of Chris Wetherbee of Citi.

[Unidentified Analyst:]

Hi Guys, This is Prashant here in for Citi, good morning. My first question Centrica and Total charters at the GP, definitely your appetite for long term charters as in 2018 and 2019. Just wanted to get a sense of internally how you guys are thinking about long term market. Are you more constructive on the long term charter market and the recovery than you were maybe say at the beginning of the year? Maybe sort of framing any change in your view, it might be too early to talk about this but perhaps on any charter list for the Shanghai and Santiago the first vessel to come off the charter would be re-chartered? Is that also more constructive now or bolstered by the GP charters?

[Andy Orekar:]

Sure Prashant, Andy here. To take your comments in order I think you have heard us say a lot as per the consistency in the long term rate markets and I think these two recent charters very much prove that out and I think that the disclosure there are very consistent with our existing term business and in fact some of the returns might be even better given the good work our team has done on the OpEx side. So I think we feel very good about the term market but I am looking for that change in the past 6 or 9 months. So I think that continues to liquefaction you are seeing hitting the water and the steady increase in shipping demand that works expecting through the end of the decade. I wouldn't expect to have a different view on the Shanghai or other ships that are coming due in 2018 and we can expect that to be a strong period in the market. And there's really no change to that view but I stay pretty much consistent with the view we have for the last 9 months or a year or so.

[Unidentified Analyst:]

All right, good, that's really helpful color. I guess then the next question would be one drop sandwich is great to see this year, seeing in an OP working away as opposed to in a tough market, how do we think about drop down pace in 2017 given the double digit pipeline of the vessels? And more specifically are there any sort of the share price obviously is one part of the equity rate but there also may be a leverage target or trigger that you are thinking down to before you connect the vessel, any thoughts or color on how to think about these would be great?

[Andy Orekar:]

I think that the really sort of the guiding light you should have on that is our 10% to 15% compound annual growth target that we have been very consistent with. Obviously today is drop down, we believe [ph] can give us 5% of that growth without over burdening the balance sheet in any way. We don't have any hard leverage targets Prashant. I think, you know shipping well and the depth that these assets can carry. We have purposely kept depth lower the MLP in order to appeal to I think a broader range of equity investors who look at other businesses who frankly shouldn't carry as much debt as perhaps ships could but we have purposely kept that debt-to-cap in terms of 50% to 60% range. I wouldn't be exceeding that anytime soon but for the right opportunity we can certainly consider it. But we really want to keep the balance sheet appropriate for an MLP file equity investment and not over burden it with debt. We think we have equity access to continue meeting that 10% to 15% growth target and feel we demonstrated that in the third quarter and so hope to continue to have that access and we certainly have the access to deliver it.

[Unidentified Analyst:]

Excellent. Thank you very much for the time.

[Andy Orekar:]

Thank you.

[Operator:]

Our next question comes from the line Michael Webber of Wells Fargo.

[Unidentified Analyst:]

This is Hillary [ph] in for Michael. Thanks for taking my questions. I have a couple of questions. Just going back to Noah's question on Seattle, just wanted to find out the maturity date of the debt was. I guess is this part of the re-finance? The $1 billion re-finance with maturity date 2021?

[Simon Crowe:]

Yes it is Hillary, Simon speaking.

[Unidentified Analyst:]

Okay perfect and then I just wanted to get your longer term view of the LNG market. I know there are a lot of capacity coming online until 2020. But just wanted to get your thoughts beyond that point because looks like we just only have 1 FID taking place this year and I think people are I guess thinking that the market will be tighter beyond that point, just wanted to get your view.

[Andy Orekar:]

The question what do we expect in terms of liquefaction beyond 2020?

[Unidentified Analyst:]

Yes, I know a lot of people talk about what the capacity will look like from now until 2020 but just wanted to get a longer term view of the market.

[Andy Orekar:]

Yes, we are unfortunately sensitive to that because we have got very long life assets. I think that the bullishness that we have felt and continue to feel is the build out of these projects that have already taken FID and what you are seeing from a number then Hillary, especially some of this is advantage products around the world, is actually more production than what people were expecting. I think of the Exxon project in Papua New Guinea which is continuing to set new levels of export beyond what I think most can ever imagine. So I think we are going to see a continued build out of additional trains at sites that have advantaged economic, and maybe you won't have as many brand new project to scale, I think you will see certainly a lot of these FONG projects get going but in terms of the land based there may not be many but you see may see more trains and more production from the existing side. So I think we are really just getting closed to seeing what the impact of all this gas arriving is and again some of the existing plants are producing far more than any of us ever dreamed. So it's off to a good start but we are really focused from here to the end of the decade really for now.

[Unidentified Analyst:]

Okay, sounds good. Just one more question. Obviously you are able to tap the equity market and it does seem like the equity capital market access is improving but we have mentioned previously about doing minority interest acquisition? Is that something you still would be considering?

[Andy Orekar:]

We look at all forms and types of acquisitions, drop downs for parties to deliver for unit holders and so I think our preference of course is to drop down 100% of that pool and deliver as much growth as we can at a reasonable cost, we are very much open minded to partial interest or other structures if they have the right economics for us.

[Unidentified Analyst:]

Okay. Great, that's it for me. Thank you so much.

[Andy Orekar:]

Thanks Hillary.

[Operator:]

Our next question comes from the line of Fotis Giannakoulis of Morgan Stanley. Your line is open.

[Fotis Giannakoulis:]

Yes, hi guys. Thank you for the opportunity. Andrew I want to ask you about how they give you the market in 2018, you have 3 vessels that have come off contract of that time and there is also one re-financing that some junior loan comes to, if you have started any discussions with Shell for potential extension of the 3 DSP vessels and if there is any discussion with your lenders going on about the extension of the maturity of this loan?

[Andy Orekar:]

Sure, why don't I take the first part of your question and I will have Simon come at the second and I think in the first it is a bit early to be specifically discussing the charter options on the 3 2018 ships we have but as you can probably imagine Fotis, given our book of business with Shell. We are in conversations with them on a weekly basis, number of commercial front for additional opportunities and so that's something we continue to evaluate again and our view is that the market from 2018 forward clearly and I think be feared by many, and I think clearly feels like it will tighten and that is the key question when it will go from a balanced market to a tight market but I think some of the news you seen around, for example that -- the tender in the Egypt for 96 cargos delivering in '17 and '18 of several billion dollars' worth of gas, that the demand of the supply texture if -- that we've shown for you in our presentation there, again that all points to a very strong market in 18, but it is a bit early for us to the come out of those shifts [ph], but Simon you want to comment on the question on the debt?

[Simon Crowe:]

Sure, I mean first is what I was looking forward as you know, we look a multiple market included unsecured options, we're looking at paid down options and resale auctions, so yes, we talk with our lenders all the time as you know, we're very proactive, we got a good track record over the last four years at being extremely proactive on all of our debt maturity, so yes is the answer we're being very proactive.

[Fotis Giannakoulis:]

But am – just for modeling purposes and I know that-- but he's-- the best speculation of this point, are you considering on putting on an amortize piece of a loan, some high yield put a place that, or shall we start modeling some amortization on this amount?

[Simon Crowe:]

Yes, but it's some modeling purposes that -- that's one avenue that we're looking at, absolutely that is one option in amortizing piece to replace that, yes.

[Fotis Giannakoulis:]

Okay, thank you Simon, what I understood from last question about your dividend distribution growth target of 10% to 15%, this has not changed since your ideal, and we all realize that the market is a little bit different than it was a few years ago, the yields for shipping a piece are higher, and the shipping market is not as robust as it was. I am wondering how are you thinking of maintaining this the same distribution growth, especially after you moved to the next IDR [ph] target, if there are any thoughts potentially re-setting your IDR [ph] in order to maintain the same dividend growth, if otherwise is not possible.

[Andy Orekar:]

Sure, and you probably know for the benefit of others on the call we've just crept into the 25% here. Of our distribution that have quite a good ways to go until the 50% peers, so I think we're with the opportunities set in front of us, where we've been able to finance and we still feel quite confident about the 10% to 15% growth rate, for the next couple years. I think clearly a number of NOP's have been very thoughtful about their IBR Tiers and worked with GP's there, to create different structures that were required for them in a parenthesis time, that's not a drag on our growth and that is something that we've of course, we pay attention to and follow, but it is really not a strategic issue forth at the moment.

[Fotis Giannakoulis:]

Thanks Andrew, one last question, if you can help us understand, how you think of the order of your drop down targets, the vessel that you announced that does not have the longest remaining contract but does not have shortest remaining contract either. Why did you choose this particular vessel, and how so we think that falling drop down, I'm asking mostly to understand, you have one thing vessel on the parallel level while other 13 vessel dropped, why didn't you choose that particular one, and if that has to do anything with the potential FSRU converse of -- you have talked about in the past and also if you can give us an update about your FSRU new plans.

[Andy Orekar:]

Sure, that's a few questions in there, I think in the first this is why we did the analog [ph] -- as you say, in our opinion that's very attractive charter with more than four years of life remaining, and as I mentioned I think in previous discussions, it also brought a clear requirement and as we dropped this vessel down, we are extending our average charter duration, and that's what this vessel does. As you mentioned we do have -- we have nine vessels if we close the acquisition that's planned, and that would include four TFE [ph] vessels, and five propulsion. I think the last two drops down and then seen propulsion, so it's really just again a bit more balanced as if we -- and it's not like the right sort of window in time. For us there's not a rigid plan of which craft will drop down , I think it's really based on capital we can raise and the cost and value that all of the time and what it can deliver in terms of distribution growth. But again, I think always having that views and if we're going to be adding vessel to the partnership, we ought to be increasing in the average firm period in terms of charters. In terms of opportunities of FSRU, you're correct in that we're seeing several attractive opportunities for both conversion, new building and some other more bespoke real opportunity, I really -- this is what I call for the partnership, I'll let Paul Wolgan [ph] next week comment more on that in the commercial side but I want to say it's something we're very excited about and we have fully expect to be part of the partnership squeeze at a point in time in the future.

[Fotis Giannakoulis:]

Thank you very much for you time and congratulation for the good quarter.

[Operator:]

Our next question comes from a line of [indiscernible] of UVF.

[Unidentified Analyst:]

Hi Andy, how are you?

[Andy Orekar:]

Good.

[Unidentified Analyst:]

Good. So two just really quick ones for me, on the distribution increase, potential increase a little higher than we expected just wondering how much of that was really just on the creation of the deal maybe how much you're going to start I guess going back into that covered ratios in that elevated year.

[Andy Orekar:]

Thanks, I think what we say is the five[ph] percentage is really on the deal merit, so it's not going to dilute the coverage ratio as I hope it have and equal better coverage ratio next quarter with the accretion. So we really think we've been foreign excess on our target of 1.125 and we feel that been proven in this market, will probably come a time when running on our targeted is what our investors are really want us to do, and I'm sure will be made aware of that, but I think being erring on the side of prudence and building and deliver that growth to us feels like the right combination.

[Unidentified Analyst:]

Yes, okay that make sense. And then just want to add this time around you made this decision to pre-raise the equity had any drop down announcement and I guess I'm wondering going forward is that is that a preferred way to do things or did you see an opportunity this time around, try to get a sense of maybe future capital and how you think about them.

[Andy Orekar:]

Sure, will that the division was really an opportunistic raised that was driven on the back of a lot of reverse increase it received from holders who -- despite the previous equity guilt's [ph] we've done, we were still not liquid enough for them to fill meaningful position. That was really decision we took on the back of that. I wouldn't -- there's anyone half I think they're sort of all available to us, in terms of future sources of equity. And different flavors of equity and so that work at the time for what we thought the economic would be of the transaction like today, certainly wouldn't rule out repeating it but I don't think there's any one half, we hope there will be several available to choose from.

[Unidentified Analyst:]

Got it, I appreciate the color, thanks guys.

[Andy Orekar:]

Thanks.

[Operator:]

[Operator Instructions] Our next question comes from a line of [indiscernible].

[Unidentified Analyst:]

Thanks, operator. Great quarter, guys. Most of the questions of pretty much have been answered but I guess one looking at kind of shorter term market trends, it seems that the rate start to pick up back in August kind of a flat line of the last month or two here, but with that have you seen a decrease in the number of idle vessels or vessels available in the next 30 days, and then secondly what about utilization, is that number increased recently.

[Andy Orekar:]

Sure, Hi Randy. I think there's been about modest decrease in some of the spot volumes in that as you might imagine as eased up utilizations ever so slightly. Rates; I wouldn't say rates really come down that they've traded in that $30,000 to $40,000 range in the past several weeks but now I think we're somewhere in the middle of that number. And I think we're expecting as we head into the winter season here at the end of the year, I think we're expecting to see more activity. So there has been sort of a modest decline in utilizations but not something that we're usually concerned about.

[Samaan Aziz:]

Yes, just add to that Andy, obviously Sabine parts was down for maintenance, so that did have an impact on the spot market. It's just worth noting that and that's now back online, so we're expecting things to improve.

[Unidentified Analyst:]

Okay. And then last question on the cash balances, is there a minimum cash balance amount? I am assuming after the $57 million or so Seattle your cash will come down to mid-40s so is there a minimum cash balance that you are comfortable keeping?

[Simon Crowe:]

Yes, your math is right where we expect it to be pro forma for Seattle. We have run since our inception anywhere between $20 million to $25 million now plus equity, we have a $110 million. I think in our mind something around that historical low we have before is probably prudent. I would point out that we have now repaid our revolving in full so that's another $30 million in equity available to us at any time. So there's not a huge degree of science but I think our sort of historical pattern of the cash balance flexing is probably for your instruction.

[Unidentified Analyst:]

All right, that's it for me. Thanks again.

[Simon Crowe:]

Thank you.

[Operator:]

And I am showing no further question in the queue. I would like to turn the call back to Mr. Andy Orekar for final comments.

[Andy Orekar:]

Well again, thank you ladies and gentlemen for joining us today and your continued interest GasLog Partners and we sincerely appreciate it and look forward to speaking to you again next quarter. Thank you very much.

[Simon Crowe:]

Thank you very much.

[Operator:]

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.