Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (NYSE: TGP)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter ended September 30, 2020
Date of Report: November 12, 2020
Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet consists of 47 LNG carriers and 30 LPG/multi-gas carriers, with ownership interests ranging from 20% to 100%. The Partnership also holds a 30% interest in an LNG regasification terminal in Bahrain.
Key Financial Metrics
| Metric | Q3 2020 | Q2 2020 | Q3 2019 |
|---|---|---|---|
| GAAP Net Income (Attributable to partners/preferred) | $40.3 million | $44.9 million | $47.4 million |
| GAAP Net Income per Common Unit | $0.38 | $0.46 | $0.51 |
| Adjusted Net Income (Non-GAAP) | $58.9 million | $62.6 million | $50.5 million |
| Adjusted Net Income per Common Unit | $0.59 | $0.67 | $0.55 |
| Total Adjusted EBITDA (Non-GAAP) | $186.9 million | $192.3 million | $180.2 million |
| Distributable Cash Flow (DCF) | $79.2 million | $83.2 million | $70.9 million |
| Liquidity (Cash + Undrawn Credit) | $430.8 million | $306.3 million | N/A |
Material Changes vs. Prior Periods
Quarter-over-Quarter (Q3 2020 vs. Q2 2020)
- Decrease in Earnings: Both GAAP and Adjusted Net Income declined primarily due to a higher-than-normal number of scheduled drydockings and increased repair/maintenance expenses.
- Charter Rates: Lower earnings resulted from the redeployment of three 52% owned LNG carriers at lower charter rates (one was rechartered at a higher rate in October 2020).
- Offsets: Decreases were partially offset by lower net interest expense and reduced general and administrative expenses.
- Debt Reduction: Total net debt decreased by nearly $95 million (8% annualized), and net interest expense dropped by over $6 million.
Year-over-Year (Q3 2020 vs. Q3 2019)
- Positive Drivers: Earnings were boosted by the delivery of three 50% owned LNG newbuildings in late 2019 and the commencement of terminal use payments for the Bahrain LNG Terminal.
- Operational Efficiency: Fewer off-hire days and lower net interest expense contributed to improved results.
- Negative Drivers: Lower earnings from the sale of non-core vessels and reduced charter rates on three 52% owned carriers offset some gains.
- Accounting Impact: GAAP net income was negatively impacted by unrealized credit loss provisions related to the adoption of ASC 326, partially offset by unrealized gains on derivative instruments.
Guidance, Outlook, and Management Commentary
- Guidance Reaffirmed: Management reaffirmed its 2020 financial guidance, expecting earnings and cash flows to increase in the fourth quarter.
- Fleet Utilization: The LNG fleet is 100% fixed for 2020 and 96% fixed for 2021, ensuring stable cash flows.
- Recent Chartering: In October 2020, the charter for the 52% owned Marib Spirit was extended to early 2022 at an improved rate.
- Debt Strategy: The Partnership continues to reduce debt and interest expense while maintaining an annual distribution of $1.00 per common unit, which is well-covered by cash flows.
- Financing: In August 2020, the Partnership issued $112 million in 5-year unsecured notes at a 5.74% fixed coupon to repay revolving credit facilities, maintaining leverage levels.
Investor Verification Checklist
- ASC 326 Impact: Verify the magnitude of unrealized credit loss provisions ($14.4 million in Q3 2020) and their effect on GAAP net income versus Adjusted Net Income.
- Drydock Schedule: Confirm the timing and cost of the "higher than normal" drydockings that impacted Q3 earnings to assess Q4 recovery potential.
- Charter Rate Exposure: Review the specific rates and terms for the three 52% owned vessels redeployed at lower rates versus the newly extended Marib Spirit contract.
- Debt Maturity Profile: Analyze the impact of the new $112 million bond issuance on the overall debt maturity schedule and interest rate exposure.
- Joint Venture Distributions: Monitor the timing of cash distributions from equity-accounted joint ventures (e.g., Yamal LNG, MALT JV) as they may not coincide with operating cash flow generation.