Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Three months and full year ended December 31, 2020
Filing Date: March 17, 2021
Business Overview: The Partnership owns and operates a fleet of six liquefied natural gas (LNG) carriers employed on long-term time charters. As of the reporting date, the fleet operates at 100% utilization with an average remaining contract term of 7.5 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q4 2020 | Q4 2019 | Full Year 2020 | Full Year 2019 |
|---|---|---|---|---|
| Voyage Revenues | $34,435 | $34,317 | $137,165 | $130,901 |
| Net Income | $10,643 | $5,529 | $34,052 | $3,613 |
| Adjusted Net Income | $10,656 | $5,637 | $37,817 | $10,914 |
| Adjusted EBITDA | $24,360 | $23,991 | $96,451 | $90,357 |
| Operating Income | $16,246 | $15,953 | $64,264 | $59,916 |
| Net Cash from Operating Activities | $14,180 | $13,472 | $68,603 | $43,177 |
| Earnings per Common Unit (GAAP) | $0.22 | $0.07 | $0.63 | $(0.22) |
| Adjusted EPS (Non-GAAP) | $0.22 | $0.08 | $0.74 | $(0.02) |
Liquidity and Debt:
- Cash and Restricted Cash: $75.0 million as of December 31, 2020 (includes $50.0 million restricted).
- Outstanding Indebtedness: $615.0 million under a $675.0 million credit facility.
- Revolving Credit Facility: $30.0 million interest-free facility with the Sponsor, fully available until November 2023.
- Revenue Backlog: Approximately $1.1 billion.
Material Changes vs. Prior Period
- Profitability Surge: Net income for Q4 2020 increased 92.7% year-over-year to $10.6 million, driven primarily by a 45.2% reduction in interest and finance costs ($5.7 million vs. $10.4 million) due to lower weighted average interest rates and reduced debt levels.
- Revenue Stability: Voyage revenues remained relatively flat, increasing slightly by 0.3% in Q4 2020 compared to Q4 2019. Average daily hire gross of commissions increased marginally to $62,700 per vessel.
- Cost Control: Vessel operating expenses were stable at $7.1 million for the quarter. Management fees were reduced effective January 1, 2021, following a new master management agreement.
- Full Year Turnaround: The full year 2020 resulted in a Net Income of $34.1 million, a significant improvement from the $3.6 million net income in 2019.
Guidance, Outlook, and Risks
Management Commentary:
- Outlook: Management expects the short-term LNG shipping market to improve in the second half of 2021 driven by seasonal demand, despite current challenges.
- Strategy: The Partnership intends to use cash flow generation to deleverage the balance sheet and reinforce liquidity to build equity value.
- Contract Coverage: As of March 16, 2021, the fleet has 90% time charter coverage for the remainder of 2021 and 83% for 2022. The earliest re-delivery date is Q3 2021.
Risks and Contingencies:
- Market Conditions: Fluctuations in charter rates, vessel values, and supply/demand for LNG capacity.
- Operational Risks: Impact of the COVID-19 outbreak, bunker price volatility, dry-docking costs, and potential vessel breakdowns.
- Regulatory/Financial: Changes in governmental laws, availability of financing, and the expected discontinuance of LIBOR after 2021.
Unusual Items:
- Management Fee Reduction: A new agreement reduced technical management fees by 13% (approx. $417 per vessel per day) effective January 1, 2021.
- ATM Sales: Sold $0.83 million of common units in March 2021 under an At-The-Market program.
Investor Verification Checklist
- Debt Maturity Profile: Verify the specific repayment schedule for the $48.0 million of debt repayable within one year and the terms of the $675 million credit facility.
- LIBOR Transition: Assess the impact of the discontinuance of LIBOR on the Partnership's interest-bearing debt and refinancing costs.
- Contract Renewals: Monitor the re-chartering status of the Arctic Aurora, which is the first vessel scheduled for re-delivery in Q3 2021.
- Non-GAAP Reconciliations: Review Appendix B for the reconciliation of Adjusted EBITDA and Adjusted Net Income to GAAP measures to understand the impact of non-cash items and derivative gains/losses.
- Preferred Unit Distributions: Confirm the sustainability of distributions on Series A and Series B Preferred Units given the current cash flow generation.