Business Context and Reporting Period
Company: GasLog Partners LP (GasLog Partners)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2016
Business Overview: GasLog Partners is a growth-oriented limited partnership organized under the laws of the Republic of the Marshall Islands. It is focused on owning, operating, and acquiring LNG carriers engaged in LNG transportation under long-term charters (defined as five full years or more). As of December 31, 2016, the Partnership owned a fleet of nine LNG carriers. All vessels are chartered to subsidiaries of Shell (specifically MSL, a subsidiary of BG Group, which was acquired by Shell in February 2016). The Partnership is controlled by GasLog Ltd. through its ownership of the General Partner.
Key Financial Metrics (Year Ended Dec 31, 2016)
| Metric | 2016 (IFRS Common Control) | 2015 (Restated) |
|---|---|---|
| Revenues | $228.74 million | $224.19 million |
| Profit from Operations | $115.88 million | $111.98 million |
| Profit for the Year | $77.34 million | $77.65 million |
| Profit Attributable to Partnership | $77.27 million | $65.04 million |
| EBITDA (Partnership Performance) | $148.89 million | $122.79 million |
| Distributable Cash Flow | $83.66 million | $72.25 million |
| Cash Distributions Paid | $73.38 million | $60.00 million |
| Net Cash Provided by Operating Activities | $144.06 million | $125.93 million |
| Total Debt Outstanding | $813.75 million | $866.70 million |
| Cash and Cash Equivalents | $50.46 million | $62.68 million |
| Weighted Average Interest Rate | 3.30% | 2.92% |
Note: Financial data presented above is derived from IFRS Common Control Reported Results unless otherwise noted. Partnership Performance Results are non-GAAP measures used to calculate distributions.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by $4.55 million (2.03%) primarily due to reduced off-hire days from scheduled dry-dockings (two vessels in 2016 vs. three in 2015) and a slight increase in the average daily hire rate.
- Profitability: While total profit for the year remained relatively flat (decreasing slightly by $0.31 million), profit attributable to the Partnership increased by $12.23 million (18.80%). This increase was driven by the acquisition of the GasLog Seattle in November 2016 and an unrealized gain on interest rate swaps.
- Financial Costs: Financial costs increased by $4.99 million (15.99%), largely due to the write-off of $2.43 million in unamortized loan fees associated with the refinancing of the GasLog Seattle credit facility and higher interest expenses.
- Fleet Expansion: The fleet remained at nine vessels, but the composition changed with the acquisition of the GasLog Seattle (155,000 cbm) from GasLog in November 2016.
- Debt Profile: Total debt decreased slightly due to repayments, though the weighted average interest rate increased to 3.30% from 2.92%.
Guidance, Outlook, and Risks
Outlook and Management Commentary
- Charter Expirations: Three vessels (GasLog Shanghai, GasLog Santiago, and GasLog Sydney) have charters expiring in 2018. The charterer (MSL) has the option to extend these charters, but no nominations have been made for the Shanghai and Santiago as of the filing date. Management notes that failure to secure renewals at attractive rates could adversely affect future liquidity and results.
- Market Conditions: Management observes that spot rates in the Atlantic Basin increased in late 2016, but the market remains volatile. Global LNG supply is expected to grow significantly from 2018 to 2020, particularly from the U.S. and Australia, which should support demand for shipping.
- Growth Strategy: The Partnership intends to grow by acquiring additional vessels from GasLog. It holds options to purchase eight existing vessels and has rights of first offer on newbuildings. Financing for these acquisitions will depend on cash flow and access to debt/equity markets.
- Capital Expenditures: Estimated maintenance and replacement capital expenditures for 2016 were $38.30 million. Future estimates average approximately $41.77 million per year.
Risks and Contingencies
- Customer Concentration: 100% of revenues in 2016 were derived from a single customer (Shell/MSL). The loss of this customer or failure to renew charters would have a material adverse effect.
- Charter Renewal Risk: Three vessels face charter expiration in 2018. If not renewed, the Partnership may be forced into the volatile spot market or face off-hire periods.
- Debt Covenants: The Partnership is subject to strict financial covenants, including minimum liquidity, debt-to-capitalization ratios, and EBITDA coverage ratios. A decline in vessel values or operating performance could trigger a default.
- Interest Rate and Currency Risk: The Partnership has floating rate debt (hedged at 47.27% as of year-end) and is exposed to currency fluctuations as some operating expenses are denominated in Euros while revenues are in USD.
- Regulatory and Environmental: Compliance with evolving environmental regulations (e.g., sulfur emissions, ballast water) may require significant capital expenditures.
Investor Verification Checklist
- Charter Renewals: Verify the status of extension options for the GasLog Shanghai and GasLog Santiago, which are due to come off charter in May and July 2018, respectively.
- Debt Covenants: Review the specific financial covenants in the "Five Vessel Refinancing" and "Partnership Facility" agreements to assess the margin of safety regarding liquidity and EBITDA coverage.
- Related Party Transactions: Confirm the terms of the administrative, commercial, and ship management agreements with GasLog, noting the fee increases approved in November 2016 effective January 1, 2017.
- Impairment Testing: Review the sensitivity analysis regarding vessel impairment, specifically the five vessels where carrying value exceeded charter-free market value, to understand the assumptions used to avoid impairment charges.
- Subordination Period: Monitor the progress toward the end of the subordination period (expected March 31, 2017), which will convert subordinated units to common units and alter distribution waterfalls.