Business Context and Reporting Period
Company: Capital Product Partners L.P. (CPLP), a foreign private issuer and international shipping company.
Reporting Period: Six months ended June 30, 2021 (Interim).
Fleet Overview: As of June 30, 2021, the Partnership owned 16 vessels (12 Neo-Panamax, 3 Panamax container vessels, and 1 Capesize bulk carrier). Charter coverage was 94% for the remainder of 2021 and 91% for 2022.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|
| Total Revenues | $77,966 | $70,257 |
| Operating Income, Net | $53,517 | $25,065 |
| Partnership's Net Income | $46,282 | $15,330 |
| Net Income Per Unit (Basic & Diluted) | $2.46 | $0.81 |
| Net Cash Provided by Operating Activities | $42,001 | $45,966 |
| Cash and Cash Equivalents (End of Period) | $104,188 | $39,156 |
| Total Borrowings Outstanding | $347,575 | $379,662 |
| Partners' Capital | $461,727 | $409,805 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $7.7 million (11%) primarily due to an increase in the average fleet size by 2.2 vessels (acquisitions of M/V Seattle Express, M/V Long Beach Express, and M/V Fos Express) and reduced off-hire days compared to 2020.
- Net Income Surge: Net income more than tripled to $46.3 million, driven significantly by a $25.4 million gain on the sale of the M/V CMA CGM Magdalena. Excluding this gain, operating performance improved due to lower interest costs and reduced dry-docking expenses.
- Expense Trends: Vessel operating expenses rose to $20.9 million (from $19.0 million) due to the larger fleet. Voyage expenses increased to $4.4 million due to increased voyage charter activity. Interest expense decreased to $7.6 million (from $9.8 million) due to lower LIBOR rates.
- Cash Flow: Operating cash flow decreased slightly by $4.0 million due to higher reimbursements to managers and increased trade receivables, despite higher revenues. Investing activities turned positive ($62.2 million inflow) due to vessel sale proceeds, whereas 2020 saw significant outflows for acquisitions.
Guidance, Outlook, and Risks
- Distributions: The Board declared a cash distribution of $0.10 per common unit for Q1 and Q2 2021. Management intends to review distributions based on capital market access, debt refinancing, and capital expenditures.
- Recent Developments:
- Sales: M/V CMA CGM Magdalena sold for $99.0 million (delivered May 2021). M/V Adonis agreed to be sold for $96.0 million (expected delivery November 2021).
- Acquisitions: Acquired three vessels in February 2021 for $40.5 million, financed partly by a $30.0 million sale and leaseback with CMBFL and a $6.0 million seller's credit.
- Liquidity: Total cash and equivalents were $112.2 million (including $8.0 million restricted). Management believes working capital is sufficient for the next 12 months.
- Risks:
- Re-chartering Risk: Future cash flows depend on re-chartering vessels at current rates upon expiry; spot market volatility is a risk.
- Debt Covenants: Compliance with financial covenants is subject to asset valuations. A 10% decrease in vessel fair market values would not currently trigger a covenant violation.
- Concentration: Significant revenue concentration with major charterers (HMM 34%, Hapag-Lloyd 26%, MSC 11%).
Investor Verification Checklist
- Gain on Sale Sustainability: Verify the impact of the $25.4 million one-time gain on net income; assess core operating profitability excluding this item.
- Charter Expirations: Review the specific expiry dates and rates of the fleet (e.g., M/V Adonis charter ends Sep 2021) to assess re-chartering risk.
- Debt Structure: Confirm the terms of the new CMBFL sale and leaseback agreements and the seller's credit interest rate (5.0% fixed).
- Asset Held for Sale: Monitor the delivery and final proceeds of the M/V Adonis sale expected in late 2021.
- Related Party Transactions: Review the $2.6 million in vessel operating expenses paid to related party managers (Capital Ship Management Corp. and Capital-Executive).