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GasLog Partners LP (NYSE:GLOP)
Q3 2021 Earnings Call
Oct 27, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Myra, and I'll be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners Third Quarter 2021 Results Conference Call. [Operator Instructions] On today's call are Paolo Enoizi, Chief Executive Officer; and Achilleas Tasioulas, Chief Financial Officer. Joseph Nelson, Head of Investor Relations will begin your conference.

Joseph Nelson -- Head of Investor Relations

Good morning or good afternoon, and thank you for joining the GasLog Partners LP third quarter 2021 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.

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 measures is included in the appendix to this presentation. Paolo will begin today's call with a review of the partnership's third quarter and outlook for 2022, following which Achilleas will walk you through the partnership's financials. Paolo will then provide an update on the LNG shipping and LNG commodity markets. We will then take questions on the partnership's third quarter.

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

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you, Joe, and welcome everyone. Please turn to Slide 4 for GasLog Partners third quarter highlights. I'm pleased to report strong operational and financial performances under tight backdrop for the LNG shipping market. The fleet performed at approximately 100% availability despite the continued challenges of COVID and the resulting crew change issues.

Our revenues and cash flow improved significantly on a year-on-year basis following four new charter agreements announced in recent months, as well as ongoing cost control efforts. With the purchase of $12 million of our preference units in the open market at a discount to par further supporting the reductions in our fleet cash breakeven rate. The GasLog Shanghai was sold and leased back to China Development Bank Leasing releasing $20 million of incremental liquidity. And finally, we retired another $36 million of debt during the quarter, bringing the total to $91 million during the first nine months of the year.

Turning to Slide 5, and look at how the landscape for LNG shipping has changed over the last 12 months. Looking back at the last year, and the LNG commodity market was expected to have an excess of supply until at least mid-2020, with persistent low prices and regional price differentials. LNG inventories were high around the world. The shipping market was expected to be oversupplied due to a heavy delivery schedule. The term charter market wasn't very active and both terms and spot rates were well below the mid cycle. Today, we are in the completely different market. LNG commodity demand is moving as many regions around the world cope with an energy crisis.

LNG prices and differentials are consequently at record high. Term charter durations and rates are at level not seen in seven years as charters seek security of shipping capacity to meet end user demand. Against this backdrop, we expect the partnership will win vessels to be well positioned to benefit from stronger rates in the coming months.

Turning to Slide 6, which summarizes our operational upside to the strong shipping market. As you can see from the chart on the left, the partnership has a balanced charter portfolio. Our fixed charter coverage shown in dark blue more than covers our fixed expenses to at least 2022. Meanwhile, our open days shown in light grey display a significant leverage to the tight shipping market. We also have one vessel on spot market link contract, which will also benefit from the higher spot rates. On these open days, every $10,000 per day of revenue earned above our operating and overhead expenses will generate an incremental $7 million of EBITDA for the partnership.

Slide 7 shows global gas price differentials and the forecast, supply and demand balance for LNG. The chart on the left display the future market, which presently implies a wider differential between US. exports and Asian import prices to at least 2023. This should ensure high level of liquefaction utilization. On the right, you'll note that the Pacific Basin is expected to have an LNG shortfall of approximately 129 million tonnes in 2022 according to Wood Mackenzie. These two dynamics combined inter-basin gas price and volume differentials should continue to support strong shipping tonne-mile demand.

Slide 8 sets out our 2022 capital allocation plan, focusing on debt repayment and further reductions in the breakeven rates for our fleets. On this slide, we demonstrate how amortizing our debt build balance sheet capacity and equity value using the GasLog Glasgow as an example. All the partnership debt is at vessels level and this debt amortizes at roughly twice the rate of our ships depreciate. As you can see from the left-hand chart, our loan-to-value ratio on the Glasgow declined by over 15% during the three years period from the end of 2020 through to the end of 2023. During the same period, our book equity for the vessel net depreciation, as shown on the right hand chart, is projected to increase by $20 million, which represents a 9% compound annual growth rate in the equity value. As this compelling value creation demonstrates, we believe that prioritizing debt reduction supports the partnership's future growth in equity value.

Slide 9 presents our three-steps approach to unitholder value creations over the medium term. As we've discussed on this in previous calls, our strategy is strengthening the partnership to be financially resilient and support the business through cycle as we've seen in 2020, by strengthening our balance sheets and reducing our breakeven costs. We've given ourselves targets to reduce our net debt to below 4 times our trailing 12 month EBITDA and to have a total debt to capitalization below 40%. In addition, we will continue to reduce our fleet cash breakeven rate, which we accelerate in the third quarter by repurchasing preference units in the open market, as Achilleas will discuss later. It is our view that achieving these targets will be aided greatly by the sustained strong shipping market we expect in the coming quarters. The partnership, in fact, is one of the few remaining US.-listed pure play LNG carrier owner and we are getting stronger and stronger as we will seek to grow and modernize our fleet over time. Lastly, as we execute on the partnership capital allocation strategy of balancing its operational and financial leverage, we enhance unitholder returns and unlock the equity value of our business.

With that, I'll hand over to Achilleas to take you through the partnership Q3 financials.

Achilleas Tasioulas -- Chief Financial Officer

Thank you, Paolo. Turning to Slide 11 and the partnership's financial result for the third quarter. As Paolo mentioned earlier, our financial performance in quarter three 2021 improved significantly from both the second quarter of 2021 as well as quarter three 2020, following the four new charters on attractive terms. More specifically, revenues for the third quarter were $81 million, an 11% improvement from the third quarter of 2020 and 16% improvement over the quarter two 2021. The revenue improvement year-over-year is primarily due to the four new charter agreements mentioned earlier at attractive terms in line with the improvement in the LNG shipping markets and the term business as well as fewer drydocking days.

Adjusted EBITDA was $57 million, an increase of 22% from the third quarter of 2020, while adjusted earnings was $0.34 per unit. The significant improvement in adjusted EBITDA and adjusted EPS were aided by the improved revenue performance, our ongoing cost control initiatives as well as favorable movements in LIBOR, which is reducing our interest expense cost as we also reduced our debt balances. Looking forward, the partnership's charter coverage of 100% in the fourth quarter in 2021 and no drydockings, supporting sequential improvement in our financial performance.

Turning to Slide 12 and a look at our cost base. Our operating expenses for the third quarter averaged $14,406 per vessel per day. Our overhead expenses were $2,388 per vessel per day, a significant improvement over 2020. As we look toward the full year, we expect our unit operating expenses to average for the year, $14,800 per vessel per day, which includes $480 per vessel per day in relation to the drydocking Opex component within the full year 2021. We expect our overhead expenses to average $2,500 per vessel per day in 2021. Lastly, declines in LIBOR as well as lower debt levels have reduced the interest expense on the unhedged portion of our secured vessel debt by $1.6 million in the third quarter of 2021 compared with the third quarter of 2020.

Slide 13 shows the partnership's debt balances and balance sheet metrics, which continue to be robust. Net debt to total capitalization was 48% at the end of the third quarter. The partnership ended the third quarter with $110 million of cash equivalent. After the end of the quarter, we sold and leased back to GasLog Shanghai, which provides -- the GasLog Shanghai, which provided for an incremental $30 million of additional liquidity net of all costs and sale commissions. As Paolo noted earlier, we expect to continue strengthening our balance sheet, beginning with the scheduled retirement of approximately $114 million of debt and operating lease expenses in 2022, which is more than covered by our contracted cash flow over this period. Reducing debt balances will reduce the partnership's cash flow breakeven levels over time, improving further the competitiveness of our fleet.

Slide 14 discusses the partnership's preference unit repurchase program, which supports our capital to reduce our all-in cost base. During the third quarter, we repurchased a total of approximately $12.4 million of our Series B and Series C preference units in the open market at a discount to par. The repurchases reduced preference unit distributions by approximately $1 million on an annual basis. Said differently, our daily preference unit distributions are used by approximately $200 per vessel per day. We expect to continue opportunistically repurchasing preference units in the open market as conditions dictate.

With that, I will turn it over to Paolo to discuss the LNG commodity and LNG shipping markets.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you, Achilleas. Clear and neat as usual. Turning to Slide 16. Poten registered a record 49 term charters greater than six months in quarter three 2021, setting a new annual best for term chartering as a broad range of LNG market participants seek to secure shipping tonnage. Term charter rates are also at level not seen in many years, with Poten quoting one-year time charter rates for TFDE LNG carrier around $100,000 per day. Headline spot rates have inflected strongly in recent weeks, now around $160,000 per day. While it's not unusual for spot rate to move higher ahead of the winter month, spot rates are well ahead of the same period last year and are leading five year high. LNG shipping spot rate this year have benefited from strong growth in the inter-basin trading of LNG.

LNG carrier spot rates have also benefited from persistent Panama Canal congestion, mainly due to growing containership and LNG carrier traffic. In addition, port congestion and drydocking delays, particularly in Asia due to COVID-related closures, restrictions and staffing challenges have played their part in reducing vessel availability this year. Lastly, as we head into the LNG and natural gas inventory drilling season during the Northern Hemisphere winter months, European gas storage levels are presently at 77%, a multi-year low and compared to a five year average of 92%. We expect restocking in Europe and Asia to continue to create high demand for US. LNG, which is positive for the LNG shipping in the coming months. As a result of these fundamental drivers and frictional challenges, we expect the LNG carrier spot market to continue to perform strongly through next winter, as I'll discuss over the next several slides.

Slide 17 presents LNG demand and supply during quarter three 2021. LNG demand increased 8% in the third quarter of 2021 relative to the third quarter of 2020, as shown by the left-hand figure. Continuing a trend in place for much of this year, Asian demand was robust due to a combination of cooling demand and restocking inventories ahead of winter. Latin America demand was also strong due to lower hydroelectric output and a colder than anticipated winter. On the supply side, US. production rose by over 150% year-on-year to 80 million tonnes due to no cargo cancellation, less unplanned downtime and the ramp up in production from the third trains at Freeport, Cameron and Corpus Christi LNG facilities. The two figures on this slide demonstrate the theme that was nearly seen all year. US. supply is going to meet strong demand from Asian buyers. The shipping intensive nature of this trading pattern has propelled tonne-mile growth of 16% to the first nine months of this year, more than twice that of the demand for the commodity itself.

Slide 18 displays the LNG carrier order book and delivery schedule according to Poten. There are 130 LNG carriers in the order book at present or about 20% of on the water fleet. Over 86% of the order book has secured multi-year employment. In addition, the number of scheduled deliveries in 2022 are less than half those delivered in 2021 and just three unfixed -- to deliver next year. Due to increased demand for containership and other merchant vessels, delivery time for a newbuilding order today are approximately three years, making the earliest delivery time in the second half of 2024. Competition for berth slots of the yards as well as cost inflation have also pushed prices to approximately $210 million, up about 10% over the last year.

Slide 19 illustrates our view of shipping supply and demand through the middle of 2023. Demand is partly based on the number of vessels needed to export 1 million tonnes of LNG per annum, expressed as the shipping multiplier. This analysis does not assume any vessel scrapping, although there are currently 19 vessels at about 3% of the global fleet over the age of 30 and we've seen already nine vessels scrapped so far this year. Although there is a relatively strong addition to global shipping capacity, we anticipate that the growth of inter-basin trading and likely accelerate the recycling of all the tonnage will more than offset the scheduled deliveries over the next couple of years, projecting a relatively tight LNG shipping market through 2022 and 2023.

Slide 20 shows the LNG importing and exporting infrastructure currently under construction. As we are seeing in energy prices across the world today, this infrastructure is critical to meeting the world's demand for LNG and more specifically cleaner and more environmental-friendly energy. The present day demand 125 million tonnes per annum of LNG production under construction, 62 million tons of which is in North America. The right-hand chart shows 160 million tonnes per annum of regasification capacity being built today, 70% of which is in Asia. This again highlights the shipping intensive nature of this growth.

Turning to Slide 21 and in summary. So I've been in this seat as CEO of the partnership for the past three months and I have to say, I'm really excited to see the strength of our business, of our people on-board and assured delivering these great results. I'm very confident that we are building a stronger and stronger business, which in fact is one of the few remaining US.-listed pure-play LNG carriers owner operator. Our scaled fleet of 15 LNG carrier is backed by a leading commercial and operational platform and provide the foundation and exposure to the rapidly growing shipping market. We do anticipate continued growth, demand for LNG and therefore for LNG shipping for many years to come as the complement to renewables as the world transitions to a carbon free future.

Our balanced charter portfolio not only covers our financial obligation, but leaves significant upside to the tight shipping market expected over the near and medium term. We've set out a clear capital allocation strategy, which focuses on strengthening our balance sheet and lower breakeven rate for the fleet and creates tangible value for our unitholders. In this light, we will continue to opportunistically repurchase our preference units in the open market. Finally, we want to strengthen the partnership to the best shape to be an industry consolidator over time as opportunities for growth and for fleet modernization would appear.

With that, I'd like to open the call for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have our first question comes from the line of Randy Giveans from Jefferies. Your line is open. Please go ahead.

Randy Giveans -- Jefferies -- Analyst

Howdy gentlemen? How's it going?

Achilleas Tasioulas -- Chief Financial Officer

Hi, Randy.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Hi, Randy. We are doing good.

Randy Giveans -- Jefferies -- Analyst

Hey. So I guess, first, congrats on the recent sale leaseback here. Are there other opportunities for similar refinancings and is the plan to possibly continue repurchasing preferreds using the incremental liquidity?

Achilleas Tasioulas -- Chief Financial Officer

Yes, Randy. I can take the first questions first. I mean, we saw an opportunity in the market, we -- they were trading below par, so we bought back approximately $12.5 million. This is approximately $1 million saving on the total distribution of the prefs. So we will be opportunistic in the future and we may take the opportunity just to remind you here that the first callable period for our series of prefs is with Series B in March 2023, where we can buy them at par, buyback them at par. So we will be opportunistic. We think that it provides us a good mix to meet our overall targets of deleveraging and reducing our all-in cost breakevens.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

And Randy on the sale and leaseback, the sale and leaseback with CDBL gave us $20 million of incremental liquidity and we are going to use that to strengthen our balance sheet. The other thing that the sale and leaseback has done is, one, it has left us with an important upside to what we believe is going to be a tight and strong market, but also it has given us the opportunity to develop our ties in China, which we believe is a really good market, not only from financial instruments but also and most importantly for operations and chartering. So we have received a growing interest from the market following this transaction and what we are doing now is we are evaluating what are the further interest in this and we'll see if the conditions and the transactions fit the strategy we just discussed.

Randy Giveans -- Jefferies -- Analyst

Okay. Makes sense. And then second question from me. Slide 6, it shows you have a couple of vessels coming available for the second quarter of 2022, is it too early to look at employment for those and is the plan to secure another one year or so of time charter or do those have some options on them that will likely be extended?

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

I think, to -- a couple of points on what you mentioned. There are some options and the options are the one that you list here in the lighter blue and we see actually the market is developing in an interesting way. You've seen the summer time, several charters have taken coverage [Technical Issues] had a winter to assure vessel availability in what is actually proving to be a very interesting market. So we do see the opportunity for the steam vessels and TFDE is available to basically follow the same type of coverage that we have this year. The -- actually the input, we are seeing from the market is that there is continued interest. I think, it's a little bit too early to say that we will fix it in the next few weeks, but the positive note is that enquiries keep coming even for 2022, so we're very positive about this

Randy Giveans -- Jefferies -- Analyst

Got it. Okay. Because there are like containerships, they are forward fixing six, nine months in advance, so I don't know if that was spreading over to LNG yet or if we're still kind of waiting for those forward fixings to come, but appreciate the color there. Thanks again.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you.

Achilleas Tasioulas -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Greg Lewis from BTIG. Your line is open. Please go ahead.

Greg Lewis -- BTIG -- Analyst

Yes, hi. Thank you. Thank you, and good afternoon, good morning everybody. I guess, I had a question around the fleet on the water. I mean, clearly, you did -- the company did a great job of laying out the order book for '22 and '23 in terms of what is fixed and what is not. Just looking at your slide deck -- in '22 -- on the fleet page, it looks like you have for TFDEs rolling off in '22 and then another three in 2023. Do you have any sense for -- and I guess, you don't own any MEGGY OR XP but do we have any sense for what the contract -- what percentage of the fleet on the water is rolling off in '22 and -- whatever any kind of color you can provide? I doubt you have specific numbers off the top of your head, but is there any kind of way to parcel out how much spot availability or open days are there in the fleet in 2022?

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Hi, Greg. It's an interesting question, the one you asked. I think, maybe a couple of ways to try and answer your question. The first one is if you -- if we believe that our fleet is somewhat representative to the way the spot and short to medium term chartering actually happens is, there is an important level of unpredictability, which is expressed by the option that several charters have on the existing tonnage, that one is difficult to predict for our vessels and for everyone else's. On the other hand, we've seen a growing amount of spot fixtures from last -- in the past few years. I don't have the slide in front of me, but I think, what we can say is, if that is representative of a continuous amount of open vessels, I would say that we see that in the past five years, we have seen an important increase of, let's say, open vessels to the spot market. What is that -- what that represents in terms of percentage of fleets? I don't have the number at hand, but it's a growing trend for sure.

Achilleas Tasioulas -- Chief Financial Officer

Just to give a bit more color, Greg. I mean, we have seen a significant increase of the term business lately, which is very encouraging. I mean, the market is so good today that we are -- in 2021 that we have the biggest number of newbuildings hitting the water and the market has been able to absorb not only the newbuldings but the existing and older tonnage. So the mari is quite strong and the trend of newbuildings hitting the water in the following year is reducing. So you combine that with the fact that ordering a newbuilding now will not -- you will not take delivery before the -- even end of 2024. The market seems to be -- in terms of vessel supply, so also another aspect is the LNG prices and we have advised that it is at the high levels now. Only the issues that we have today is that the shipping market will remain tight.

Greg Lewis -- BTIG -- Analyst

Okay, great. And then just I had a follow-up on the sale and leaseback. I think, I read it right and that there was no purchase option for GasLog to buy the vessel back in the outyears. Kind of curious is -- what was -- what were the give and takes around deciding to either have an option or not have an option to buy that vessel back?

Achilleas Tasioulas -- Chief Financial Officer

I guess, this is practically what -- this is a new type of transaction. It is -- it combines the classic elements of the sale and leaseback. We will operate the vessel for five years, so we keep the benefits of the market upside in the next five years, which we believe that it will be a very good market. At the same time, we also have see an opportunity to deal with our portfolio of assets and there is no indeed option to buy it back. So -- but at the same time, as Paolo mentioned, it gives us an opportunity to open a door to doing business with China.

Greg Lewis -- BTIG -- Analyst

Okay.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Yeah, I mean in the end it was -- as you mentioned, I mean, you mentioned given day, we believe in the end, the combination of share price, the bareboat back rates, the tenure and the overall purchase price was best suited for the condition that included no option back. So it was really, let's say the evaluation of the business case itself.

Greg Lewis -- BTIG -- Analyst

Perfect. All right. Thank you all for the time. Have a great day.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you.

Achilleas Tasioulas -- Chief Financial Officer

Thanks.

Operator

[Operator Instructions] Your next question comes from the line of Christian from Webber [Phonetic] Research. Your line is open. Please go ahead.

Christian Wetherbee -- Citi -- Analyst

Hey. Good afternoon, Achilleas and Paolo. How are you?

Achilleas Tasioulas -- Chief Financial Officer

Hi.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Hi, Christian. Good afternoon.

Christian Wetherbee -- Citi -- Analyst

I am -- I wanted to just kind of ask on the preferred units buyback, is that part of the 25 million share repurchased and if so, how much is left after this?

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Christian, can you repeat that again, because the line was not so clear?

Christian Wetherbee -- Citi -- Analyst

Sorry. Can you hear me now?

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Yes. Let's go ahead.

Christian Wetherbee -- Citi -- Analyst

Yes, I was wondering if the preferred units buyback was part of the 25 million share repurchase program?

Achilleas Tasioulas -- Chief Financial Officer

We have a repurchase program to buy back prefs. So it is active. It has been active for a while and we are using it opportunistically.

Christian Wetherbee -- Citi -- Analyst

No, sorry. I was asking, is the preferred part of that or is this a separate? Just trying to get a sense of the allocation remaining for you guys to buyback additional units?

Achilleas Tasioulas -- Chief Financial Officer

It is settled.

Christian Wetherbee -- Citi -- Analyst

Okay. How much is available for the preferred?

Achilleas Tasioulas -- Chief Financial Officer

Listen, it is available. We still have availability but it is a matter of pricing and opportunities. So I wouldn't stick to how much is available. In any case, I mean, our -- series of prefs becomes callable lease in early 2023, where we can buy them back at par. So we don't really have any other to work. So we are opportunistic. We have low availability, further availability on the plan.

Christian Wetherbee -- Citi -- Analyst

Okay. That's excited. Thanks, that's helpful. And maybe onto the options on contracts that are coming due in later 2022. I just wanted to get a sense or understand a little bit better who decides to whether or not you guys extend? Is it just completely the charter or is this the discussion among both of you guys?

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

For the contract in 2022, the options are on charter adoptions.

Christian Wetherbee -- Citi -- Analyst

Okay. All right. That's it from me. Thank you.

Achilleas Tasioulas -- Chief Financial Officer

Thank you.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you, Christian.

Operator

And we have no further questions at this time. Mr. Enoizi, you may continue.

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Thank you. So thanks everyone for listening and for your continued interest in the partners. We do appreciate it. We look forward to speaking to you next quarter and as traveling become safer perhaps meeting many of you in person soon. In the meantime, stay safe and if you have any questions, please contact the Investor Relationship team. Goodbye for now.

Operator

[Operator Closing Remarks]

Duration: 34 minutes

Call participants:

Joseph Nelson -- Head of Investor Relations

Paolo Enoizi -- Chief Executive Officer and Chief Operating Officer

Achilleas Tasioulas -- Chief Financial Officer

Randy Giveans -- Jefferies -- Analyst

Greg Lewis -- BTIG -- Analyst

Christian Wetherbee -- Citi -- Analyst

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