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: Fourth Quarter and Fiscal Year ended December 31, 2020
Date of Report: February 25, 2021
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 (as of February 1, 2021), 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 | Q4 2020 | Q4 2019 | FY 2020 | FY 2019 |
|---|---|---|---|---|
| Voyage Revenues | $154.1 million | $148.8 million | $591.1 million | $601.3 million |
| GAAP Net Income (Partners & Preferred) | $35.1 million | $67.4 million | $87.4 million | $152.8 million |
| GAAP Net Income per Common Unit | $0.32 | $0.77 | $0.73 | $1.59 |
| Adjusted Net Income (Partners & Preferred) | $60.0 million | $50.3 million | $233.8 million | $168.7 million |
| Adjusted Net Income per Common Unit | $0.61 | $0.56 | $2.45 | $1.79 |
| Total Adjusted EBITDA | $190.2 million | $184.2 million | $757.9 million | $684.7 million |
| Distributable Cash Flow (DCF) | $85.0 million | $71.4 million | $322.2 million | $252.8 million |
| Liquidity (Cash + Undrawn Facilities) | $461.6 million | N/A | N/A | N/A |
Note: Liquidity as of December 31, 2020, comprised $206.8 million in cash and cash equivalents and $254.8 million in undrawn credit facilities.
Material Changes vs. Prior Period
- GAAP Net Income Decline: GAAP net income for Q4 2020 decreased significantly compared to Q4 2019 ($35.1M vs. $67.4M). This was primarily due to:
- Write-downs of $6.0 million on four wholly-owned multi-gas carriers and $17.0 million on four 50%-owned LPG carriers.
- A $14.3 million gain recognized in Q4 2019 on the derecognition of two LNG carriers (reclassified as sales-type leases) which did not recur in 2020.
- Lower unrealized gains on non-designated derivative instruments in Q4 2020.
- Adjusted Net Income Growth: Despite GAAP declines, Adjusted Net Income increased 19% in Q4 2020 vs. Q4 2019 and 39% for the full year 2020 vs. 2019. Drivers included:
- Delivery of LNG carrier newbuildings and commencement of terminal use payments for the Bahrain LNG Terminal.
- Higher LPG charter rates.
- Lower net interest expense.
- Debt Reduction: The Partnership reduced its proportionate net debt by nearly $560 million (over 10%) in 2020, aided by $260 million in proceeds from the sale of two LNG carriers in January 2020.
Guidance, Outlook, and Management Commentary
- Distribution Increase: Teekay LNG announced a 15% increase in common unit distributions to $1.15 per unit on an annualized basis, commencing with the Q1 2021 distribution paid in May 2021. This marks the third consecutive year of double-digit distribution increases.
- Charter Coverage: The LNG fleet is 97% fixed for 2021 and 89% fixed for 2022. In December 2020, a fixed-rate charter was secured for the 52%-owned Methane Spirit through early 2023.
- Management Commentary: CEO Mark Kremin highlighted that the strategy of long-term fixed-rate charters provided certainty and strong results despite extreme volatility in gas prices and equity markets in 2020. The company emphasized its industry-leading revenue backlog and ability to delever the balance sheet while increasing distributions.
- Risks and Contingencies: Forward-looking statements note risks including changes in LNG/LPG production, trading patterns, regulatory changes, potential early termination of contracts, dry-docking delays, and counterparty creditworthiness.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the adjustments made to GAAP Net Income to arrive at Adjusted Net Income, specifically the treatment of vessel write-downs ($23M total in Q4) and unrealized credit loss provisions related to ASC 326 adoption.
- Debt Maturity Profile: Review the refinancing activities mentioned (Exmar LPG JV and Tangguh JV) to confirm the extension of debt maturities and impact on liquidity.
- Charter Contract Terms: Confirm the specific rates and durations of the new charters secured for the Methane Spirit and Marib Spirit to validate the 97% fixed coverage claim for 2021.
- Equity-Accounted Joint Ventures: Assess the performance of the MALT, Exmar, and Yamal joint ventures, as they contribute significantly to Adjusted EBITDA but are not fully consolidated.
- Derivative Exposure: Review the impact of unrealized gains/losses on non-designated derivative instruments and cross-currency swaps on future earnings volatility.