Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2020
Filing Date: June 5, 2020
Business Overview: The Partnership owns and operates a fleet of six liquefied natural gas (LNG) carriers employed on multi-year time charters. As of the reporting date, the fleet had an average remaining contract term of 8.3 years.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q1 2020 | Q1 2019 |
|---|---|---|
| Voyage Revenues | $34,471 | $31,403 |
| Operating Income | $15,712 | $14,381 |
| Net Income | $6,967 | $1,892 |
| Adjusted Net Income | $7,074 | $1,731 |
| Adjusted EBITDA | $23,740 | $21,716 |
| Net Cash from Operating Activities | $18,735 | $9,186 |
| Earnings per Common Unit | $0.11 | $(0.03) |
| Adjusted Earnings per Common Unit | $0.12 | $(0.03) |
Liquidity and Debt:
- Total Cash and Cash Equivalents (including restricted): $70.1 million as of March 31, 2020.
- Outstanding Indebtedness: $651.0 million under the $675.0 million senior secured term loan.
- Unused Availability: $30.0 million under a revolving credit facility with the Sponsor.
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by 268.4% ($5.1 million) compared to Q1 2019. This was driven by higher voyage revenues and a significant reduction in interest and finance costs.
- Revenue Growth: Voyage revenues rose by $3.1 million (9.8%) primarily due to higher revenues from the vessel Lena River following its delivery to a multi-year contract with Yamal Trade Pte in July 2019.
- Cost Reduction: Interest and finance costs decreased by 32.1% ($4.2 million) due to lower weighted average interest rates and a reduction in interest-bearing debt.
- Operating Expenses: Vessel operating expenses increased by $0.6 million (9.1%) to $7.6 million, mainly attributable to planned engine maintenance on one carrier.
- Utilization: Fleet utilization remained high at 99.0% in Q1 2020 compared to 100% in Q1 2019.
Guidance, Outlook, and Management Commentary
Management Commentary:
- Contract Stability: All six carriers are under term charters. The earliest re-delivery date is Q3 2021, with the next available in Q1 2026.
- COVID-19 Impact: Operational challenges from the outbreak were manageable due to effective response plans. Revenues remained in line with Q4 2019.
- Debt Strategy: The Partnership entered into a floating-to-fixed interest rate swap effective June 29, 2020. This fixes the 3-month LIBOR rate at 0.41%, resulting in a fixed effective interest rate cost of 3.41% (including margin) for the full $675.0 million credit facility until maturity in September 2024.
- Future Outlook: Management intends to continue deleveraging the balance sheet and generating cash to build equity for future growth.
Risks and Contingencies:
- Forward-looking statements are subject to risks including global economic strength, currency fluctuations, charter rate volatility, and supply/demand changes for LNG shipping capacity.
- Specific risks cited include the length and severity of the COVID-19 outbreak, potential disruption of shipping routes, vessel breakdowns, and the expected discontinuance of LIBOR after 2021.
Investor Verification Checklist
- Debt Hedging Effectiveness: Verify the terms and impact of the new interest rate swap on future cash flows and the fixed 3.41% effective rate.
- Revenue Backlog: Confirm the $1.21 billion contracted revenue backlog and the 8.3-year average remaining contract term.
- Preferred Unit Distributions: Review the declared distributions for Series A ($0.5625) and Series B ($0.546875) preferred units and their impact on cash available to common unitholders.
- Operating Expense Trends: Monitor if the increase in vessel operating expenses due to maintenance is a one-time event or indicative of rising maintenance costs across the fleet.
- Liquidity Position: Assess the $70.1 million cash balance against the $48.0 million of debt repayable within one year.