Business Context and Reporting Period
Company: Dynagas LNG Partners LP (NYSE: DLNG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2018
Filing Date: May 17, 2018
Business Overview: The Partnership owns and operates a fleet of six liquefied natural gas (LNG) carriers. As of the reporting date, the fleet was 100% utilized, with 85% of available days contracted for the remainder of 2018 and 100% contracted through 2020.
Key Financial Metrics
| Metric (Three Months Ended March 31, 2018) | Value (USD) |
|---|---|
| Voyage Revenues | $33.9 million |
| Net Income | $4.8 million |
| Adjusted Net Income (Non-GAAP) | $7.2 million |
| Adjusted EBITDA (Non-GAAP) | $26.6 million |
| Distributable Cash Flow (Non-GAAP) | $11.3 million |
| Earnings Per Common Unit (GAAP) | $0.09 |
| Adjusted Earnings Per Common Unit (Non-GAAP) | $0.16 |
| Cash and Cash Equivalents (as of March 31, 2018) | $61.4 million |
| Available Liquidity (as of March 31, 2018) | $91.4 million |
| Total Indebtedness (as of March 31, 2018) | $726.4 million |
| Quarterly Cash Distribution (Common Units) | $0.25 per unit |
Material Changes vs. Prior Period
- Revenue Decline: Voyage revenues decreased 13.3% to $33.9 million from $39.1 million in Q1 2017. This was primarily driven by the vessel Clean Energy operating on the spot market at lower rates compared to the multi-year charter in the prior year.
- Profitability Drop: Net income fell 62.5% to $4.8 million from $12.9 million. Adjusted Net Income decreased 51.5% to $7.2 million.
- Increased Interest Costs: Interest and finance costs rose 35.5% to $12.0 million from $8.9 million, attributed to the refinancing of secured debt in May 2017 (Term Loan B facility).
- Operating Efficiency: Vessel operating expenses decreased to $6.3 million (daily rate of $11,741) from $6.7 million (daily rate of $12,352) due to crewing and technical efficiencies.
- Cash Flow Reduction: Distributable Cash Flow declined 39.4% to $11.3 million from $18.6 million.
Guidance, Outlook, and Management Commentary
Distribution Policy Change
On April 18, 2018, the Board approved a reduction in the quarterly cash distribution on common units to $0.25 per unit (down from $0.4225), effective with the Q1 2018 payment made on May 3, 2018. This decision aims to align distributions with long-term cash flow generation capacity and strengthen the balance sheet.
Contract Backlog and Visibility
Management highlighted a contracted revenue backlog of approximately $1.46 billion with an average remaining contract term of 10.2 years. The fleet is 100% contracted through 2020. The Clean Energy vessel is scheduled to commence an eight-year time charter with Gazprom in July 2018.
Risks and Contingencies
- Market Conditions: Fluctuations in charter rates and vessel values.
- Operational Risks: Potential disruption of shipping routes, vessel breakdowns, and off-hire events.
- Contractual Conditions: Certain time charter contracts with Yamal Trade Pte. are subject to conditions that, if not satisfied, could result in cancellation.
- Financing: Availability of financing and refinancing, and changes in interest rates.
Investor Verification Checklist
- Verify the impact of the Clean Energy vessel's transition from spot market to the new eight-year Gazprom charter on future revenue stability.
- Confirm the sustainability of the reduced distribution policy ($0.25 per unit) against projected cash flows.
- Review the terms and interest rates of the $480 million Term Loan B facility and the $250 million senior unsecured notes due in 2019.
- Assess the conditions precedent for the Yamal Trade Pte. contracts included in the $1.46 billion backlog.
- Monitor the utilization rates and daily hire rates for the remainder of 2018 as the fleet transitions to longer-term contracts.