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: First Quarter ended March 31, 2012
Date of Report: May 25, 2012
Teekay LNG Partners is the world's third-largest independent owner and operator of LNG vessels. The partnership operates a fleet of 43 vessels as of May 1, 2012, comprising 27 LNG carriers, 5 LPG/Multigas carriers, and 11 conventional tankers. Ownership interests in these vessels range from 33% to 100%.
Key Financial Metrics
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Distributable Cash Flow (DCF) | $50.8 million | $39.1 million |
| Net Income (GAAP) - Partners | $24.7 million | $25.0 million |
| Adjusted Net Income - Partners | $35.6 million | $25.9 million |
| Net Voyage Revenues | $98.9 million | $92.8 million |
| Cash Flow from Vessel Operations (CFVO) | $98.9 million | $80.0 million |
| Cash Distribution per Unit | $0.675 | $0.630 (implied) |
| Total Liquidity (as of March 31, 2012) | $318.1 million | N/A |
| Total Liquidity (post-May 2012 bond) | ~$440 million | N/A |
Note: Liquidity as of March 31, 2012, consisted of $83.9 million in cash and $234.2 million in undrawn credit facilities. Subsequent to the quarter end, liquidity increased by approximately $125 million following a Norwegian bond offering.
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 30% year-over-year to $50.8 million. This growth was driven by incremental contributions from new acquisitions, including Multigas carriers (delivered 2011), a 33% interest in four Angola LNG carriers, and a 52% interest in six LNG carriers acquired from A.P. Moller Maersk in February 2012.
- Net Income (GAAP): Decreased slightly to $24.7 million from $25.0 million in Q1 2011. This decline was primarily due to a $9.7 million unrealized foreign exchange loss and a $15.9 million unrealized loss on derivative instruments, which are non-cash accounting items.
- Adjusted Net Income: Increased significantly to $35.6 million, excluding non-cash items such as foreign exchange losses and unrealized derivative losses.
- Segment Performance:
- Liquefied Gas Segment: CFVO increased to $83.0 million from $65.7 million, driven by new vessel acquisitions.
- Conventional Tanker Segment: CFVO increased to $15.8 million from $14.3 million, attributed to an additional revenue day (leap year) and contract adjustments.
Guidance, Outlook, and Risks
Management Commentary: CEO Peter Evensen noted that the increase in distributable cash flow allowed the partnership to raise the quarterly distribution by 7% while maintaining a coverage ratio above 1.0. Management highlighted the completion of the Angola LNG newbuilding program and expressed confidence in pursuing further growth opportunities given positive market fundamentals and strong financial liquidity.
Outlook: The partnership continues to actively pursue new acquisition opportunities and organic growth projects.
Risks and Contingencies:
- Derivative Accounting: Significant unrealized losses on derivative instruments and foreign exchange revaluations impact GAAP net income but do not affect cash flow or distributable cash flow.
- Market Risks: Forward-looking statements are subject to risks including changes in LNG/LPG production, trading patterns, regulatory changes, and the potential early termination of long-term contracts.
- Financing: Risks related to the ability to raise financing for additional vessel purchases.
Investor Verification Checklist
- Non-GAAP Reconciliations: Verify the reconciliation of Distributable Cash Flow and Adjusted Net Income to GAAP Net Income (Appendices A and B) to understand the impact of unrealized derivative losses and foreign exchange adjustments.
- Liquidity Position: Confirm the impact of the May 2012 Norwegian bond offering on the total liquidity balance, which rose from $318.1 million (Q1 end) to approximately $440 million.
- Acquisition Details: Review the specifics of the 52% interest in the six MALT LNG carriers acquired in February 2012 and the preliminary purchase price allocation affecting equity income.
- Derivative Exposure: Assess the magnitude of unrealized losses on interest rate swaps and foreign exchange revaluations reported in the income statement.