GasLog Partners LP — 2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018; this is an annual filing, not a standalone fourth-quarter report. The audited statements use IFRS as issued by the IASB. Dollar amounts below are U.S. dollars.
Business context and financial performance
The Partnership owns and operates LNG carriers, primarily under multi-year time charters. At year-end it had 14 vessels; one was trading in the Cool Pool spot market. In 2018 it acquired the GasLog Gibraltar and Methane Becki Anne from its controlling sponsor, GasLog. Because the transfers were accounted for under common control, reported results include the acquired vessels’ historical results; the filing also presents non-GAAP “Partnership Performance Results” that exclude pre-acquisition results.
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $352.5 million | $371.1 million | Down 5.0% |
| Operating profit | $179.4 million | $198.7 million | Down $19.3 million |
| Profit for the year | $115.5 million | $134.7 million | Down 14.3% |
| Profit attributable to Partnership operations | $102.6 million | $94.1 million | Up 9.0%; non-GAAP presentation |
| Basic earnings per common unit | $1.77 | $2.09 | Down |
| EBITDA | $261.0 million | $279.8 million | Down; IFRS common-control basis |
| Distributable cash flow | $108.9 million | $100.6 million | Up; non-GAAP measure |
| Operating cash flow | $185.1 million | $242.8 million | Down $57.7 million |
Operating and net margins were approximately 50.9% and 32.8%, respectively, based on reported revenue and profit. These measures were not stated as margins in the filing. Average daily hire rate declined from $72,902 to $71,801. Operating days fell to 4,910 from 5,091 on the common-control fleet basis.
Cash, debt, distributions and liquidity
- Year-end cash and cash equivalents were $129.1 million, with $10.0 million in short-term investments. The Partnership also reported $55.9 million of unused availability under revolving facilities.
- Total borrowings were $1.235 billion: $429.4 million current and $805.6 million non-current. Debt due within one year included $360 million maturing in November 2019. The reported current-liability position produced negative working capital of $331.2 million, mainly due to that maturity.
- Management said cash and expected operating cash flows should fund operations and required debt service for at least 12 months. In February 2019, the Partnership signed a facility of up to $450 million to refinance the 2019 maturity; it was described as currently undrawn in the filing.
- Interest expense was $58.5 million; total financial costs were $66.3 million. The weighted-average interest rate on outstanding debt rose to 4.4% for 2018 from 3.7% in 2017. The year-end weighted-average rate for credit facilities was 4.8%.
- The Partnership paid $118.1 million in distributions during 2018, including common and preference distributions. The common-unit distribution for the December quarter was declared at $0.55 per unit and paid in February 2019. The stated minimum common distribution is $0.375 per unit quarterly, but payment is not assured and is subject to available cash, board discretion and debt covenants.
- Maintenance and replacement capital reserves were $49.3 million in 2018; management estimated future annual needs of approximately $54.8 million.
Material changes and unusual items
- Revenue fell mainly because initial charters for the GasLog Shanghai, GasLog Santiago and GasLog Sydney ended during 2018, and scheduled dry-dockings caused more off-hire. The Shanghai entered the Cool Pool; the Santiago began a new multi-year charter and the Sydney began an 18-month charter.
- General and administrative expenses increased 26.8% to $19.4 million, primarily reflecting higher GasLog administrative fees and vessels added to the Partnership. Vessel operating costs declined 3.8% to $68.7 million.
- Operating cash flow decreased partly because of a $42.1 million adverse working-capital movement. Investing cash flow was a $31.9 million outflow, including vessel additions and investment purchases; financing cash flow was a $173.6 million outflow.
- Two preference-unit offerings raised net proceeds of $111.2 million for Series B and $96.3 million for Series C. Common-unit issuance through the ATM program generated $60.0 million net in 2018.
- In November 2018, GasLog’s incentive distribution rights above specified distribution thresholds were reduced from 48% to 23%, and GasLog waived IDR payments attributable to third-party acquisitions. The Partnership paid GasLog $25.0 million for the modification.
- No vessel impairment was recorded. However, six vessels had carrying values above estimated charter-free market values, by $254.9 million in aggregate; management’s discounted cash-flow estimates supported their carrying amounts. Its sensitivity analysis indicated a potential $19.4 million impairment for the Steam vessels under a specified lower charter-rate assumption.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective. No material debt default, preference distribution arrears or material pending legal proceedings were reported.
Outlook, commentary and principal risks
Management described LNG shipping demand and supply as potentially supportive over the next two to three years, but cautioned that spot rates could weaken and forecasts are uncertain. As of the filing, six vessels were scheduled to come off charter during 2019–2020, including five older Steam vessels. A one-year charter at a lower rate than the current charters had been secured for either the Methane Jane Elizabeth or the Methane Alison Victoria, at the Partnership’s choice. Management was pursuing new multi-year charters; vessels without employment could face volatile spot markets.
- Charter and customer concentration: Shell subsidiaries generated 92% of 2018 revenue. Charter expirations, early termination or counterparty non-performance could reduce cash flow; six vessels face near-term charter transitions.
- Debt and refinancing: High leverage, the 2019 maturity, floating-rate exposure, covenant requirements and dependence on vessel values create refinancing and liquidity risks. All vessels secure debt. The $450 million refinancing facility is subject to its terms and conditions.
- Market exposure: LNG carrier oversupply, weaker charter rates, delays or cancellations of LNG projects, energy-price volatility and lower vessel values could impair earnings, distributions and covenant headroom.
- Operations and capital needs: Dry-docking, off-hire, repairs, crew availability, regulatory changes, environmental liabilities, cybersecurity incidents and uninsured losses could raise costs or reduce vessel availability. Two vessels were scheduled for dry-docking in 2019 and four in 2020.
- Sponsor and governance: The Partnership relies on GasLog for management, commercial and administrative services and much of its growth pipeline. GasLog controls the general partner and has related-party arrangements; its interests may differ from those of public unitholders.
- Distributions: The board may set reserves or change distributions, and debt agreements can restrict payments. Preference-unit distributions rank ahead of common distributions; the preferred units are perpetual and their rates later float by reference to LIBOR, whose continuation was uncertain after 2021.
Most important facts for investors to verify
- Progress, conditions and actual borrowing under the February 2019 refinancing facility, and repayment of the $360 million November 2019 maturity.
- Rechartering, employment and achieved rates for vessels rolling off charter in 2019–2020, especially the Steam vessels and the one-year replacement charter.
- Whether the 92% Shell revenue concentration changes, and the credit and performance of other charterers.
- Cash generation after debt service, preference distributions, dry-docking and replacement-capital requirements; assess DCF alongside IFRS cash flow, not as a substitute.
- Debt covenant headroom, interest-rate and currency exposures, and vessel-value assumptions underlying impairment and collateral tests.
- Costs and terms of GasLog-related services, effects of the $25 million IDR modification, and potential dilution from equity issuance.