Business Context and Reporting Period
Company: Capital Product Partners L.P. (Nasdaq: CPLP), a Marshall Islands master limited partnership and international owner of modern double-hull tankers.
Reporting Period: Fourth quarter ended December 31, 2010, and full year 2010.
Fleet Overview: The Partnership owns 21 vessels, including 18 modern MR tankers, two small product tankers, and one Suezmax crude oil tanker. As of January 2011, 69% of the fleet's total days for 2011 are secured under period charter coverage.
Key Financial Metrics
| Metric | Q4 2010 | Q4 2009 | Full Year 2010 | Full Year 2009 |
|---|---|---|---|---|
| Total Revenues | $29.0 million | $32.5 million | $124.6 million | $134.5 million |
| Net Income | $2.4 million | $6.3 million | $18.9 million | $32.7 million |
| Net Income per Unit | $0.06 | $0.21 | $0.54 | $1.15 |
| Operating Surplus (Non-GAAP) | $9.0 million | $10.2 million | N/A | N/A |
| Operating Expenses | $18.5 million | $18.1 million | N/A | N/A |
| Net Interest Expense | $8.1 million | $8.2 million | $33.3 million | $32.7 million |
| Long-Term Debt | $474.0 million | $474.0 million | $474.0 million | $474.0 million |
| Cash and Equivalents | $32.5 million | $3.6 million | $32.5 million | $3.6 million |
| Partners' Capital | $239.8 million | $157.1 million | $239.8 million | $157.1 million |
Cash Flow (Full Year 2010): Net cash provided by operating activities was $50.1 million. Net cash used in investing activities was $79.2 million, primarily due to vessel acquisitions ($99.8 million). Net cash provided by financing activities was $58.1 million, driven by proceeds from the issuance of partnership units ($105.3 million).
Material Changes vs. Prior Period
- Revenue Decline: Q4 2010 revenues decreased 11% year-over-year to $29.0 million. Management attributes this to lower charter rates on vessels re-chartered after fixed-rate charters (originally set 2006-2008) expired.
- Profitability Drop: Net income per unit fell to $0.06 in Q4 2010, down from $0.21 in Q4 2009. Operating surplus also declined to $9.0 million from $10.2 million.
- Liquidity Improvement: Cash and cash equivalents increased significantly from $3.6 million at year-end 2009 to $32.5 million at year-end 2010, supported by a $105.3 million equity raise.
- Debt Structure: Long-term debt remained stable at $474.0 million. However, related party long-term debt was fully repaid or reclassified, dropping from $43.5 million in 2009 to $0 in 2010.
Guidance, Outlook, and Management Commentary
Market Outlook: Management notes that average product tanker spot earnings improved in Q4 2010 compared to 2009 due to global economic recovery. The product tanker orderbook is considered attractive due to substantial delays and cancellations of new builds. Conversely, the Suezmax market remains soft.
Charter Coverage: Following the rechartering of the M/T Amore Mio II to Capital Maritime for 12 months at $25,000/day, 69% of the fleet's 2011 days are secured.
Distributions: The Board declared a quarterly cash distribution of $0.2325 per unit for Q4 2010, payable February 15, 2011. Total 2010 distributions of $1.0925 per unit qualify fully as a return of capital for U.S. unitholders. Management stated they will revisit annual distribution guidance as they monitor market developments and explore accretive acquisitions.
Risks: Forward-looking statements are subject to risks including changes in oil product demand, refinery utilization rates, shipping finance availability, and new vessel delivery schedules.
Investor Verification Checklist
- Charter Rate Exposure: Verify the impact of expiring fixed-rate charters on future revenue stability as the fleet re-charters at current market rates.
- Equity Dilution: Review the terms of the $105.3 million unit issuance in 2010 and its impact on per-unit earnings and ownership structure.
- Related Party Transactions: Confirm the terms of the new 12-month charter with Capital Maritime (Sponsor) and the $7.9 million in management fees paid to the Sponsor's subsidiary.
- Debt Covenants: Assess the company's ability to service $474 million in long-term debt given the decline in operating surplus and net income.
- Orderbook Dynamics: Monitor the extent of new vessel delivery delays and cancellations to validate the bullish outlook on supply constraints.