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: First quarter ended March 31, 2010.
Fleet Status: The Partnership owns 19 vessels (16 modern MR tankers, 2 small product tankers, 1 Suezmax crude oil tanker). On March 1, 2010, the Partnership acquired the M/T Atrotos (renamed M/T El Pipila) from Capital Maritime for $43 million, expanding the fleet to 19 vessels.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $31.1 million | $32.3 million |
| Net Income (Partnership) | $6.8 million | $8.8 million |
| Net Income per Unit (Total) | $0.25 | $0.35 |
| Operating Surplus (Non-GAAP) | $11.7 million | $11.9 million |
| Net Cash Provided by Operating Activities | $11.0 million | $18.3 million |
| Long-Term Debt | $474.0 million | N/A (Balance Sheet data) |
| Undrawn Debt Facilities | $246.0 million | N/A |
| Partners' Capital | $195.6 million | N/A |
| Cash and Cash Equivalents | $1.3 million | N/A |
Expenses: Total operating expenses were $15.8 million, including $7.0 million in management fees and $7.4 million in depreciation. Net interest expense was $7.9 million.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased by $1.2 million (3.7%) compared to Q1 2009. This was driven by lower charter rates on two re-chartered vessels and reduced profit-sharing revenues ($0.4 million vs. $0.7 million in Q1 2009).
- Profitability: Net income per unit decreased to $0.25 from $0.35 in Q1 2009. However, it increased from $0.21 in Q4 2009.
- Interest Costs: Net interest expense rose to $7.9 million from $7.3 million in Q1 2009 due to higher interest margins on loan facilities and lower cash deposit rates.
- Capital Structure: Partners' capital increased to $195.6 million following the issuance of 5.8 million common units in February 2010. Long-term debt remained stable at $474.0 million.
Guidance, Outlook, and Management Commentary
Market Outlook: Management notes an improvement in product tanker spot earnings to levels last seen in Q1 2009, driven by improved refinery margins, demand in the western hemisphere due to cold weather, and a recovering global economy. The Suezmax market showed strong demand in the Atlantic Basin and Far East.
Charter Coverage: Following the re-chartering of the M/T Avax with BP Shipping Ltd., 77% of the fleet's total days for the remainder of 2010 and 45% for 2011 are secured under period charters.
Distribution: The Board declared a quarterly cash distribution of $0.225 per unit, consistent with annual guidance. Payment is scheduled for May 14, 2010.
Risks and Contingencies: Forward-looking statements are subject to risks including changes in oil product demand, refinery utilization, the single-hull tanker phase-out, shipping finance availability, and potential delays in new vessel deliveries.
Investor Verification Checklist
- Charter Rate Exposure: Verify the impact of the M/T Avax re-charter at $12,500/day (down from $20,500/day) on future earnings stability.
- Debt Servicing: Confirm the sustainability of the $7.9 million quarterly interest expense against operating cash flows, especially given the $474 million debt load.
- Liquidity Position: Review the low cash balance of $1.3 million against the $246 million in undrawn facilities to assess immediate liquidity risk.
- Related Party Transactions: Scrutinize the $7.0 million in management fees paid to Capital Maritime and the terms of the M/T Atrotos acquisition from the same entity.
- Non-GAAP Reconciliation: Validate the calculation of Operating Surplus ($11.7 million) and its correlation to the declared distribution of $0.225 per unit.