Navios Maritime Partners L.P. — FY 2011 Form 20-F
Reporting period: Fiscal year ended December 31, 2011. This is an annual report, not a standalone fourth-quarter filing. The partnership owns and operates drybulk carriers, primarily under medium- and long-term time charters. Its fleet at year-end comprised 18 vessels, including two chartered-in vessels. Financial statements are presented under U.S. GAAP; amounts below are U.S. dollars.
Financial and operating performance
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Time-charter revenue | $187.0 million | $143.2 million | +30.6% |
| Net income | $65.3 million | $60.5 million | +8.0% |
| Net margin (calculated) | 35.0% | 42.2% | Down 7.2 percentage points |
| Net cash from operating activities | $127.5 million | $96.0 million | +$31.5 million |
| Adjusted EBITDA (non-GAAP) | $141.8 million | $107.1 million | +32.4% |
| Operating surplus (non-GAAP) | $115.9 million | $87.7 million | +$28.2 million |
| Common-unit earnings per unit | $1.33 | $1.51 | Down 11.9% |
Revenue growth chiefly reflected the addition of vessels; available fleet days rose to 6,251 from 4,879. Time-charter equivalent rates increased to $29,909 per day from $29,358, while unscheduled off-hire reduced 2011 revenue by $7.5 million. Net income growth lagged revenue growth as depreciation and amortization, management fees and interest costs increased. Common-unit earnings per unit declined despite higher net income, alongside a larger weighted-average common-unit count.
- Cash and liquidity: Cash and cash equivalents were $48.1 million at year-end, versus $51.3 million a year earlier; restricted cash was $8.5 million. Current assets were $63.6 million and current liabilities $56.7 million. Management stated operating cash flow should cover existing short-term liquidity needs for at least 12 months.
- Debt: Total borrowings were $326.1 million, fully drawn, including $36.7 million current and $289.4 million long-term. Debt is floating-rate and secured by vessel mortgages and other collateral. The company reported covenant compliance at year-end and a $20 million minimum free-liquidity covenant.
- Cash uses and distributions: Investing outflow was $120.0 million, primarily for the Navios Luz and Navios Orbiter acquisitions; financing outflow was $10.7 million. Cash distributions paid in 2011 totaled $95.5 million. The quarterly distribution was $0.44 per unit; the fourth-quarter distribution was paid in February 2012.
- Assets: Total assets were $909.9 million, including vessels net of $667.2 million and intangible assets of $176.6 million.
Material changes and notable items
- Acquired two vessels from Navios Holdings in May 2011 for $130 million, funded with $120 million cash and 507,916 common units. The cash portion was partly financed with a $35 million term loan.
- Completed a public offering and overallotment of 4.6 million common units in April 2011, raising approximately $86.5 million net of offering costs and underwriting discount.
- Extended the management and administrative services agreements with Navios ShipManagement through December 31, 2017. Daily vessel-management fees were fixed through December 31, 2013; thereafter the partnership expects to reimburse actual operating costs, which could make costs higher and less predictable.
- All 7,621,843 subordinated units converted to common units on January 1, 2012.
- The Navios Apollon’s charter ended after an engine breakdown; the partnership wrote off $4.0 million of related intangible value.
- In the fourth quarter, management assessed long-lived assets for impairment amid a deteriorating spot market. No impairment was recorded, although management disclosed that carrying values for 11 vessels exceeded estimated fair values by approximately $99.3 million in aggregate. Future impairment remains possible if charter-rate assumptions or the market downturn differ materially from forecasts.
Outlook, risks and contingencies
Management’s strategy is to pursue stable cash flows through long-term charters, grow and diversify the fleet through acquisitions, and increase distributions over time. The filing provides no quantified earnings or revenue guidance. Management’s outlook depends on drybulk demand, charter rates, vessel supply and financing access.
- The drybulk shipping market is cyclical; lower charter rates or vessel values could reduce earnings and distributions, impair assets, or affect lender collateral and covenants. Some charters expire as early as 2012; remaining charter term averaged approximately four years.
- Three charterers accounted for 53.9% of 2011 revenue: Cosco Bulk Carrier (22.2%), Mitsui O.S.K. Lines (18.5%) and Samsun Logix (13.2%). Korea Line, charterer of the Navios Melodia, entered receivership in January 2011; its charter was affirmed, with the sub-charterer paying the partnership directly during an interim suspension.
- Interest-rate exposure is material: a 1 percentage-point increase in LIBOR was estimated to add $3.3 million to 2011 interest expense. The partnership reported no current hedging against interest-rate increases.
- Debt covenants constrain distributions, new investments and financing. The facilities require, among other things, minimum liquidity and an EBITDA-to-interest ratio of at least 2.00:1.00. Breaches could accelerate debt and expose mortgaged vessels to foreclosure.
- Other significant risks include dependence on Navios Holdings and its affiliates, related-party management costs, customer concentration, piracy and marine casualties, environmental and safety regulation, and cash deposits exceeding government-insurance limits. Pollution coverage is subject to exclusions and limits, including $1 billion per event for owned vessels.
- The partnership reported no material litigation proceedings and stated that ordinary-course disputes and arbitration were not expected to materially affect its financial position, results or liquidity. It reported no defaults, dividend arrearages or delinquencies.
Most important facts for investors to verify
- Whether the reported $20 million minimum free-liquidity covenant was satisfied using the credit agreement’s precise definitions, given that facilities were fully drawn and some cash was restricted or pledged.
- Charterer payment performance and the status of the Navios Melodia charter following Korea Line’s receivership.
- Charter coverage and expected replacement rates for vessels reaching charter expiration, particularly from 2012 onward.
- Valuation assumptions behind the impairment test and whether weakening vessel values or charter rates could trigger impairment or debt-covenant pressure.
- The future cost of management services after fixed-fee terms end in 2013, as well as the partnership’s ability to sustain distributions amid debt service and capital needs.
- The filing reports effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.