Business Context and Reporting Period
Company: Dynagas LNG Partners LP (DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2016 (Interim Unaudited)
Business Overview: A growth-oriented limited partnership owning and operating LNG carriers on multi-year time charters. As of June 1, 2016, the fleet consisted of six vessels with an average age of 5.8 years. The Partnership is managed by Dynagas Ltd. and sponsored by Dynagas Holding Ltd.
Key Financial Metrics
| Metric (in thousands, except per unit) | Q1 2016 | Q1 2015 |
|---|---|---|
| Voyage Revenues | $42,741 | $35,620 |
| Operating Income | $26,004 | $21,710 |
| Net Income | $17,135 | $14,878 |
| Adjusted EBITDA | $35,178 | $28,066 |
| Net Cash from Operating Activities | $23,641 | $26,386 |
| Net Cash Used in Investing Activities | $(35,616) | $0 |
| Net Cash from Financing Activities | $41,678 | $(20,101) |
| Total Debt (Outstanding) | $746,875 | $688,333 |
| Cash and Cash Equivalents | $53,996 | $18,234 |
| Earnings Per Common Unit (Basic/Diluted) | $0.43 | $0.42 |
| Cash Distribution Per Common Unit | $0.4225 | $0.4225 |
Liquidity: As of March 31, 2016, available liquidity was $109.0 million, comprising $79.0 million in cash (including $25.0 million restricted) and $30.0 million borrowing capacity under a revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased 20.0% to $42.7 million, primarily driven by the full quarter operation of the Lena River, acquired in December 2015. Fleet revenue-generating days increased from 450 to 546.
- Expense Increases:
- Depreciation: Rose 26.5% to $7.6 million due to the new vessel and increased calendar days.
- Interest Costs: Increased to $8.7 million (from $6.9 million) due to higher weighted average indebtedness ($751.6M vs $574.9M) and a slight increase in interest rates.
- Management Fees: Increased 25.0% to $1.5 million due to fleet expansion and a 3% annual fee adjustment.
- Operating Cash Flow: Decreased to $23.6 million despite the new vessel's contribution, offset by an $8.0 million decrease in revenue pre-collections and variations in operating assets/liabilities.
- Investing Activities: Significant cash outflow of $35.6 million, primarily to repay a $35.0 million interest-free credit facility from the Sponsor related to the Lena River acquisition.
Outlook, Risks, and Management Commentary
- Contract Backlog: As of June 1, 2016, the contracted revenue backlog was approximately $1.6 billion with an average remaining duration of 10.3 years.
- New Charters:
- Lena River and Yenisei River: Entered into 15-year charters with Yamal for the Yamal LNG Project (commencing 2019). These are subject to important conditions; failure to satisfy them could result in cancellation.
- Ob River: Entered into a 10-year firm charter with Gazprom commencing in Q2 2018.
- Capital Strategy: The Partnership expects to rely on external financing (debt/equity) for future acquisitions and expansion, as it distributes all available cash. It has options to acquire four "Initial Optional Vessels" and five "Additional Optional Vessels" (joint venture interests) from its Sponsor.
- Risks:
- Charter Cancellation: New Yamal charters are conditional; failure to meet conditions could eliminate expected revenues.
- Market Conditions: Exposure to fluctuations in charter rates upon contract expiration, LNG market trends, and global economic slowdowns.
- Debt Servicing: Significant debt obligations ($746.9M outstanding) require strict adherence to covenants and liquidity management.
Key Facts for Investor Verification
- Conditional Revenue: Verify the status of conditions precedent for the Lena River and Yenisei River Yamal charters, as their cancellation would materially impact future revenue.
- Debt Covenants: Confirm continued compliance with financial covenants (interest coverage, asset coverage, liquidity) given the high leverage ratio.
- Optional Vessel Acquisition: Assess the likelihood and financing terms for exercising options to purchase the remaining four Initial Optional Vessels and the five Additional Optional Vessels.
- Charterer Concentration: Note that a single charterer (Charterer A) accounted for 67% of revenues in Q1 2016, indicating high concentration risk.
- Capital Expenditures: Monitor estimated maintenance and replacement capital expenditures, currently set at $16.9 million annually, which are deducted from operating surplus.