Hoegh LNG Partners LP (HMLP) Q1 2021 Earnings Call Transcript

Image source: The Motley Fool.

Hoegh LNG Partners LP (HMLP)
Q1 2021 Earnings Call
May 27, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Hoegh LNG Partners Q1 2021 Conference Call. [Operator Instructions]

At this time, I'd like to turn the conference call over to Mr. Stohle, CEO of Hoegh LNG. Please go ahead.

Sveinung J. S. Stohle -- Chief Executive Officer

Thank you, Jamie. Good morning, ladies and gentlemen, and welcome to Hoegh LNG Partners earnings call for the first quarter of 2021. For your convenience, this webcast and presentation is available on our website. With me today, I have Mr. Havard Furu, the CFO of the Partnership.

So turning to Page 2, in today's presentation, I will take you through the quarter, and then hand over the word to Mr. Furu, who will take you through the financials. Then I will present a market update and the summary. You will have the opportunity to ask questions to both of us at the end of the presentation. Turning to Page 3. Before we start, please take a note of the forward-looking statements and also the glossary on Page 4.

Turning to Page 5 and the highlights. I would like to start with some comments relating to the COVID-19 pandemic. As of today, the Partnership has not been materially impacted by the pandemic. The Hoegh LNG Group has taken steps to mitigate risks from COVID-19 and ensure the health and safety of our crews and staff, which is our highest priority. This includes developing mitigating actions for crew rotations, and I'm happy to say that safe crew changes are now being done at an acceptable frequency for both officers and ratings at all the vessels. Thanks to the hard work of our people onboard the vessels and onshore, the fleet is operating as expected despite the pandemic.

All charter parties remain in full force and effect and revenues are being collected in accordance with contractual terms. I am therefore happy to report that all units in the fleet had 100% availability in the quarter. This resulted in total revenues of $34.8 million and a segment EBITDA of $34.5 million in the quarter. Based on a distribution of $0.44 per common unit, this resulted in a solid coverage ratio of 1.14 in the quarter.

Turning to Page 6, where we address the take private initiative at the parent level. On 8th of March this year, Leif Hoegh & Co. Ltd., the company in which the Hoegh family holds their shares in the parent company and funds managed by Morgan Stanley Infrastructure Partners, launched an offer to acquire all outstanding shares in the parent, not already controlled by Leif Hoegh & Co. by way of Amalgamation. This transaction was subsequently approved by the shareholders and the bondholders in the parent and closed in the beginning of this month, leading to the parent not being wholly owned by Leif Hoegh & Co. and funds managed by Morgan Stanley Infrastructure Partners. The main consequence for the partnership is that some provisions of the omnibus agreement entered into in connection with the IPO terminated by their terms. The most important changes are that the parent can now acquire own and operate vessels on long-term contracts, the Partnership can now acquire own and operate the vessels on short-term contracts and that the parent is no longer obliged to offer any vessels on long-term contracts to the Partnership. Furthermore, Hoegh LNG is allowed to compete with HMLP. The parent though has indicated that it remains focused on ways to further enhance the partnership between Hoegh LNG and HMLP and remains open to the opportunity to offer vessels to HMLP if market conditions warrant.

Turning to Page 7. We are showing the overview of the Partnership's fleet of modern assets, where there are no changes since the previous quarter. The Partnership has more than eight years average remaining contract length in this portfolio.

With that, I would like to hand the word over to Mr. Furu, who will take us through the financials.

Havard Furu -- Chief Financial Officer

Thank you, Sveinung, and good morning, everyone.

Turning to Page 9, we have the key figures for the quarters showing an operating performance, which was slightly weaker than in the same quarter of 2020 with a segment EBITDA of $34.5 million in the quarter compared to $36.1 million in the first quarter of 2020. The operating results led to distributable cash flow of $17.1 million, which was about $1 million less than in the same quarter of 2020. The coverage ratio was 1.14 times and that is a decline from 1.2 times in the first quarter of 2020. I'd like to thank all of our seafarers and onshore staff, enabling the Partnership to continue to operate all of its assets without interruptions during these unprecedented times.

Turning to Page 10, we are showing the development in key measures over time. And as you can see from the graphs, the operating performance remains relatively stable. The only exception is the second quarter of 2019, which was impacted by the drydocking and maintenance of the Hoegh Gallant. Hoegh Grace is the next vessel due for periodic survey and is commenced in the first quarter of 2021 and is expected to be completed during the second quarter. However, this is carried out afloat and is not expected to cause significant downtime or fire. I would further like to highlight the stability in distributions from the Partnership through the pandemic.

Moving on to Page 11, here we are showing the income statement in more detail. Total revenues of $34.8 million in the quarter was about $1.9 million less than in the same period in 2020, mainly due to reduced time charter revenue for the Hoegh Gallant under its new charter. Vessel operating expenses was $6.2 million in the quarter, or up by $0.7 million from the same period in 2020. The increase is driven by higher operating expenses for the PGN FSRU Lampung and the Hoegh Grace as well as less need for spare parts and lower use of external services in 2020.

Equity in earnings of joint ventures for the quarter was $11.1 million, an increase from a loss of $10 million for the same period in 2020. Unrealized gains and losses on derivative instruments significantly impacted the equity in earnings of joint ventures for the first quarter of 2021 and 2020, respectively. Excluding these derivative items, the equity in earnings from joint ventures would have been $3.4 million this quarter, an increase from $1.7 million in the same period 2020. Total financial expense of $6.2 million in the quarter is down by $0.8 million from the same quarter 2020, mainly due to lower interest expense as debt is amortized.

Turning to Page 12, the balance sheet has not changed much since the year-end 2020, with total liabilities in equities standing at just below $1 billion at the end of the quarter. The commercial tranche of PGN FSRU Lampung's debt facility is maturing in the fourth quarter of this year. And the export tranche can also be called if the commercial tranche is not refinanced. Also one of the debt facilities in the joint ventures mature in the same quarter. To address the liquidity needs, the Partnership has commenced this refinancing process and is at an advanced stage to completing the refinancing of the Lampung facility. The loan documentation has been finalized and is now subject to satisfaction of closing conditions before drawdown. For the joint venture, the refinancing is in the planning stage.

I'll now hand it back to Mr. Stohle to take us through the remaining sections of the presentation.

Sveinung J. S. Stohle -- Chief Executive Officer

Thank you, Havard. So turning to Page 14 and the LNG market looked in -- at the total market. So Global LNG trade rose with about 1.2% year-on-year in the first quarter. Asia keeps being the region with the highest growth in LNG import volumes. And the first quarter of 2021 is the quarter with the highest volume of imported LNG in history. China had a strong year-on-year growth of 14.4% in the first quarter, mainly due to the fact that in the same quarter last year, of course, the Chinese economy was affected by COVID.

Turning to Page 15, we have two graphs illustrating the expected development in the global LNG markets from now until 2025. The graph on the left shows the expected growth in LNG imports globally. And once again, you can see most of the growth is expected to be in the Asian region, excluding the legacy markets of Japan, South Korea and Taiwan. The countries accounting for around three quarters of the expected import growth are all either existing or potential markets for FSRU import terminals, mainly China, India, Pakistan, and Thailand. The total market growth in the period 2020 to 2025 is expected to be according to this forecast about 23%. On the supply side, the incremental volume will for the most part come from Europe and the Americas, more specifically the U.S. and Russia.

Turning to Page 16, which gives an overview of the expected development in floating regasification terminal projects, and also when these are expected to come on-stream versus the assumed FSRU fleet import capacity illustrated by the green-dashed line. The dark blue line -- blue dashed line, sorry, represents all announced floating regas projects, but some of this have a low probability of materializing. They are not all included in the forward projections. As you can see, the current capacity surplus in the FSRU market is expected to be reduced. And an important point to make is that FSRU would be committed to projects several months or even years before the start date of the project, meaning that the market balance and -- can balance and become tight at an earlier point in time than what can we see on this graph.

With that, I would like to turn to Page 18 for a summary, where I would like to highlight the following. No material impact from the COVID-19 pandemic to date; 100% availability of the fleet, resulting in stable operating performance, and a solid coverage ratio in the quarter; and finally as just explained, very strong market fundamentals, both in the short term and in the long term.

With that, we will now open for questions from the audience. Yeah, handing over to the Operator.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Chris Wetherbee from Citigroup. Please go ahead with your question.

James -- Citigroup -- Analyst

Hey, guys. Good morning. This is James on for Chris. Just wanting to basically ask perhaps sort of like the current market environment. Definitely seems like there's a bid up there for assets from pools of private capital. Just wanted to understand if you, basically, were seeing a bid for your particular assets and sort of like what you were sort of appetite for a sale, we're just kind of wanting to go through, or just understand your thinking around that, and also what you were seeing.

Sveinung J. S. Stohle -- Chief Executive Officer

I was wondering, I mean, you have two questions. The line was a bit blur. Can you please repeat?

James -- Citigroup -- Analyst

Yes. There seems to be a bid for LNG assets out there with that out term. Have you actually been receiving any inbound or interest for your assets in particular? And what are your thoughts around potentially selling to an incoming bid? What would your thinking around that be in terms of reservations or would it be something you would actively pursue?

Sveinung J. S. Stohle -- Chief Executive Officer

Okay. So, let me take the last one first. I mean, speaking on behalf of the Partnership, looking at the remaining contract portfolio we have, I doubt very much that we would see numbers that would justify selling any of those assets. As for contracts -- sorry, as for assets without contracts, we have had some indications. But I think that, as I just explained our view of the market certainly is such that we believe that the market is coming back into balance in the surplus of FSRU available is in the process of disappearing, as I explained a few minutes ago. And therefore, we believe that there will be and there are ample availability of commercial contracts that will make the assets certainly much more valuable with the contractor selling them without the contractor acting in the LNGC market. So even if we've had indications for potential purchase that we have, but that has always been in connection with a specific project, not the pure sale as such. Does that answer your question?

James -- Citigroup -- Analyst

Yes, it does. And it is helpful to understand that. But also sort of along the same lines, you mentioned -- you have spoken about the improving the environment. Could you also touch on the prospects you're seeing for around the Gallant and like essentially what your sort of expectations for it would be sort of, let's call it, like 12 months, 18 months out from now?

Sveinung J. S. Stohle -- Chief Executive Officer

Right. So on that, obviously, Gallant is the basis for at least two ongoing, call it, projects or bids that we are actively pursuing. Those two are both for longer-term contracts. Obviously, they are not term yet, but we are marketing the Gallant together with the three other FSRUs that we currently have operating in the carrier market. So, well, we should never say never until it's confirm, but we believe that there's very good prospects to have that on a longer term contract over a, call it, next one to two years.

James -- Citigroup -- Analyst

Got it. And sort of things don't materialize the way you would think with the potential sale that potentially makes sense to you, or is that something that doesn't necessarily align with how you think about the Company and that assets?

Sveinung J. S. Stohle -- Chief Executive Officer

No. I mean, obviously, I guess, anything is for sale at the right price, but we do believe that the value of the assets is much, much higher than what you can obtain from a pure sale if you get a contract on it. And really at the moment actually the LNGC market is of course not on the level that we would like to see, but actually a lot better than it was only a short while ago. So we think that it's with the model that we have and we can charge out in the LNGC market, while we develop long-term effort and new contracts. At the moment, we don't really see any reason to change that.

James -- Citigroup -- Analyst

Understood. All right. I'll hop back in the queue. Bye.

Sveinung J. S. Stohle -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Liam Burke from B. Riley FBR. Please go ahead with your question.

Liam Burke -- B. Riley FBR -- Analyst

Yes. Thank you. How are you today?

Sveinung J. S. Stohle -- Chief Executive Officer

Very good. Thank you.

Liam Burke -- B. Riley FBR -- Analyst

Could we go -- when I look at the acquisition of Hoegh LNG and historically, you've been able to grow through the dropdown arrangement? How do you -- does this arrangement change your look at possibly buying assets outside the old sponsor MLP relationship?

Sveinung J. S. Stohle -- Chief Executive Officer

Right. That's a very good question. Clearly the -- with this change, that opens the door for the Partnership to acquire basically assets from also other parties, so that for the Partnership obviously it's an important change.

Liam Burke -- B. Riley FBR -- Analyst

Would you look at that as an opportunity or be able to go outside the traditional dropdown avenue?

Sveinung J. S. Stohle -- Chief Executive Officer

Well, I think it's both, right, because as we have referred to in the statement the parent still holds the door open for potential dropdowns if the conditions are right for both parties. So that is still a potential avenue for potential growth.

Liam Burke -- B. Riley FBR -- Analyst

Great. And quick question on the progress you're making on the refinancing of the Neptune. I know that's in conjunction with your JV partner, but could we get a little more detail on that?

Sveinung J. S. Stohle -- Chief Executive Officer

Yes. Please go ahead [Indecipherable].

Havard Furu -- Chief Financial Officer

Yeah. I think I can say that we have an active dialogue with the existing vendors on that refinancing for both vessels. So it's Neptune and Cape Ann. As you might know the Cape Ann facility matures six months later than the Neptune. So we are pursuing to refinance both of them at the same time. So we're working on that, it's too early to discuss and reveal details around that. But it's an active dialogue ongoing.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you very much.

Sveinung J. S. Stohle -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And ladies and gentlemen, at this time, we've reached the end of today's question-and-answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Sveinung J. S. Stohle -- Chief Executive Officer

Yes. Thank you, Jamie. I would like to thank everybody for dialing in and participating in the call and also for the questions. So thank you very much. And we close from here.

Operator

[Operator Closing Remarks]

Duration: 23 minutes

Call participants:

Sveinung J. S. Stohle -- Chief Executive Officer

Havard Furu -- Chief Financial Officer

James -- Citigroup -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

More HMLP analysis

All earnings call transcripts